TIDE WATER OIL COMPANY (INDIA) LIMITED ANNUAL REPORT 2002-2003 CHAIRMAN'S REPORT Platinum Jubilee Year 75 years of successful business Speech delivered by Shri Arindom Mukherjee, Chairman of Tide Water Oil Co.(I) Ltd., at the Annual General Meeting of the shareholders held on 30th July 2003 at Kolkata It gives me great pleasure to welcome you all to the Annual General Meeting of the shareholders of Tide Water Oil Co. (I) Ltd. The Company is completing 75 years of operation and I am pleased to say that the performance brings good tidings for us all. The annual report containing the Directors' report and audited accounts for the year 2002-03 is already with you, and with your permission, I take them as read. During the year under review the GDP growth was scaled down to 4.4%. This was largely due to a decline of 3.1% estimated in agriculture, whilst industrial growth is estimated at 6.1%. The service sector seems to have recorded an impressive 7.1% growth mainly coming from the financial, telecommunication, road transport and their related sectors. In the petroleum sector, crude throughput was up by 5% at 112.5 million tonnes, but prices of fuels increased significantly during the year. The drought early in the year impacted business in the farm sector where your Company's stakes are high. Seasonal rainfall was only 81% of the average with drought conditions prevailing in more than half the country. The rise in base oil prices in the latter half due to the fear of war in Iraq put severe pressure on the margins. In spite of these adverse operating conditions, your Company increased sales marginally to Rs.189 crores and posted a commendable profit before tax of Rs.11.9 crores against Rs.10.96 crores of the previous year. Although the 100% tax relief under section 80113 for its Silvassa plant stands reduced to 30% from the year under review, the Company was able to record a post tax profit of Rs.9.99 crores. The earnings per share continue to be at an enviable level of Rs.115 per share. The Directors have pleasure in recommending a dividend of 100% (including the interim dividend of 75% already paid) on the Ordinary shares of the Company. Your Company's mission of enhancing customer satisfaction while simultaneously increasing shareholder value has made it possible to report this commendable performance. Reserves are at an all time high of Rs.79 crores; the book value of the share is inching up to Rs.900 and is well reflected in the market price of the share. Keeping pace with the developments in engine and machine design, the products in the Diesel and Petrol engine oil segments, namely PRIMA & Take- off 4T, were upgraded to meet higher specifications. The upgraded and new products, PRIMA for diesel engines and Take-off 4T for four-stroke motorcycles have been well received in the market as is evident from their increasing sales and realisation. The sales of products manufactured in collaboration with Nippon Oil Corporation, Japan, (with which Mitsubishi Oil has merged) have shown a phenomenal growth of 34%, especially that of engine oil for motorcycles riding on the boom in this sector. The collaboration agreement is due for renewal in October 2003 and with this, the Company shall continue to reap the benefits of the latest technology and exploit the opportunities arising in the market from the growth in new generation vehicles. Value added distribution strategies included bringing about financial discipline in the primary and secondary trade through an attractive channel-financing scheme negotiated and implemented through the Company's bankers. Trade debtors were brought down from a high of Rs.37.12 crores in March 2002 to Rs.24.63 crores in March 2003. Consequently, interest burden was reduced further from Rs.72.47 lacs to Rs.43.27 lacs . The Union budget speech indicated that Value Added Tax would replace the Sales Tax regime. Much confusion prevailed thereafter due to apprehension of small traders, political compulsions in various states and implementation procedures and machinery not being in place. Year-end sales suffered as the trade consciously cut inventories to reduce their risks on stocks. However, the whole process of implementation of VAT now seems to be delayed due to lack of consensus among states and the Union Government's wish to introduce it across the country simultaneously. Your Company, in readiness for implementation of VAT and in line with Industry leaders, had equalised landed prices of its products to the trade in February 2003. Pending implementation of VAT and the wide variation of sales tax rates in different states, the Company faces imbalances in the unit price realisation of its products. The focussed marketing strategy to communicate the enhanced product quality, the increasing reach of the distribution network and brand building was supported by a 30% increase in advertising spend effectively executed through media, ground visibility and field campaigns. Demand for the Company's products is healthy and trade margins are looking up. The dedication and preparedness of the Company's leadership and employees has remained at a high level resulting in their being able to exploit opportunities meaningfully and respond smartly to the dynamic business scenario. Last year I had indicated that Andrew Yule Group along with the financial institutions were preparing to disinvest their shareholding to a strategic investor supervised by an Inter Ministerial Group formed by the Government. The process was begun in May 2002 and the response to the invitation for expression of interest was encouraging. Due diligence was carried out including inspection of manufacturing facilities. The share purchase agreement was drafted and finalised after discussion with the bidders. The requisite approvals in this connection are awaited. I am pleased to inform you that the performance of your Company in the first quarter of this year continues to be commendable. Sales have increased by around 8% and profits are looking healthy. The monsoon is favourable and may have a positive effect on the demand in the months to come. However, the unabated increase in base oil prices is likely to put pressure on the margins if the market does not absorb this increase. In conclusion, l wish to express my appreciation to all customers, suppliers, employees, the Company's bankers and other stakeholders as well as all shareholders for their unstinted support in shaping the Company's performance. Note: This does not purport to be a record of the proceedings of the Annual General Meeting of the Company Chairman Shri Arindom Mukherjee Date: BUSINESS LINE AUGUST 1, 2003