60Th AR 2011-12

HINDUSTAN SHIPYARD LIMITED PAPERS TO BE LAID ON THE TABLE OF LOK SABHA/RAJYA SABHA AUTHENTICATED RAKSHA RAJYA MANTRI Board of Directors . 01 Chairman’s Statement . 02 Notice . 05 Directors’ Report 6 . 06 Auditors’ Report31 . 35 Comments of the C & AG of India36 . 40 Balance Sheet . 42 Profit & Loss Statement . 43 Notes to the Accounts . 44 Notes forming part of Accounts . 54 Cash Flow Statement . 67 CONTENTS Social Overheads . 68 Last 10 years at a glance . 70 Ships built . 72 1! OUR VISION To be a National Leader in Ship & Submarine building and Repairs OUR MISSION To imbibe the latest in Ship / Submarine building and repair technology and serve the defence, maritime and oil sectors through all round excellence in quality, delivery and durability 1! BOARD OF DIRECTORS (As on date of AGM) RAdm N K Mishra, NM, IN (Retd.) Chairman & Managing Director Shri Gyanesh Kumar, IAS VAdm N N Kumar AVSM, VSM Shri Rakesh Mahajan Dr. Devi Singh Cmde K S Subramanian, NM, IN (Retd.) Director (Finance & Commercial) Director (Shipbuilding) PERMANENT SPECIAL INVITEES VAdm DSP VARMA PVSM, AVSM,VSM, IN(Retd.) DG, AKANKSHAH Shri RAJNISH KUMAR Addl. FA & Jt. Secretary Ministry of Defence (Fin) Cmde K L N Prasad Cmde Ashok Bhal, VSM, IN(Retd.) Director (Corporate Planning & Personnel) Director (Strategic Projects) AUDITORS M/s G R Kumar & Co. Chartered Accountants Visakhapatnam Shri Inaitula Baig Registered Office Company Secretary Gandhigram, Visakhapatnam - 530005 BANKERS • Indian Bank • State Bank of India • UCO Bank • Syndicate Bank • Canara Bank Chairman's Statement CHAIRMAN’S STATEMENT Dear Shareholders, It gives me great pleasure to extend a warm welcome to all of you at the 60th Annual General Meeting of your Company. The Annual Report for the year ended 31st Mar 2012 along with the Directors’ Report and audited Annual Accounts of the Company have been circulated to you and with your permission, I take them as read. World Shipbuilding Industry The shipbuilding industry is closely linked to developments in global shipping industry. Therefore, any slowdown in the shipping industry adversely affects the prospects of the shipbuilding industry. The Industry is passing through turbulent times since economic slowdown in 2008 and recovery is likely to take some more time. As regards world shipbuilding industry, China leads with major share with 41% whereas South Korea, Japan, Europe and others have shares of 33%, 20%, 2% and 4% respectively. As far as high value orders are concerned, Korea leads with 50% and other shipbuilding nations like China, Europe, Japan and other countries have 32%, 6% 5% and 7% respectively. Indian Shipbuilding Industry The Indian shipbuilders occupy 6th rank in the list of order book accounting for 1.36% of the global order book (in CGT). Correspondingly, the order book of Indian shipbuilders aggregates to 3.01 mn DWT with 168 vessels on order. The Indian shipbuilders specialize in construction of offshore vessels. However, the size of the dry bulk vessels as against the offshore vessels in terms of carrying capacity (i.e. DWT) being high, the former vessel category constituted approximately 87.5% of the Indian order book. In terms of the number of vessels on order, the Offshore and Specialised vessels accounted for 38.7% of the total order book. Indian Shipbuilding Industry stands adversely affected, post expiry of the “Shipbuilding Subsidy Scheme” and, with no announcement of the renewal of the said scheme; the Indian shipyards are rendered cost ineffective as compared to their global peers. Further, in the absence of ‘infrastructure industry’ status to the Shipbuilding Industry in India is at a disadvantageous position compared to other major global shipbuilding nations. Company’s Performance & Major highlights of the Year 2011-12 Your Company is an old and premier shipyard of the country of historical importance. Your yard has always strived towards better productivity and optimum utilization of resources. The total income of the Company during the year is ` 604.34 Cr as compared to ` 686.17 Cr of last year. Your company has recorded a loss of ` 85.98 Cr during the said financial year. The losses in the Financial Year 2011-12 are mainly attributable to reduction in turnover, increase in pay & benefits and provision towards Liquidated Damages. Consequently, the accumulated losses are also increased to `1016.08 Cr as on 31 Mar 2012. The Major highlights of the year 2011-12 are as under Ø Ministry of Defence, Govt. of India has sanctioned an amount of ` 457.36 Cr for Phase – I modernisation (i.e. Refurbishment & Replacement of plant and Machinery) as an advance towards construction of LPDs. 2 Hindustan Shipyard Limited Chairman's Statement Ø Your company has received an LOI for construction of one Fleet Support Vessel for Indian Navy. Ø Some of the noteworthy achievements during the year are as follows :- - Delivery of first of the five IPV series, first 50 ton Bollard Pull Tug for VPT and Third 53000 DWT Bulker for M/s GML. - Launching of last of the five series of IPV for Indian Coast Guard - Keels were laid for two 50 ton Bollard Pull Tugs for Kandla Port Trust - Repairs of ONGC Jack Up Rig was completed and the RIG was handed over to ONGC on 03 Aug 2012. - The Ship repair division has undertaken repairs of eighteen vessels including two foreign flag. - The Medium Refit cum Upgradation of INS Sindhukirti is under progress and recorded a cumulative production of 65% till end of Jul 2012. Your yard is going through crisis as the company’s order book and financial position is unhealthy. The issues are further compounded with aged workforce, old & outlived machinery etc. The Management is putting its best efforts to bring the company back on track. As brought out in last year, the company aims to complete the orders of Five IPVs for Coast Guard and 53,000 DWT Bulkers for M/s GML by end of Mar 2013 and thereafter the company’s focus will be on warship building. The company has already delivered the first vessel of five IPV in the FY 2011-12 and balance vessels are at advanced stages of construction. These vessels would be delivered in the FY 2012-13. Efforts are also being made to complete other orders within the contract schedules with no further time and cost overrun. Strategic Initiatives A dedicated department has been constituted namely “Business Strategy Department” to improve the company’s marketing strategies and to secure new orders. The company is also revamping some of the existing systems which will result in higher productivity and growth. Other strategic initiatives of the management include Turnkey Rate Contracts, Collaboration with Design Partners, revamping of Design Department, etc. Discussions are in progress for alliance with M/s BHEL and ONGC for construction, repair and maintenance of land based oil rigs. Your Company is also in talks with Fisheries Survey of India for MoU for maintenance of their vessels. Your company’s management is putting all its efforts to turn around the Company. Grading vide Memorandum of Understanding The performance of the company for the year 2011-12, based on self appraisal is “Good” in terms of the MoU signed with the Ministry of Defence. Corporate Governance Good Corporate Governance has always been the hallmark of your Company. The philosophy of the Company is to ensure transparency in its dealings and compliance of country’s laws and regulations in order to promote ethical conduct of business. Quarterly compliance reports for Corporate Governance are sent to the Administrative Ministry as per applicable guidelines. The process to fill up the vacant positions of Independent Directors is at an advanced stage. A separate section on Corporate Governance furnishing applicable details forms part of the Directors’ Report. Yard Modernisation The present infrastructure of yard is out dated. Accordingly, there is an urgent need to refurbish and also renew plant and machinery to meet the future challenges. The yard has planned to modernise the yard in two phases. In the first phase, the existing infrastructures will be refurbished and obsolete equipments will be renewed. Annual Report 2011-12 3 Chairman's Statement Against LPD project, the yard has already received ` 457.36 Cr for the same from Govt. of India. In the second phase of modernisation, it is envisaged to upgrade the yard infrastructure to enable construction of sophisticated warships and strategic vessels for Indian Navy and Coast Guard. Future Outlook HSL is a major shipyard on the East Coast of India. The yard has been brought under the administrative control of Ministry of Defence in Feb 2010. Accordingly, the yard needs to realign its business strategy towards warship and submarine building /repairs for the Indian Navy and Coast Guard. The Ministry of Defence has nominated the yard for construction of Landing Platform Dock (LPDs) and, constructions of other vessels are also planned in the near future. Presently, modernisation of the yard with funds made available against LPD project is afoot. Considering the acquisition plans of the Indian Navy & Coast Guard, the future of the yard looks bright. Human Resource Developments The age profile of the employees of your Company and consequent superannuation of experienced personnel in near future is a matter of concern. The management is striving hard to augment the manpower through inductions and skill up-gradation to meet the future challenges. Auditors’ Comments The Statutory Auditors Report has already been circulated to all the shareholders. I am glad to inform you that the C &AG after having reviewed your Company’s accounts for the year ending 31 Mar 2012 have given a “Nil” comment certificate. Acknowledgements On behalf of the Board, I would like to thank you, our esteemed shareholders, for your continuing confidence and support.

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