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NLC Nalco India Ltd.

BSE: 524101 Sector: Industrials
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NLC Nalco India Ltd. (NALCOCHEM) - Director Report

Company director report

NALCO WATER INDIA LIMITED (FORMERLY KNOWN AS NLC NALCO INDIA LIMITED) ANNUAL REPORT 2011-2012 DIRECTOR'S REPORT Your Board of Directors have pleasure in presenting the Twenty Fourth Annual Report on the business and operations of the Company together with the Audited Accounts for the year ended 31st March, 2012:- FINANCIAL RESULTS Rs. in Crore Total Income for the year (Net of excise duty) 297.06 Profit before Tax 2.03 Tax on Profits (0.02) Profit after Tax 2.05 Prior period expenses - Net Profit after Tax 2.05 ECONOMY & YOUR COMPANY'S BUSINESS During the year under review, the global economic environment, which remained tenuous throughout the year, turned sharply adverse in the month of August-September 2011 owing to the turmoil in the Eurozone, and questions about the outlook on the US economy provoked by rating agencies which indirectly told upon the Indian economy as well. At the same time, sight must not be lost of the fact that, by any cross country comparison, India remains among the front-runners. However, political instability, stiff inflationary pressures, interest rate and foreign exchange rate fluctuations, fluctuating oil prices and weak manufacturing activity have led to loss of revenue and a consequent cash crunch in the economy. Your Company witnessed an increase in sales volumes by 16% during the year under consideration in comparison to last year which supported recovery of the loss of previous year marginally. In addition to this, your Company received a one time subsidy of Rs.65.19 crore from Nalco Company USA, its holding company towards meeting administrative expenses incurred by your Company for relocation of its operations and also for materializing the investment plans that your Company has drawn for sustainable growth. But the above mentioned macroeconomic factors coupled with rising cost of capital, raw material cost, steep increase in administrative and miscellaneous expenses had a negative impact on the revenue earnings of your Company. Challenges were in managing cash to cash cycle (payment for procurement to collection for sales) which needs continuous fund infusion and consequently increases the capital requirements. This risk is especially relevant for a growth oriented Company like yours and the kind of business your Company operates in. Efforts to rejuvenate the bottom line through careful management of the expenses, consolidation of services, savings linked performance incentive schemes, price hike of products and sales volume increase remains unabated. Nalco Holding Company, the parent company of Nalco Company USA, (holding Company of Your Company) got merged with Ecolab Inc., the global leader in cleaning, sanitizing, food safety and infection prevention products and services. Thus Ecolab, Inc. happens to be the ultimate parent company of your Company as a consequence of this merger. Apart from the same, the above merger had no immediate legal implication on the legal status of your Company. BUSINESS PROSPECTS The business environment will continue to remain challenging characterized by intense competition, margin pressures and regulatory interventions. These changes pose many challenges and opportunities to companies operating in this environment. Our goal is to leverage our strengths to continue to expand our capacities in each of our respective business lines and expand. This growth requires a large pool of trained sales people on continuous basis for implementation of the system and also require a dedicated dealer network. We are using advanced automation technologies and chemistries to manage water effectively and economically in both municipal and industry space which in turn will resolve the issue of insufficient water for sustainable development. The growing water scarcity across the Country is a significant challenge and our water purification, recycle and reuse initiatives will play an important role in the time to come. DIVIDEND Your Directors does not recommend any dividend for the year under review. EMPLOYEE SAFETY & MINIMISING RISK Our endeavor to keep the employees, customers and other stake holders safe, continues unabated. Regular safety audits at all our direct and indirect business locations, safety training for the employees within and beyond the workplace is being given the topmost priority. Across the organizational pyramid, employees are being trained to be safety conscious through safety leadership training, emergency response training and making them feel a sense of oneness with the organization. Your Company values the life of its employees and it is a no-compromise clause of running and expanding our business across the world. CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility has become a worldwide concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations. It is one of the most important global issues with serious challenges and implications on almost all sectors. Surging economies, including India, are coping with issues related to poverty, child rights, and community welfare. Government of India through the Ministry of Corporate Affairs has issued voluntary guidelines asking the Corporates to contribute their bit for the triple bottom line objective- people, planet and profit. During the year there were quite a few activities undertaken by your Company in furtherance of its objectives aimed at enabling our employees evolve into 'Corporate Citizens'. Some of these included visiting orphanages and old age homes, spending time with the inmates, and also providing food and rations to them, blood donation camps. These activities were carried out across all our district offices. These engagement opportunities witnessed wholesome participation from the employees to contribute for the underprivileged. RESEARCH AND DEVELOPMENT (R&D) The Research and Development (R&D) team comprises of 55 researchers catering to Oil Field Chemicals (OFC), Downstream Energy Services (DS), and Water and Process Services (WPS) with the main focus area being Oil Field Chemicals. The team successfully completed the first Nalco Compliance Assessment Policy (NCAP) safety review for the R&D lab in November 2011 and the safety review board commended the R&D team for their attention to details in safety awareness, risk assessment of all equipment in the lab, excellent housekeeping, and exemplary safety record with zero incidents in 2011. The team provided advanced technical support to global business team (Asia Pacific, North America, Middle East, and Europe) with potential account value of more than 159 MM USD. One of the key activities that the team participated in 2011 was Water Audit through which a thorough study of water use is done to understand areas of improvement for the customer to be sustainable with the ability to reduce their water footprint. This in turn helped your Company to generate additional revenue opportunities. The team is geared up to support the regional and global business in meeting their accelerated growth plans for 2012 through suitable deployment of resources in critical areas of technical support, project prioritization, and portfolio management. HUMAN RESOURCES With an endeavor to build up a committed human capital, focused efforts were undertaken to develop and nurture human resources through in-house, external professional development programmes and on-job training for upgrading technical, marketing and management skills. Your Company recognizes the importance and contribution of human capital and therefore appreciates and motivates them to pursue excellence. Congenial work environment, Performance orientation, corporate ethics, creating trusting relationships, promoting merit and performance-driven rewards and recognition systems, employee satisfaction surveys have been the high priority areas to retain talent. The current employee strength of your Company has exceeded 600 with the year 2011 witnessing 201 new employees hiring in divisions like Research and Development, Nalco 360, Engineering and Projects Division and Sales. Growth was not restricted to new additions, but also occurred in the form of employees being transferred or promoted to new roles across the organization. All new hires also have been put through a thorough onboard training session which equips them with information about your Company's policies and standards. During the year, new policies were introduced and existing policies were modified to make it more employee friendly. Your Directors wish to place on record their appreciation for the strong contribution made by employees who have demonstrated consistent and highly motivated performance throughout the year. Statement under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 as amended upto date, in respect of the Company's employees are given in the Annexure which forms part of this Report. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to Section 21 7(2AA) of the Companies Act, 1956, your Directors confirm that: a. In the preparation of the annual accounts, the applicable accounting standards have been followed; b. Appropriate accounting policies have been selected and applied consistently, and judgments and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2012 and of the profit and loss statement of the Company for the period 1st April, 2011 to 31st March, 2012; c. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; d. The annual accounts have been prepared on a going concern basis. STATUTORY AUDITORS Members are requested to appoint Auditors for the period from the conclusion of the ensuing Annual General Meeting till the conclusion of the Annual General Meeting to be held next year and to authorize the Board of Directors to fix their remuneration. Messrs. Price Water House & Co, Chartered Accountants, (FRN 007567S), the retiring Auditors have indicated their willingness to continue and have furnished a letter to the Company in this respect and has given the requisite certificate in terms of Section 224(1B) of the Companies Act, 1956. The Audit Committee at their meeting held on 19th June 2012 has recommended the appointment of Price Water House & Co, Chartered Accountants (FRN 007567S), as statutory auditors of your Company for the financial year 2012-13. COST AUDITORS Pursuant to Section 233B of the Companies Act, 1956, the Central Government vide their Order dated 24th January 2012 ('said letter') has prescribed cost audit of the Company's product 'Organic and Inorganic Chemicals. The cost audit for the financial year ended 31st March 2012 is under process by M/s. D. K. Gupta & Co., Cost Accountants of 7A, Dacres Lane, Kolkata 700 069 and the Company will submit the Cost Auditor's Report to the Central Government within the prescribed statutory time limit i.e. within 30th September 2012. Your Directors at its meeting held on 20th June 2012 has appointed M/s. D.K. Gupta & Co., Cost Accountants of 7A, Dacres Lane, Kolkata 700 069 as cost auditors on recommendation of the Audit Committee to audit the cost records of your Company for the FY 2012-2013. The requisite certificates under Section 233B (5) read with Section 224 and sub-section (3) of Section 226 and Section 224(1 ) (B) of the Companies Act, 1956 have been furnished by the said cost auditor. DIRECTORS We, the Members of the Board, wish to place on record our profound grief and deep sense of sorrow at the sad and sudden demise of Mr. Provakar Sengupta, Independent Director and Chairman of the Audit Committee on 1 7th May 2012, after a short span of illness. We record our appreciation on the professional service rendered by him, since he joined as a Director of the Company. Mr. Karl Sohrab Munshi, has been appointed as Director in casual vacancy in place of Mr. Provakar Sengupta by your Board of Directors at its meeting held on 19th June 2012. He has also been appointed as the member and Chairman of the Audit Committee and a member of the Remuneration Committee of the Company as on that date. Mr. Munshi is a Chartered Accountant by profession and he is one of the Board members of Tuskan Ventures, a PE Company in Mumbai. Across his professional career he has served several coveted positions and has been a pioneer in Strategic Planning/Business Development, Large project implementation, organisation redesign and restructuring etc. Mr. Mahesh Rao was inducted as Additional Director by your Board of Directors with effect from 22nd March 2012. Mr. Rao is a B.E. in Chemical Engineering and has over 25 years of experience in Business Development, Sales & Marketing, Key Account Management, Team Management and Service Operations in the Water Treatment Industry. Before joining your Company he was associated as the Regional Marketing Manager-Nalco Asia Pacific Region. Mr. Alok Kumar Bhadra, the Managing Director of the Company through his letter dated 1 st June 2012 requested the Board of Directors to relieve him from the office of Managing Directorship at a shorter notice w.e.f. 18th June 2012 and from his directorship w.e.f 21st June 2012 as he had been requested by the Parent Company to take up a special assignment. The Directors accepted the resignations and placed on record their appreciation of the valuable service rendered by Mr. Bhadra while he was the Managing Director. Subsequent to Mr. Bhadra's resignation from the post, the Board of Directors at their meeting held on 19th June 2012 appointed Mr. Mahesh Rao as the Managing Director of the Company w.e.f. 19th June 2012 for a period of 5 years. An abstract of the terms and conditions of his appointment were duly circulated to the Members within the statutory time limit. Necessary resolution for obtaining consent of the members for approval of the appointment and remuneration of Mr. Rao has been included in the Notice of the Annual General Meeting. As an Additional Director Mr. Rao will hold office till the date of ensuing Annual General Meeting and your Company has received notice from a member pursuant to Section 257 of the Companies Act, 1956, signifying his intention to propose the candidature of Mr. Mahesh Rao for the office of Director. Necessary resolution for re-appointment of Mr. Rao as a Director liable to retire by rotation has been included in the Notice of the Annual General Meeting. In accordance with the provisions of the Companies Act, 1956 Mr. David M A Knowles and Mr. Hin Hao Liaw are liable to retire by rotation at the ensuing Annual General Meeting and being eligible have been proposed for re-appointment. In respect of excess remuneration to the tune of Rs.36.00 lakhs paid to Mr. Alok Kumar Bhadra, erstwhile Managing Director of the Company, necessary application is being made to the Central Government for permission to waive recovery of excess sums paid to Mr. Bhadra. Necessary resolution in this regard for obtaining consent of the members for such waiver has also been included in the Notice of the Annual General Meeting. PARTICULARS UNDER SECTION 217(1)(e) OF THE COMPANIES ACT, 1956 The information required in accordance with the provisions of Section 217(1)(e) of the Companies Act, 1956 is given in the Annexure which forms part of this Report. ACKNOWLEDGEMENTS We thank our customers, vendors, shareholders, bankers and other financial and non-financial institutions, share transfer agents for their continued support during the year. We place on record our appreciation for the contribution made by our employees at all levels for their hard work, solidarity, cooperation and support. We thank the Government of India, Direct & Indirect Tax Departments, the Ministry of Commerce, the Ministry of Finance, the Ministry of Corporate Affairs, the Reserve Bank of India, the state governments and other government agencies for their support, and look forward to their continued support in the future. By Order of the Board David M.A. Knowles Chairman Place: Kolkata Date : 12th July, 2012 ANNEXURE TO THE DIRECTORS' REPORT Information pursuant to Section 217(1)(e) of the Companies Act, 1956 A) Conservation of energy a) The Company's plant is not energy intensive. The plant has been designed after taking into consideration all factors necessary for maximization of efficiency of energy. b) No additional investment is proposed. c) As stated above, the Company's plant is not energy intensive and as such, the impact of energy conservation will be minimal. d) 1. Power & Fuel Consumption 2011-12 2010-11 (a) Electricity (i) Purchased Unit (Lac Kwh) 9.49 9.832 Total amount (Rs. Lacs) 70.46 65.59 Rate/Unit 7.424 6.67 (ii) Own generation (During power cuts only) Unit (Lac Kwh) 0.0157 0.0297 Units/KLof Diesel Oil (Rs. Lacs) 0.41726 0.39386 Cost/Unit (Rs.Kwh) 13.9 9.42 (b) Through steam turbine (iii) Generator Unit (Kwh) N.A. N.A. Unit/te of Coal (Kwh) N.A. N.A. Cost/Unit (Rs.Kwh) N.A. N.A. (c) Coal Quantity (Tes) N.A. N.A. Total cost (Rs. Lacs) N.A. N.A. Average rate (Rs./Te) N.A. N.A. (d) Furnace Oil Quantity (KL) N.A. N.A. Total amount (Rs. Lacs) N.A. N.A. Average rate (Rs/KL) N.A. N.A. Others- (e) High Speed Diesel Quantity (KL) 65.452 68.305 Total amount (Rs. Lacs) 27.31 26.9 Average rate (Rs/KL) 41726 39386 2. Consumption per unit of production Electricity High Speed Diesel (Kwh/Te) (KL/Te) 2011-12 2010-11 2011-12 2010-11 Water Treatment Chemicals, Industrial Additives, Oilfield Chemicals 139.32 162.13 0.0096 0.0113 B) Technology absorption Research and Development (R&D) 4) As a result of the above, good progress was made in substituting selected imported raw materials with the indigenous raw materials. Indian manufacturers certified by the Company are eligible to supply to Nalco companies in other locations. 5) Local suppliers are being identified and developed to provide raw materials meeting required specifications. Research & Development continue to work closely with the Technical Collaborators with the objective of marketing and manufacturing chemicals, which will be mostly, used in core sector industries. 6) Expenditure on R&D during the financial year ended 31st March, 2012: Rs. in Lacs a) Capital 377.90 b) Recurring 3468.27 c) Total 3846.17 d) Total R&D expenditure as a percentage of total turnover 0.13% Technology absorption, adaptation and innovation 1) The Company continues to introduce new products manufactured with the technical knowhow received from its technical collaborators Nalco Company,USA.Experts from technical collaborators visit the Company to impart training in the manufacture and application of sophisticated chemicals. The Company's employees also visit the technical collaborators for training in the areas of research, manufacture, plant operation, analytical testing, product application and service programs. 2) The above measures contribute to successful development of new chemical products, substituting certain imported raw materials with indigenous raw materials and cost reduction. The Company's customers are improving their end products production efficiency. 3) During the accounting period ended 31st March, 1989, the Company had received from its technical collaborators, Nalco Company, USA the technology package in terms of its Agreement with them of 1st August, 1988. The relevant information in respect of the technical knowhow is furnished below : a) Technology imported: The Company has received from its technical collaborators knowhow comprising product specifications, engineering and technical data, quality control information, manufacturing data, product application information and other knowhow associated with the construction of a plant and the manufacture and marketing of the products to be manufactured under the Agreement with the technical collaborators. b) Year of import: The knowhow was imported during the accounting period ended 31st March, 1989. c) Absorption of technology: The plant of the Company had been commissioned on 9th March, 1990 and the Company has successfully manufactured at its plant sophisticated Water Treatment Chemicals, Oilfield Chemicals and Industrial Additives by using the technology received under the collaboration agreement. d) Plan for absorption of technology: The absorption process has progressed along with increase in the utilization of the plant and expansion of the product and customer base. New applications result from changing economic and environmental variables impacting our customers and prospects. e) Laboratory and Macro-process simulation of industrial unit operations have been installed at the Pune R&D center and utilized to demonstrate equivalency with Industrial systems. These can be used to develop new solutions to known problems. They are also used to predict conditions before the customer has the problem, allowing a preventative process to be implemented. C) Foreign exchange earnings and outgo a) As the Company is predominantly in import substitution, currently the opportunities for export is limited. However in the current year, very small exports have been made. b) During the year, the Company achieved export earnings of Rs.11038 lakhs and total foreign exchange used by the Company on imports and other expenditure was Rs.12539 lakhs respectively. By Order of the Board David M.A. Knowles Chairman Place: Kolkata Date : 12th July, 2012