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Great Eastern Shipping Company Ltd.

BSE: 500620 Sector: Infrastructure
NSE: GESHIP ISIN Code: INE017A01032
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OPEN 309.00
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VOLUME 10644
52-Week high 353.00
52-Week low 212.20
P/E 55.00
Mkt Cap.(Rs cr) 4,644
Buy Price 306.60
Buy Qty 199.00
Sell Price 308.00
Sell Qty 231.00
OPEN 309.00
CLOSE 303.95
VOLUME 10644
52-Week high 353.00
52-Week low 212.20
P/E 55.00
Mkt Cap.(Rs cr) 4,644
Buy Price 306.60
Buy Qty 199.00
Sell Price 308.00
Sell Qty 231.00

Great Eastern Shipping Company Ltd. (GESHIP) - Director Report

Company director report

Your Directors are pleased to present the 71st Annual Report on the businessoperations and the Financial Statements of your Company for the financial yearended March312019.

FINANCIAL PERFORMANCE

The financial results ofthe Company (standalone) forthe financial year ended March312019 are presented below :

(र. in crores)
2018-19 2017-18
Total Revenue 2913.41 2193.29
Total Expenses 2919.88 2026.10
Profit / (Loss) before tax (6.47) 167.19
Less : Tax Expenses 13.00 7.00
Profit / (Loss) for the period (19.47) 160.19
Retained Earnings
Balance at the beginning of the year 1412.37 1405.71
Add :
- Profit for the year - 160.19
- Other Comprehensive Income - 3.42
Less :
- Loss for the year 19.47 -
- Change in accounting policy (Ind AS115) 6.54 -
- Other Comprehensive Income 2.08 -
- Transfer to Tonnage Tax Reserve 4.00 15.00
- Transfer to Debenture Redemption Reserve 6.25 28.75
- Final Dividend on Equity Shares (FY 2017-18) 108.56 98.01
- Dividend Distribution Tax 17.52 15.19
Balance at the end of the year 1247.95 1412.37

The net worth ofthe Company as on March 31 2019 was र. 5065.72 crores as comparedto र. 5225.42 crores for the previous year.

The financial statements have been prepared in accordance with the Indian AccountingStandards (IndAS) notified under the Companies (Indian Accounting Standards) Rules 2015.

Shipping markets continued to be weak in the financial year ended March 312019 and theCompany's profit was affected to that extent. However the Company declared a loss for theyear on account of the impact of the depriciation of the Indian Rupee vis-a-vis the USDollar. Under the new accounting standards this has to be reflected in the Profit andLoss Account for the year. Considering the nature of the results the undistributedprofits accumulated over the years and the cash reserves of the Company the Board ofDirectors decided to recommend a dividend of र. 5.40 per share. This will result inan outflow of र. 93.36 crores (inclusive of taxon dividend). The dividend will bepaid after your approval at the ensuing Annual General Meeting.

MANAGEMENT DISCUSSION AND ANALYSIS

COMPANY PERFORMANCE

In Financial Year 2018-19 (FY 19) the Company recorded a total income of र.2913.41 crores (Previous year र. 2193.29 crores) and earned a PBIDT of र. 864.62crores (previous year र. 986.88 crores).

MARKET ANALYSIS

CRUDE TANKER MARKET

Crude tanker freight rates improved significantly in FY19 over FY18dueto rally inearnings during H2 FY 19. Some of the factors that are believed to have contributed tothis improvement in rates are :

• Increased production from OPEC and partial waiver of US sanctions on Iran

• Significant congestion in Turkish straits

• Increased US exports to Asia aiding ton-mile growth

• Relatively lower fleet growth led by higher demolition.

However freight rates moved lower towards the end of the financial year due to :

• Production cut by OPEC and its non-OPEC allies

• Heavy refinery turnarounds in preparation of IMO 2020

• Higher fleet growth led by significant NB deliveries lower demolition andsignificant switching of LR2s into crude trade.

The table below captures the spot earnings of the Suezmax and the Aframax type of shipsover the financial year (in S/day).

FY 19 FY 18 YOY CHANGE
Suezmax 20231 12226 65%
Aframax 19532 11735 66%

PRODUCT TANKER MARKET

MR earnings averages were almost unchanged year-on-year while earnings for LRs improvedmaterially over last year.

To begin with earnings were extremelyweak during HI FY19 owing to the followingreasons :

• Overall core refined products demand was quite low as compared to last FY due toweaker gasoline and naphtha demand

• Diesel demand growth in exporting countries curbed available cargoes for exports

• Material drawdown in European middle distillate inventories

• NB VLCC and Suezmaxes carried clean products on their maiden voyage taking awaytrade from the LRs.

However earnings picked up in H2FY19 due to following factors :

• Increased imports into Nigeria due to general elections in the country

• Increased Gasoline imports into US due to refinery maintenance and closure ofHouston ship channel

• Higher middle distillate exports from Middle East and Asia into Europe

• Significant LR2 switching into crude trade.

Overall nominal fleet growth moderated to 2.5% from 3.5% a year ago and around 6% inFY 17.

The table below captures the spot earnings of the LR and MR type of ships over thefinancial year (in S/day).

FY 19 FY 18 YOY CHANGE
MR - Avg. Earnings 9721 9888 -2%
LR1 MEG-Asia 10414 7875 32%

ORDERBOOK AND OUTLOOK

IMO 2020 could be the biggest regulatory disruption shipping industry has witnessed inmultiple decades. Ships burning high sulphur fuel at sea near coast and within port causenegative impact on human health.The IMO seeks to therefore lower the sulphur content inmarine oil from currently permitted 3.50% m/m to 0.50% m/m with effect from January 2020.As ships are likely to go off-hire for scrubber installations in order to prepare for IMO2020 fleet supply across sectors could be curtailed especially in H2 FY 20. Crude tankerorder-book has come down over the last few years and is now at 11% of the fleet and theproducts tanker order-book to fleet is at historically low levels of 7.5%. In the shortterm the17 Company expects higher refinery turnarounds as refiners prepare for IMO 2020capping tanker market earnings. However runs should increase in H2 FY 20 if not earlierto meet higher MGO bunker demand in 2020. Lower inventory levels should further increasearbitrage opportunities. Overall

IMO 2020 is widely expected to be quite positive for both crude and products tankermarkets.

LPG CARRIER MARKET

While VLGC earnings continued to remain well below long term average levels in absoluteterms earnings improved in FY 19 with benchmark earnings increasing about 25%year-on-year. This welcome development was after miserable freight markets in both FY 18and FY 17. The following reasons can be ascribed to the freight uptick :

• The supply overhang of the heavy ship ordering during 2014 - 2016 finallymoderated with the VLGC fleet growing only 3 % during FY 19. This was after growth ratesof 10% and 27% during FY 18 and FY 17 respectively

• US shale production continued to grow on the back of improving margins resultingin increased LPG exportable surplus. US LPG exports to both Europe and Asia increasedduring FY 19 as trade arbitrage improved. The arbitrage opportunity was so prevalent andwidely open that even India which is a natural market for Middle Eastern exports boughta couple of cargoes from the US

• Along with the traditional LPG consumption powerhouses (China and India) inAsia new demand centres like Indonesia emerged in South East Asia contributing to tonmile growth from US.

The table below captures the spot earnings of VLGC type of ships over the financialyear (in S/day).

FY 19 FY 18 YOY CHANGE
VLGC 17963 14366 25%

ORDERBOOK AND OUTLOOK

The VLGC orderbook stands at 14%. LPG production growth in the US is expected tocontinue because of increased shale oil and gas drilling. With the US domestic LPGconsumption expected to remain flat the Company expects high LPG inventory levels in USleading to more exportable surplus. Moreover expansion of on-shore infrastructureincluding increased pipeline and terminal capacity will enable US to distribute more LPGto its export facilities. Therefore the Company expects the LPG freight markets toimprove/stay strong over the next six to twelve months.

DRY BULK CARRIER MARKET

The dry bulk market started off the year on a strong footing but after the initialearnings strength that the Company saw in HI FY 19 freight market lost momentum and theearnings languished even in the traditionally strong third guarter. In fact Q4 FY 19experienced a dramatic fall across vessel categories particularly the Capesize market.Overall earnings in FY 19 averaged almost flat as compared to FY 18.

The below factors impacted the market :

• Macro sentiment aided by a raft of Chinese govt measures initiated in FY 18supported earnings during HI FY 19. However sentiment weakened towards the end of theyear as global PMIs fell to 3-year lows.

• Initially Capesize freight rates were supported by strong global steelproduction demand for high grade Brazilian ore and strong bauxite exports before themarket took a turn in H2 owning to supply disruptions. Supply was impacted to the extentof 93mt in Vale and approx. 20-22 mt in Australia. This coincided with weak demand in bothChina and rest of the world. Even in HI the Cape freight market was generally capped bythe higher usage of scrap in Chinese steel mills.

• Sub-Cape (Kamsarmax and Supramax) demand was supported by strong coal imports byChina India and Southeast Asia as well as the robust Latin American grain season.However as we approached the end of the year impact of US-China trade war was felt withvirtually zero soybean exported to China from US. Sub-cape tonnage demand was furthernegatively impacted by the Chinese coal import ban in Nov-Dec 2018 as well asrestrictions on Australian coal cargoes.

• Fleet growth was strong during the year with minimal scrapping (2.7% vis-a-vis2.1% in FY 18).

The table below shows the spot earnings ofthe various categories of dry bulk ships overFY 19 (in S/day).

FY 19 FY18 YOY CHANGE
Capesize 15464 15600 -1%
Panamax 10514 10596 -1%
Supramax 10781 10017 8%

ORDERBOOK AND OUTLOOK

• The dry bulkorder-book stands at~ll% low by historical standards.

• Over the next 12 months trade growth is expected to remain softer than lastyear owing to lost iron ore volumes and subdued coal demand. IMO disruptions and enhancedscrapping could curtail otherwise higher fleet growth. Overall the Company remainscautious on the dry bulk freight market for next 6/12 months. Even though the Companyexpects earnings to stay mostly rangebound as compared to last year there are materialdownside risks to this scenario.

FLEET SIZE AND CHANGE DURING THE FINANCIAL YEAR

As of 31st March 2019 the fleet of your Company stood at 48 ships aggregating 3.90 Mndwt with an average age of 11.34 years. During the financial year your Company tookdelivery of 2 Very Large Gas Carriers and 1 Medium Gas Carrier aggregating 0.15 Mn dwt.The Company also sold 1 Kamsarmax and 1 Supramax dry bulk carrier both delivered tobuyers in the financial year and 1 Very Large Gas Carrier (VLGC) for delivery infinancial year 2019-20.

MOVEMENT OF ASSET VALUES

Despite a weak freight market at the end of the period the asset values for crudetankers moved upby10% to 20% whereas values for the product tankers declined marginallyoverall.

On the back of a weak dry bulk freight market asset values fell by 5% to 20% dependingon the age and size category of the vessel.

During the period asset values in the LPG segment have moved upward by 5-10% dependingon the vintage and type.

Over the next 12 months the Company believes that asset values could stabilize forcrude tankers and may increase for product LPG and dry bulk vessels.

KEY FINANCIAL RATIOS

Conventional return ratios are not appropriate to assess the performance or conditionof the Company for the following reasons :

a) A very significant part of the return in shipping comes from the appreciation in thevalue of the asset itself. This does not enter the Profit and Loss account except at thetime of sale.

b) In recent years due to the change in accounting standards the Company's profitshave been affected very significantly by the movement in exchange rates. This hasgenerally had the effect of increasing the Company's profits when the rupee appreciatesagainst the US Dollar and of reducing its profits when the rupee depreciates against theUS Dollar.

Considering the cyclical and highly volatile nature of the shipping industry theability to survive weak markets and if possible even take advantage of them is criticalto success. The Company therefore believes that the following are the key financial ratiosapplicable to its business :

Gross and Net Debt eguity Ratio - This shows the extent of leverage takenby the business both at a gross level and net of the cash and eguivalents held. Netdebteguity is a standard ratio used in assessing a shipping company's credit-worthiness.There has been no significant change in these ratios overthe course of FY 19.

FY 19 FY 18
Gross 0.81 0.81
Net 0.36 0.30

Cash Debt Service Coverage Ratio - This represents the Company's abilityto meet its debt servicing obligations. It is the sum of the PBIDT plus the cash andequivalents held by the Company divided by the expected debt service payments over thenext twelve months. This ratio stood at 2.53 as of end FY 19 versus 3.52 at the end ofthe previous financial year. The reduction in the ratio is due to (i) lower PBIDT (ii)lower balance of cash and equivalents and (iii) the high level of debt repayments due inFY20.

Net Debt: PBIDT - This shows the number of years earnings it would taketo cover the repayment of the debt which is not covered by the cash and equivalents. Theratio was 2.12 as of end FY 19 versus 1.59 as at the end of the previous financial year.The change was due to both the increase in net debt and the lower PBIDT for the year.

Return on Net Worth was -0.38% for FY 19 and 3.08%forFY 18.

A large part of the worsening of the profitability vis-a-vis the previous financialyear is explained by the movement in exchange rate and mark-to- market gain or loss onderivatives. In FY 2017-18 the net impact of these was a positive effect of र. 206crores in the net result while in FY 2018-19 the net impact was a negative effect ofर. 86 crores in the net result. This more than explains the change in the return onnet worth. Overall revenues in shipping markets were higher than in the previous yearhelping to improve the business results. Changes in the shipping markets have beenexplained hereinabove.

RISKS AND CONCERNS

Your Company has carried out a detailed exercise to identify the various risks faced bythe Company and has put in place mitigation control and monitoring plans for each of therisks. Risk owners have been identified for each risk and these risk owners areresponsible for controlling the respective risks. The efficacy of these processes ismonitored on a regular basis by Risk Committees for the different areas in order to makecontinuous improvement and is further reviewed by the Risk Management Committee consistingof the three Whole-time Directors and the Compliance Officer.

The material risks and challenges faced by the Company are as follows :

ECONOMIC RISK :

Shipping is a global business whose performance is closely linked to the state of theglobal economy. Therefore if global economic growth is adversely impacted it could havean unfavourable effect on the state of the shipping market.

GEO-POLITICAL RISK :

OPEC nations control more than one third of the world oil supply. Therefore theirdecision on whether to comply with (or extend) crude production targets can have amaterial impact on the crude product and LPG freight markets.

Many politically volatile countries such as Libya Nigeria and Venezuela producesignificant amounts of crude oil. Any change in the political situation in these countriesmay alter the supply-demand scenario. This will have a consequential impact on the tankermarket.

Issues such as sanctions and wars may also affect shipping markets.

TRADE BARRIERS :

The recent trade dispute between the US and China may turn into a trade war. The mannerin which it develops could have a major impact on trade volumes and routes.

CHINESE ECONOMY :

China has been a major driver of global growth especially for commodities. If theeconomy falters or changes its policy towards import of various goods the conseguentialdamage to shipping will be significant.

CHALLENGES FACED BY THE SHIPPING BUSINESS

EARNINGS VOLATILITY :

The shipping industry is a truly global business with a host of issues potentiallyimpacting the supply demand balance of the industry. This results in tremendous volatilityin freight earnings and asset values.

Your Company attempts to manage that risk in various ways. If the Company believes thatthe freight market could weaken it may enter into time charter contracts ranging from 6months to 3 years. Another method of managing risk is by adjusting the mix of assets inthe fleet through sale or purchase of ships. The Company also ensures that assets arebought at cheap prices as capital cost is a major cost component. The Company hopes toweather the depressed markets better than most players in the business by having among thelowest fleet break-evens. The Company operates ships in different asset classes anddifferent markets. This ensures that the Company's fortunes are not fully dependent upon asingle market.

LIQUIDITY RISK :

The sale and purchase market and time charter markets are not always liquid. Thereforethere could be times when the Company is not able to position the portfolio in the idealmanner.

FINANCE RISK :

The Company's business is predominantly USD denominated as freight rates are determinedin USD and so are ship values. The Company has its liabilities also denominated in USD.Any significant movement in currency or interest rates could meaningfully impact thefinancials of the Company.

SHIPBOARD PERSONNEL :

Indian officers continue to be in great demand all over the world. Given theunfavorable taxes on a seafarer sailing on an Indian flagged vessel it is becomingincreasingly difficult to source officers capable of meeting the modern day challenges ofworldwide trading.

CYBER RISK :

A new and worrying threat to our business is cyber risk. The Company is taking steps tosecure its assets and systems from this threat including by having suitable protection inplace and by constant training to employees on how to avoid such issues.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has instituted internal financial control systems which are adeguate forthe nature of its business and the size of its operations. The policies and proceduresadopted by the Company ensure the orderly and efficient conduct of its business includingadherence to Company's policies safeguarding of its assets prevention and detection offrauds and errors accuracy and completeness of the accounting records and timelypreparation of reliable financial information.

The systems have been well documented and communicated. The systems are tested andaudited from time to time by the Company and internal as well as statutory auditors toensure that the systems are reinforced on an ongoing basis. Significant audit observationsand follow up actions thereon are reported to the Audit Committee.

No reportable material weakness or significant deficiencies in the design or operationof internal financial controls were observed during the year.

The internal audit is carried out by a firm of external Chartered Accountants (Ernst& Young LLP) and covers all departments. During the year the Company has set up anindependent Internal Audit Department. Apart from facilitating the internal audit by Ernst& Young LLP the Internal Audit Department also conducts internal audit as per thescope to be decided from time to time.

Both Ernst & Young LLP and Head (Internal Audit) report to the Audit Committee intheir capacity of internal auditors of the Company.

In the beginning of the year the scope of the internal audit exercise including thekey business processes and selected risk areas to be audited are finalised in consultationwith the Audit Committee. All significant audit observations and follow up actions thereonare reported to the Audit Committee.

The Audit Committee comprises of Mr. Cyrus Guzder (Chairman) Mr. Berjis Desai Mr.Farrokh Kavarana and Mrs. Rita Bhagwati all of whom are Independent Directors on Board ofthe Company.

CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated Financial Statements have been prepared by your Company in accordancewith Ind ASs notified under the Companies (Indian Accounting Standards) Rules 2015. Theaudited Consolidated Financial Statements together with Auditors' Report thereon form partof the Annual Report.

The group recorded a consolidated net loss of र. 21.45 crores for the yearunder review as compared to net loss of र. 210.49 crores forthe previous year. Thenet worth ofthe group as on March 31 2019 was र. 6809.67 crores as compared toर. 6927.73 crores for the previous year.

SUBSIDIARIES

The statement containing the salient features of the financial statements oftheCompany's subsidiaries for the year ended March 312019 has been attached along with thefinancial statements of the Company. The report on performance of the subsidiaries is asfollows :

GREATSHIP (INDIA) LIMITED MUMBAI

Greatship (India) Limited (GIL) wholly owned subsidiary of your Company and one ofIndia's largest offshore oilfield services providers has completed another challengingyear of operations. In FY 19 GIL has recorded a total income of र. 979.20 crores(previous yearर. 1056.35 crores) on a standalone basis and '956.02 crores (previousyear'995.67 crores) on a consolidated basis. GIL earned a profit before interestdepreciation (including impairment) & tax of र. 544.61 crores (previousyearर. 602.45 crores) and र. 500.46 crores (previous yearर. 541.88crores)on a standalone and consolidated basis respectively.

GIL alongwith its subsidiaries currently owns and operates nineteen vessels and fourjack up drilling rigs. The operating fleet of nineteen vessels comprises of four PlatformSupply Vessels (PSVs) eight Anchor Handling Tug cum Supply Vessels (AHTSVs) twoMultipurpose Platform Supply & Support Vessels (MPSSVs) and five ROV Support Vessels(ROVSVs).

GROUP RESTRUCTURING

As a part of the group restructuring exercise GIL had acguired full ownership of itsSingapore subsidiary Greatship Global Energy Services Pte. Ltd. (GGES) in March 2017 andalso acguired four jack-up rigs along with its Plant Machinery & Eguipments/OwnerFurnished Eguipments (the 'Rigs') from GGES in June 2017. At the time of acquisition ofthe Rigs GIL had taken over the outstanding bank borrowings of GGES and the balanceconsideration of upto USD 131.36 Mn was kept outstanding in accordance with the terms ofthe Memorandum of Agreement (as amended from time to time).

As mentioned above in March 2019 GGES reduced its share capital by about USD 163.96Mn and returned the capital proceeds to GIL. GIL utilized part of these proceeds to paythe afore-mentioned balance consideration along with applicable interest to GGES towardsthe purchase of Rigs. With this the group restructuring exercise has been completed.

Further during the year under review National Company Law Tribunal Mumbai Benchsanctioned the Scheme of Amalgamation of Greatship Global Holdings Limited (GGHL) with GILvide its order issued on July 24 2018. GGHL was removed from the Register of CompaniesMauritius on August 28 2018. All other necessary formalities with respect to the Schemeof Amalgamation were completed and the Scheme became operative from September 12018 withthe Appointed Date under the Scheme being April 1 2017. Conseguent to the mergerGreatship Global Offshore Services Pte. Ltd. (erstwhilewholly owned subsidiaryofGGHL)becamethedirectwholly owned subsidiary of GIL.

GIL has following wholly owned subsidiaries :

a) Greatship Global Energy Services Pte. Ltd. Singapore (GGES)

GGES has earned a profit of USD 8.50 Mn for the current financial year as against aprofit of USD 8.54 Mn in the previous year. The profit in the current year wasattributable to the interest received on the balance consideration paid by GIL in relationto the sale of rigs.

b) Greatship Global Offshore Services Pte. Ltd. Singapore (GGOS)

During the year GGOS sold one 2009 built Anchor Handling Tug Cum Supply Vessel -'Greatship Aditi' to GIL on February 15 2019 and also entered into a Memorandum ofAgreement with GIL on February 12 2019 for purchase of one 2010 built R-Class SupplyVessel 'Greatship Ramya'. Subseguent to the end of the year GGOS completed the purchaseof'Greatship Ramya' from GIL on April 08 2019.

In addition GGOS owns and operates two Multipurpose Platform Supply and SupportVessels. GGOS after accounting for an impairment of USD 1.35 Mn in asset values incurreda loss of USD 0.70 Mn for the current financial year as against a loss of USD 20.14 Mn inthe previous year after accounting for an impairment of USD 15.62 Mn in asset values.

c) Greatship (UK) Limited United Kingdom (GUK)

GUK's profit for the current financial year amounted to USD 1.92 Mn as against a lossof USD 0.02Mn in the previous year. The profit in the current financial year was mainly onaccount of reversal of provisions.

d) Greatship Oilfield Services Limited. India (GOSL)

During the year under review GOSL has been exploring possible business opportunitiesand has incurred certain expenses resulting into losses of र. 0.01 crores for thecurrent financial year (Previous Year:र. 0.04 crores).

THE GREATSHIP (SINGAPORE) PTE. LTD. SINGAPORE

The Greatship (Singapore) Pte. Ltd. is a wholly owned subsidiary of your Company. TheGreatship (Singapore) Pte. Ltd. does shipping agency business for the ships owned by yourCompany. During the year ended March 312019 there were 114 ship calls at Singapore. Thecompany's profit after tax for the curr ent financial year amounted to SS 0.25 Mn as against the profit ofSS0.15Mn in the previous year.

THE GREAT EASTERN CHARTERING LLC (FZC) U.A.E.

The Great Eastern Chartering LLC (FZC) is a wholly owned subsidiary of your Company.During the year ended March 31 2019 the company made a profit of USD 0.72 Mn (previousyear profit of USD 0.22 Mn). The company deposited an amount of USD 10650000 with DNBLuxembourg S. A. for investment in shares of a few listed International shippingcompanies. As on March 312019 the fair value of the shares was USD 8528780 and thebalance amount with DNB was USD 3604 98.

The company also decided to take advantage of opportunities presented by the newsulphur regulation (IMO 2020) by selling the spread between HSFO and MGO of 9000 MTinCal. 2021 and 12000 MTinCal. 2022.

THE GREAT EASTERN CHARTERING (SINGAPORE) PTE LTD. SINGAPORE

The Great Eastern Chartering (Singapore) Pte. Ltd. is a wholly owned subsidiary of TheGreat Eastern Chartering LLC (FZC) UAE. During the financial year ended March 31 2019the company made a loss of USD O.OIMn (previous year loss of USD 0.01 Mn) attributed toadmin expenses. There was no trading activity in the company during the year since thefreight market faced an unexpected decline towards the latter part of the year.

GREAT EASTERN CSR FOUNDATION INDIA

Great Eastern CSR Foundation (Foundation) is a wholly owned subsidiary of your Companywhich handles the CSR activities of your Company and its subsidiaries. The Foundationreceived a total contribution of र. 10.23 crores from the Company and Greatship(India) Limited during the year ended March 312019. The Foundation spent र. 11.15crores on CSR activities during the year.

Details of CSR activities carried out by Great Eastern CSR Foundation are set out inthe reports on CSR activities which form part of this Annual Report.

DEBT FUND RAISING

During the year the Company issued 3000 Non-convertible Debentures of र.1000000 each aggregating to र. 300 crore with the object of funding the capitalexpenditure requirements of the Company and general corporate purposes. Details ofutilisation of the same are provided in the Corporate Governance Report.

The Company redeemed Non-convertible Debentures aggregating to र. 275 crore duringthe year.

During the year fresh debt of र. 191.16 crores (other than debentures) wasraised. The gross debt: equity ratio as on March 31 2019 was 0.81:1 (0.94:1 includingeffect of currency swaps on rupee debt) and the debt: equity ratio net of cash and casheguivalents was 0.36:1 (0.49:1 including effect of currency swaps).

QUALITY SAFETY HEALTH & ENVIRONMENT

High levels of safety continue to be maintained on board Company's fleet. Enhancedsafety is achieved by continuous training of ship's personnel at all levels and at everyopportunity. Safety continues to have paramount place in the operation of all vessels ofthe fleet. Lost Time Injury (LTI) has reduced to 2.29 per million exposure hours (from3.19 in the corresponding period the previous year) while Total Recordable Case Freguencyreduced to 4.07 per million exposure hours (from 4.73 in the corresponding period theprevious year).

During the year the Company has completed transition and certification to 2015reguirements of ISO 900014000 and 45000 by DNVGL Maritime. The certification nowencompasses the office premises and the fleet. As a preparation to transit to the newreguirements of ISM code that would come into effect from 2021 the Company has alsocommenced surveys of the fleet to meet Cyber Security class notation by Indian Register ofShipping.

The Company's fleet performed very well during Port State Control Inspections (PSCI)during calls at foreign ports with 73% (38 out of 52) inspections having Nil deficiency.The figure included 4 out of 4 Nil deficiency in AMSA (Australia) 4 out of 6 Nildeficiency in USCG (USA) and 5 out of 8 Nil deficiency in Paris MOU (European)inspections.

TRAINING AND ASSESSMENT

To achieve the Company's vision of creating a pool of competent well trained andconfident seafarers for the fleet vessels Training & Assessment Department hascontinued to manage and conduct mandatory and non-mandatory value-added training for theseafarers. All the shore-based training on-board training and computer-based traininghave been happening in an orderly manner.

The Department has been involved in competency assessments of the floating staff atevery rank. Clearing these competency assessments is a mandatory requirement of theCompany for recruitment and promotions of the seafarers.

During the year few courses which were happening at outside institutes earlier arenow being conducted in-house. Based on the need and feedback from various stakeholdersthe Department developed and implemented some new courses for the seafarers.

The management of entire training tracking of the training need identification andmonitoring of effectiveness of training is being done through in-house developed Trainingand Assessment portal of the Department.

IT INITIATIVES

In this financial year IT has focused on the following major initiatives :

DIGITALIZATION COLLABORATION & PROCESS IMPROVEMENT

The rise of mobile technology and cloud computing has transformed the way we workmaking collaboration not only easier but also essential for the success of everyorganization. Understanding the technology need your Company has partnered with Microsoftand implemented Office 365 collaboration tool.

Process improvement is the key focus in all the technology solutions bringingefficiency accuracy and scalability of operations.

CYBERSECURITY

Today's shift towards increasing interconnectedness at sea is continuing to enablesignificant efficiency gains and new capabilities for maritime operations. Running inparallel to this trend is an increase in vulnerability to cyber threats within themaritime industry. The Company has invested in the best of technology and introducing newpolicies and procedures to keep the ships safe and secured from the latest threats likeransomware hacking etc. which has disrupted companies globally in smooth running oftheir business.

Your Company also runs a regular cybersecurity awareness program for all employees andseafarers. The Company has also ensured that cadets at the Great Eastern Institute ofMaritime Studies Lonavala are also trained on the emerging cyber threats so that theyare prepared when they join ships.

Taking the above two key areas forward the Company is focusing on following newinitiatives and 'Smart Ships' and 'Connected Ships' which would lead to Safety Securityand improve Operational efficiency :

• Adoption of various Ship Management systems on Vessels.

• Aspire to get the ISO 27001/32 assessment done and certified for all Vessels.

• In today's business world sensor-based data is only one of the many types ofdata used to support decisions. The Company is exploring the same to bring efficiency inthe whole system. Timely decision based on the near real-time data can help the Company incost saving and improve the business over the competition.

• Wireless and Paperless Initiative.

Your Company is also building a robust Business Continuity Process (BCP) for theorganization to ensure business as usual during crisis.

HUMAN RESOURCES

The focused attention given to improve fleet personnel processes have yielded positiveresults especially in reducing delays for sign offs and improving availability of seniorofficers. The Company has initiated a program to build dedicated ship staff cadre for theorganization.

The Coffman employee engagement score for shore employees conducted during the year was3.66 ona5 point scale.

The Company has invested in development of employees through training programs likerisk management incident investigation team building financial management and aworkshop on psychological triggers to enhance personal effectiveness. A 360-degreefeedback process has been initiated for senior management group.

Shore staff attrition stood at a healthy 4 % during the fiscal year.

Total number of permanent shore staff and ship board personnel was 210 and 1090respectively.

GREAT EASTERN INSTITUTE OF MARITIME STUDIES (GEIMS)

The Great Eastern Institute of Maritime Studies Lonavala has trained 3782 cadets sinceits inception.The Academy now provides training in all streams of shipboard operations i.eNautical Marine Engineering Electrical Engineering and General Purpose Rating. It hasalso trained 1706 officers in various post sea courses since its inception.

During the year a full function Bridge Navigation simulator was installed andcommissioned at the Institute to impart training to cadets & nautical officersundergoing pre- sea and post sea training at the Institute. An advanced Electrical andElectronic Lab was also commissioned at the Institute to impart practical training to theElectrical Engineers.

In order to conduct the pre sea and post sea courses simultaneously 2 additional classrooms were constructed and existing faculty housing was modified to house at least 20officers undergoing post sea training at the campus. Additional recreational facilitieswere provided including a full- fledged gymnasium for the cadets' all round growth.

In the Institute's guest to create a green and sustainable campus the Institute hasplaced order for a 300 KW solar power system. The work of installation will commenceshortly. The system once commissioned with net metering will offer substantial savingson the Institute's electricity consumption.

The Institute has been continuously rated Outstanding (A1) during ComprehensiveInspection Programme (CIP) of Director General of Shipping. The Institute with a score of98.4% of CIP is today rated as one of the best Maritime Training Institutes in thecountry. This fact has been acknowledged even by International Maritime community as theAngolan Shipping Company Sonangol sent its second batch of 6 Electrical officers fortraining at the Institute.

During the year the cadets have won many awards and accolades at various technicalfests and seminars where they under the guidance of the faculty presented varioustechnical papers.

CORPORATE SOCIAL RESPONSIBILITY

The Company has always been conscious of its role as a good corporate citizen andstrives to fulfill this role by running its business with utmost care for the environmentand all the stakeholders. The Company looks at Corporate Social Responsibility (CSR)activities as significant tool to contribute to the society.

The Board of Directors of the Company has constituted a Committee of Directors knownas the Corporate Social Responsibility Committee comprising of Mr. Vineet Nayyar(Chairman) Mr. Cyrus Guzder and Mr. Bharat K. Sheth to steer its CSR activities.

Copy of the Corporate Social Responsibility Policy of the Company as recommended by theCSR Committee and approved by the Board is enclosed as Annexure A. The CSR Policy is alsoavailable on the website of the Company : www.greatship.com .

The CSR Policy is implemented by the Company through Great Eastern CSR Foundation awholly owned subsidiary of the Company specifically set up for the purpose.

The Annual Report on CSR activities is enclosed herewith as "Annexure B".

DIRECTORS

Mr. Tapas Icot was re-appointed as 'Executive Director' of the Company for a period of3 years with effect from November 02 2018. Mr. Tapas Icot shall retire by rotation at theensuing Annual General Meeting and being eligible offers himself for re-appointment.

The Board has at its meeting held on May 06 2019 appointed Mr. Raju Shukla and Mr.Ranjit Pandit as Additional and Independent Directors of the Companywith effect from June01 2019 for a term of 5 years. Mr. Raju Shukla and Mr. Ranjit Pandit bring with themyears of rich experience and knowledge which will be of immense benefit to your Company.Mr. Raju Shukla has a Post Graduate Diploma in Management from the prestigious IndianInstitute of Management Ahmedabad and Bachelor of Engineering degree from VisvesvarayaRegional College of Engineering Nagpur India. Mr. Ranjit Pandit holds an M.B.A. degreefrom the Wharton School at the University of Pennsylvania and a B.E. degree in ElectricalEngineering from VJTI University of Mumbai.

The new Directors Mr. Raju Shukla and Mr. Ranjit Pandit being Additional Directorscease to be the Directors of the Company on the date of the ensuing Annual GeneralMeeting.

The first 5 year term of office of Mr. Cyrus Guzder Mr. Berjis Desai and Mr. VineetNayyar as Independent Directors will expire on 24th September 2019. The Board has at itsmeeting held on May 06 2019 recommended the re-appointment of Mr. Cyrus Guzder and Mr.Vineet Nayyar as Independent Directors for second term of 3 years w.e.f. 25th September2019. The Board also recommended the appointment of Mr. Berjis Desai as a Non-IndependentNon-Executive Director (liable to retire by rotation) w.e.f 25th September 2019.

Necessary resolutions for appointment/ re-appointment of Mr. Raju Shukla Mr. RanjitPandit Mr. Cyrus Guzder Mr. Vineet Nayyar Mr. Berjis Desai and Mr. Tapas Icot have beenincluded in the Notice convening the ensuing Annual General Meeting. Notices under Section160 of the Companies Act 2013 have been received in respect of their appointment asDirectors on the Board.

As per the provisions of the Companies Act 2013 Independent Directors shall not beliable to retire by rotation. The Independent Directors of your Company have given thecertificate of independence to your Company stating that they meet the criteria ofindependence as mentioned under Section 149(6) of the Companies Act 2013 and underRegulation 16(1)(b) of SEBI (Listing Obligations and Disclosure Reguirements) Regulations2015.

The policies on Director's appointment and remuneration including criteria fordetermining qualifications positive attributes independence of Directors and alsoremuneration for key managerial personnel and other employees are enclosed herewith asAnnexure 'C' and 'D'.

During the year Mr. Bharat K. Sheth who is also a Non-Executive Chairman of Greatship(India) Ltd. (GIL) a wholly owned subsidary of the Company was in receipt of commissionof र. 10800000 from GIL.

The details of remuneration as reguired to be disclosed pursuant to the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 are enclosed asAnnexure 'E'.

BOARD MEETINGS

During the year 5 meetings of the Board were held. The details of Board meetings aswell as Committee meetings are provided in the Corporate Governance Report.

BOARD EVALUATION

Annual performance evaluation of Board its committees (namely Audit Nomination &Remuneration Corporate Social Responsibility and Stakeholders' Relationship Committees)and all the Directors individually has been done in accordance with the PerformanceEvaluation Framework adopted by the Nomination & Remuneration Committee of theCompany which is in line with the Guidance Note on Board Evaluation issued by SEBI videits circular dated January 05 2017. The Performance Evaluation Framework sets out theperformance parameters as well as the process for performance evaluation to be followed.

In accordance with the Performance Evaluation Framework all the Directors recordedtheir evaluation of the Board its Committees and Nonexecutive Directors of the Company.The performance evaluation of the Company and Executive Directors was done on the basis ofpresentation made by the management.

Pursuant to the provisions of the Companies Act 2013 a separate meeting ofIndependent Directors reviewed performance of the Company Board as a whole andNon-Independent Directors (including Chairman) of the Company.

The Board of Directors reviewed the performance of Independent Directors and Committeesof the Board. Nomination & Remuneration Committee also reviewed performance of theCompany and every Director.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to the requirement of Section 134 (3) of the Companies Act 2013 the Board ofDirectors hereby state that:

a) in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures;

b) the directors had 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 the financial year and ofthe profit and loss of the company for that period;

c) the directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the company and for preventing and detecting fraud and other irregularities;

d) the directors had prepared the annual accounts on a going concern basis; and

e) the directors in the case of a listed company had laid down internal financialcontrols to be followed by the company and that such internal financial controls areadequate and were operating effectively.

f) the directors had devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.

CORPORATE GOVERNANCE

Maintaining high standards of Corporate Governance has been fundamental to the businessof your Company since its inception. A separate report on Corporate Governance is providedtogether with a Certificate from the practicing Company Secretary regarding compliance ofconditions of Corporate Governance as stipulated under SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015.

The extract of annual return in Form MGT-9 as required under Section 92(3) of theCompanies Act and Rule 12 of the Companies (Management and Administration) Rules 2014 isenclosed herewith as Annexure 'G'.

PREVENTION OF SEXUAL HARASSMENT AT WORKPLACE

With a view to create safe workplace the Company has formulated and implemented SexualHarassment (Prevention Prohibition and Redressal) Policy in accordance with therequirement of the Sexual Harassment of Women at Workplace (Prevention Prohibition &Redressal) Act 2013. For the purpose of handling and addressing complaints regardingsexual harassment the Company has constituted Internal Complaint Committee with anexternal lady representative (who has the requisite experience in this area) as a memberof the Committee. To build awareness in this area the Company also conducts awarenessprogrammes within the organisation.

During the year no complaints with allegations of sexual harassment were received bythe Company.

VIGIL MECHANISM

The Company has established a vigil mechanism (Whistle Blower Policy) for directors andemployees to report genuine concerns. The Whistle Blower Policy provides for adequatesafeguards against victimisation of persons who use such mechanism and makes provision fordirect access to the Chairperson of the Audit Committee in appropriate or exceptionalcases.

A copy of the Whistle Blower Policy is available on the website of the Company:www.greatship.com

RELATED PARTY TRANSACTIONS

The Company has formulated policy on dealing with Related Party Transactions a copy ofwhich is available on the website of the Company: www. greatship.com

The particulars of contracts or arrangements with related parties in Form AOC 2 isannexed herewith as "Annexure F".

All the related party transactions have been entered into by the Company in theordinary course of business and on arm's length basis.

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.

DIVIDEND DISTRIBUTION POLICY

The Dividend Distribution Policy of the Company is enclosed as 'Annexure H'. TheDividend Distribution Policy is also available on the website of the Company :www.greatship.com .

ENERGY CONSERVATION AND TECHNOLOGY ABSORPTION

CONSERVATION OF ENERGY

In order to contribute to and prepare for a low carbon future your Company has beenundertaking various initiatives about enhancing energy efficiency in its businessoperations.

IMO Goals for reduction of Green House Gas emissions from international shippingMaritime Environmental Protection Committee (MEPC) on 13th April 2018 adopted acomprehensive Initial Strategy for significant reduction of Green House Gas (GHG)emissions from international shipping. The strategy includes ambitious carbon reductiontargets up to year 2050 with the clear vision of achieving carbon-free transportation atsea within this century.

The ambitious IMO strategy is to cut the total greenhouse gas emissions of shipping byat least 50% by 2050 compared to 2008 - with an agreed efficiency goal as an average forthe sector for a 40% improvement by 2030 compared to 2008 and a 70% improvement by 2050- so that the entire sector will be in a position to decarbonise completely consistentwith achieving the 1.5 degree climate change goal identified by the United Nations.

Your Company is fully cognisant of the above aspiration.

ENERGY SAVING DEVICES

During the financial year under consideration following Energy Saving Devices wereretrofitted for reducing fuel consumption of main propulsion system :

dag Lalit dag Lata dag Aabha and dag Pavitra were retrofitted with Propeller Boss CapFins (PBCF) a device which improves propulsive efficiency. The propeller's rotationalmotion forms a strong vortex at the center which causes overall loss of propulsiveefficiency. The finned features of a PBCF break up this vortex thereby reducing the lossof energy.

dag Pavitra and dag Aanchal were retrofitted with Mewis Duct a device which improvesthe flow of water on to propeller and thus its efficiency. Total cost incurred on abovefive ships: USD 671800.

For a typical Bulk Carrier or Tanker loss of energy through hull resistance is around30% and this increases with growth of hull roughness due to bio-fouling. To minimizegrowth of bio-fouling Company has applied superior anti-fouling coatings on Jag Lata JagLalit Jag Aabha Jag Pavitra dag Aanchal dag Pankhi dag Lakshita dag Lateef and dagRohan during their respective dry dockings during the financial year.

The additional cost incurred for application of the superior anti-fouling coatings wasUSD 1329000.

During the year saving of USD 2.41 Mn was achieved in fuel cost from energy savingretrofits and use of superior anti-fouling hull coatings alone. This fuel saving alsoresulted in reduction of CO2 emission by 16550 MT.

TECHNOLOGY ABSORPTION

Your Company has identified and absorbed several technologies on fleet vessels. Theseare reflected in paragraphs above.

Compliance with EU MRV Regulation

With effect from 1st January 2018 all vessels above GT 5000 engaged incarrying cargo to and from and with European Union (EU) ports are mandatorily required toreport their fuel consumption CO2 emission and certain other parameterspertaining to work done during such voyages to European Commission as per their Regulation(EU) 2015/757 (on the monitoring reporting and verification of carbon dioxide emissionsfrom maritime transport) annually. Your Company has developed ship specific requiredMonitoring Plans which describes the procedure of collection quality control storage andtransmission of relevant data and the same have been approved by accredited VerificationBody. Data for the first calendar year 2018 duly reviewed by Verification Body has beensubmitted to EC.

QUANTIFICATION AND REPORTING OF GREENHOUSE GAS (GHG) EMISSION

Your Company since FY 2015-2016 has started to capture and quantify GHG emission fromits business operation in a transparent and standardized manner for the information ofstakeholders of the Company on a voluntary basis. The GHG emission quantification andreporting has been done taking into account :

• ISO 14064-1 (2006) "Greenhouse gases - Part 1: Specification with guidanceat the organization level for quantification and reporting of greenhouse gas emissions andremovals and

• The Greenhouse Gas Protocol - A Corporate Accounting and Reporting Standard(Revised edition) published by World Business Council for Sustainable Development andWorld Resources Institute.

FOREIGN EXCHANGE EARNINGS AND OUTGO

The details of Foreign Exchange Earnings and Outgo are as follows :

(र in crores)
a) Foreign Exchange earned on account of freight charter hire earnings etc. 1638.99
b) Foreign Exchange used including operating expenses capital repayment down payments for acquisition of ships (net of loan) interest payment etc. 3068.64

AUDITORS

Pursuant to the provisions of Section 139 of the Companies Act 2013 Deloitte Haskins& Sells LLP were appointed as the Statutory Auditors of your Company to hold officeuntil the conclusion of the Annual General Meeting of the Company to be held in thecalendar year 2022.

The Report given by the Auditors on the financial statement of the Company is part ofthis Report. There has been no qualification adverse remark of disclaimer given by theAuditors in their Report.

SECRETARIAL AUDIT

Pursuant to the provisions of Section 204 of the Companies Act 2013 the Companyappointed M/s. Mehta & Mehta Company Secretaries to undertake the Secretarial Auditof the Company for the financial year ended March 312019.

The Secretarial Audit Report is annexed herewith as "Annexure I".

APPRECIATION

Your Directors express their sincere thanks to all customers charterers vendorsinvestors shareholders shipping agents bankers insurance companies protection andindemnity clubs consultants and advisors for their continued support throughout the year.Your Directors also sincerely acknowledge the significant contributions made by all theemployees through their dedicated services to the Company. Your Directors look forward totheir continued support.

For and on behalf of the Board of Directors
K.M. Sheth
Chairman
(DIN : 00022079)
Mumbai May 06 2019