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| ANNUAL
GENERAL MEETING |
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Dear Friends, I have great pleasure in welcoming you to the 44th Annual General Meeting and sharing with you the highlights of another year of great achievements. I am sure you will agree that the results are commendable, keeping in view the fact that the entire world has been going through a severe financial crisis that has led to a global recession. In the year under review your company has set new records for annual iron ore dispatches, annual sales revenue, net profit and dividend payout. Besides, an aggressive exploration and drilling programme in Karnataka and Goa had significant success and led to increased reserves and resources. As you are aware, during the current year, your company has acquired Dempo Group’s Goa Mining Assets. Apart from bringing in additional mineable reserves and resources of iron ore within the folds of Sesa, I am sure that the resultant synergy will create significant long term value for all its stakeholders. During the last AGM it was reported that that the merger of the Subsidiary Company, Sesa Industries Limited (SIL) with the Company is still pending at the High Court of Bombay at Goa owing to objection from only one shareholder of SIL. Subsequently, the merger of SIL with the Company was approved by the Single Judge of the Bombay High Court at Goa. However, on appeal made by the objector to the Division Bench of the same Court, the Order of the Single Judge was set aside. SIL has filed Special Leave Petition in the Supreme Court of India against the order of the Division Bench and the hearing is awaited. The report that has been circulated to you is drawn for the Company on a stand-alone basis. As per decision taken by shareholders at the Extraordinary General Meeting held on 9th July, 2009, the Committee of Directors, at their Meeting held on 22nd July 2009, approved allotment of 3,32,74,000 equity shares of Re.1/- each at a premium of Rs.160.46 to the Promoters’ entity, Twin Star Holdings Limited and consequent to this, the paid up equity share capital stands at Rs.82,05,14,400. Economic Environment The year gone by has indeed been one of the most challenging for the world economy. The unprecedented financial crisis, acknowledged today as the worst since the Great Depression , has brutally shaken the foundations of some of the strongest economies in the world. Though Governments across continents have responded speedily and in rare unison, the path to recovery is expected to be long and arduous. Indian economy was also not immune to this shock. While at the macro level, our country has displayed remarkable resilience sustaining relatively high growth rates, several sectors have been adversely impacted. As per IMF’s latest forecast the global economy is beginning to pull out of recession and global economic growth during 2010 is projected at 2.5%, against a negative growth rate of 1.4% in 2009. The survey of professional forecasters conducted in backdrop of the first-quarter review of the monetary policy by the Reserve Bank of India, indicates that the Indian economy is projected to grow by 6.5% during the current financial year against 6.7% in 2008-09. Iron Ore Business Performance Your company has recorded highest iron ore sales ever, during 2008-09, - 15.1 Mt as against 12.4 Mt in the previous year, representing 22% increase over the previous year. On a consolidated basis the revenue from operations has crossed the landmark milestone of US Dollar 1 Billion The profit after tax was higher by 30% as compared to previous year primarily due to contribution from higher sales, higher income form investment and depreciating Indian rupee. This was partly off-set by lower sales realization due to depressed market condition in second half of the year and increase in logistic cost and inflationary impacts. Higher sale were possible due to strenuous efforts by the company to increase production from mines at Goa and Karnataka, duly supported by well managed logistic activity. Your company has surpassed all past records in terms of tonnages handled at mines and by trans-shipper vessel MV Orissa. Although the long term contract bench mark price was settled with an increase of 79.88% in respect of fines and 96.5% in case of lumps, the long term customers did not adhere to their schedule of off take, citing deteriorating market conditions. Therefore 86% of our direct export quantity was sold on spot basis as against 54% in previous year. The sport prices which peaked during 2nd quarter of the financial year crashed to less than 50% of the long term price by year end.
2008-09 saw a series of increase in rail freight and drastic increase
in truck transport cost which resulted into higher logistic cost,
although rail freights were reduced for some sectors in the last
quarter. The export duty had also undergone frequent changes during
the year adding uncertainty to your company’s business plan. Business Outlook Over the longer term, steel demand is likely to go up driven by growing investment in infrastructure, need for new housing and increasing levels of urbanisation in Asian countries, particularly China and India. However, the World Steel Association forecasts that worldwide apparent steel use is expected to decline by -14.9% to 1,018.6 million metric tons (mmt) in 2009 after declining by -1.4% (1,197 mmt) in 2008. However, steel demand is expected to stabilise in the latter part of 2009 leading to a mild recovery in 2010. The Company has started wotking on its medium term vision to achieve a volume of 50 Mt from its Goa, Karnataka and Orissa operations. Logistic capability building and long term marketing strategy are also getting focused attention. Your company continues with aggressive drilling programme in 2009-10 and pursue acquisition of new mines for augmentation of resources. The annual iron ore negotiations have been concluded between the three big suppliers and buyers (except Chinese buyers) with reduction of 32.95% for fines and 44.47% for lumps, , for Australian oreand 28.2% for Brazilian fines, China is still holding on to its expectations of higher price reduction while no suppliers are inclined to accept the same. The recent trend of gradual increase in spot prices has been encouraging for your company. While sharper-than-expected cut in iron ore prices, slippage in Chinese demand and a spike in freight rates remain risk for our business, a low cost structure gives the company some competitive advantage. The new royalty regime on iron ore @10% ad-valorem announced yesterday would impact the profitability of your company. The unending debate on imposing restrictions on export of iron ore and frequent changes in rail tariff for export of iron ore adds to uncertainty in the business. Metallurgical Coke Business Performance The pre-tax profit of the Metallurgical Coke Business has grown more than 2.5 times as against previous year. This was primarily due to increased price realization during 1st half of the financial year which was partly off-set by higher cost of coal blend consumed and loss of contribution due to lower sales. While the revenue from sale of gas remained almost at the same level as last year, there was no receipt on account of technology sale during the year as against a receipt of Rs.4.3 crs. in the previous year. The production during the period under review was 224,216 down by ~11% and sale 217,357 down by ~ 16%. Production was curtailed from Dec’08 to Feb’09 owing to inventory built up in pig iron plant being a major outlet and also due to slowdown in foundry industry. We have received Carbon Credits from the CDM issuance board of the UNFCCCwhich has added to the revenue during the year. As regards business outlook, the Metallurgical Coke business is expected to continue to face cost pressure with the margins thinning between end product price and price of coal. Pig Iron Business During 2008-09 SIL produced 217,114 MT as against 271,492 MT in the previous year. The production was lower because of scheduled shutdown of one of the blast furnace for 48 days during the first quarter for maintenance & relining and subsequently one of the blast furnaces had to be shutdown for over 3 months in the second half due to built-up in pig iron inventory as a result of deteriorating market condition. 224,478 Mt of pig iron was sold during the year as against 266,497 in the previous year. There was reduction of around 10% in pre-tax profit for the year under review as against previous year. This was primarily due to higher price of coke and partly due to lower sales which was partly off-set by higher average price realization. As regards to the current market scenario, although the commercial vehicle production continues to be under pressure, the off take from units catering to the tractor, pump and construction sectors have been good in the first quarter.. We are hopeful that pickup in demand in the domestic market will continue in the near term. Pig Iron Plant has been awarded 5S certification in work place management by the Quality Circle Forum of India (QCFI) in Jul 09 . Social Responsibility For us at Sesa, Corporate Social Responsibility includes living our corporate values with the goal of having minimal impact on the natural environment, enabling local communities to develop their potential, empowering employees to be responsible civil society members and committing ourselves to business practices that are fair to all stakeholders, so that we can collectively contribute towards creating a better world for all. It is essentially focus on triple bottom line, i.e., People, Planet and Profit. The Sesa Group, apart from contribution to the society by paying various statutory dues of over Rs.1,130 crores, has also supported various socio-economic programmes spending over Rs. 11.5 crores directly and indirectly. These include contribution to Mineral Foundation of Goa for its various social projects for sustainable development in the mining belt of Goa, construction/repair of public roads, contribution towards peripheral development of mining areas in Barbil – Orissa, de-silting of village water tanks in Chitradurga – Karnataka, organizing medical camps/distribution of medicines, helping the poor students by providing text books/uniforms, providing educational aides to schools, providing drinking water, helping various charitable organizations, promoting women empowerment, helping farmers in mitigating their losses and increasing productivity, helping various agencies by providing furniture/computers, etc. A new community medical center has been setup in Chitradurga, Karnataka, which is run by an NGO and fully funded by your company. Besides your Company continues to sponsor two medical centers in Goa and one medical center in Orissa which are also run by NGOs to provide free medical diagnosis and medicines. Sesa Community Development Foundation has continued with its tradition of delivering high quality technical trainees from Sesa Technical School and young footballers from Sesa Football Academy (SFA). A new wing of senior players of SFA was started at Sirsaim during the year under review with a focus to develop a team of young players. As informed to you in last AGM, your company, in collaboration with the Mineral Foundation of Goa and Govt. of Goa, is implementing the programme ‘Gramnirman 2010’ in the village Panchayat of Kirlapal-Dabal in South Goa to develop a model for the overall sustainable development of the village. The first phase of the project has been completed with a focus on social, educational and agriculture infrastructures. The second phase, primarily focused on drinking water and irrigation, is proposed for completion by 2010. Company has also signed a Memorandum of Understanding (MoU) during the year with the University of Agricultural Sciences, Dharwad (UAS-D), for implementing alternative livelihood development activities for improving the socio – economic status of the people having low resource base, marginal and landless farmers living in the surrounding areas of A Narrain Mines, Chitradurga. Your company also continues to pursue its mission for environmental excellence and constantly explores opportunities to improve ecology and the environment. Its mine reclamation effort has significantly improved the biodiversity of reclaimed as well as running mines. A collaborative research project with the Department of Microbiology, Goa University, for reclamation of mine dumps has shown positive results on pilot scale and the methodology is being utilized for improving the reclamation practices as the integral part of Environment Management plan. About 70,000 saplings of different native species have been planted over an area of 15 hectares in and around various establishments of the company. Your company has also initiated projects to develop a Butterfly Park and set up a Bamboo Pavilion which would be completed in the current year. Appreciation Company’s consistent all-round performance has been recognized and appreciated, which is reflected in the number of awards and accolades your company has received. Significant amongst which are the following:
Acknowledgment I, on behalf of the Board would like to convey our deepest appreciation to all employees for their sincerity, devotion and perseverance in respective fields, which has helped the Company to grow from strength to strength. I also take this opportunity of extending my personal welcome to those Dempo Group employees, who are now part of larger Sesa family. I would also like to thank my colleagues on the Board for their contribution and guidance. I sincerely appreciate the collective efforts of the entire management team under the able leadership of our Managing Director, Mr. P. K. Mukherjee, for working tirelessly to realize the corporate agenda, meeting stakeholders’ aspirations and continuing the growth and success story of the Company. The Company's quest for continuous value creation would not have been possible but for the support that my colleagues and myself have received from all our customers, suppliers, regulatory authorities and other business associates. The support received by your company from its principal shareholders for continuously imparting further dynamism to the growth trajectory of your company is also appreciated. Finally, I convey my personal gratitude for the confidence that you – our shareholders - have reposed in the company. I sincerely hope that you will continue to extend your whole-hearted support to us so that we, along with the executive management team and all employees, will further accelerate the growth and progress of your company. Thank you, K K Kaura |
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| ANNUAL
GENERAL MEETING |
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| Dear Shareholders, It’s a matter of immense pleasure to me to warmly welcome you to the 16th Annual General Meeting of your Company. Our Chairman, Shri P.G.Kakodkar is absent today due to his illness and in his absence, our Board has appointed me to chair this meeting. It is a matter of satisfaction for me to report that inspite of all round recession, your Company has earned profit after tax of Rs. 58 crores as compared to previous year’s earning of Rs.63 crores. You may be aware that after prolonged litigation by one single shareholder, the merger of your Company with the Holding Company, Sesa Goa Limited (SGL) was approved by the Single Judge of the Bombay High Court at Goa in December, 2008. However, on appeal made by the same shareholder to the Division Bench of the same Court, the Order of the Single Judge was set aside. The Company has filed Special Leave Petition in the Supreme Court of India against the order of the Division Bench and the hearing is awaited. Economic Environment GDP growth of 6.8 per cent in 2008-09, although significantly lower than growth recorded in the previous year, was higher than widely expected. The growth forecast for 2009-10 now stands at 6.0-6.5 per cent, with the agriculture, industrial (including construction) and services sectors likely to grow at 3.5, 4.2 and 8.1 per cent, respectively. Inflation, after reaching a peak of 12.8 per cent in August 2008, has fallen into negative territory. However, in recent days the world commodity prices has again started moving up primarily due to demand from China and the signs of recovery in world economy is being seen in the horizon. Performance Pig iron market is concentrated primarily in India — especially the steel rolling mills, foundries and other allied industries in the west and south-west. With a significant slowdown in automobile and engineering sectors in India during the second half of 2008-09, there was a major fall in demand for steel and foundry products which feed these industries. The market price for pig iron, which had risen to Rs.32,500 per MT in mid-August 2008, declined sharply to the range of Rs. 17,000 - Rs. 19,000 per MT by March 2009. Thus, the pig iron business was subdued, especially in the second half of 2008-09. Production of your company during the year under review reduced from 0.271 million MT in 2007-08 to 0.217 million MT in 2008-09. This was partly due to shut down of one blast furnace for scheduled maintenance & relining during the first quarter, and partly due to a shut down of one of the blast furnaces for over three months from November 2008 to deal with the demand slow-down and consequent build up of pig iron inventory. Pig iron sales volumes during the year was 0.224 million MT - a decrease of 16% from the earlier year. Business Outlook The international price of pig iron, coke and scrap, to certain extent, has bearing on the performance of the domestic pig iron industry. The international prices of pig iron are up from level of US$ 295 CNF to US$350 CNF currently, and have signs of hardening. The demand for scrap & pig iron in China has seen a sudden surge thanks to boom in new housing construction taking over from stimulus package announced by the Government of China. The Chinese export prices of coke continue to be quoted at US$ 400-420 FOB, although with hardly any transaction. Imports are made from countries like Russia, Columbia, Japan & Egypt at prices of US$ 240-260 CNF; the sustained availability of this coke at the same price remains a question and will determine the price of coke / pig iron in the country and the demand for Pig Iron. The Indian economy is relatively more dependent on domestic consumption and will slowly but surely return to the growth trajectory. The monsoon rains, vital to India's huge farm economy, picked up in the southernmost parts of the country but remains weak in some parts of the country which will slightly dampen the growth rate. However, with liberal budget provision for rural infrastructure, the construction and infrastructure sectors are likely to be main drivers for the domestic steel industry along with the auto and FMCG. Demand for all segments is bound to grow with general improvement in consumer sentiment and the expected revival in economy in the next few months. Your Company is viewing the outlook in 2009-10 with cautious optimism. With of consistent quality, timely deliveries and by catering to specific needs of customer Sesa has developed its own customer base in wide sectors & regions, which gives it an edge over its competitors. With the stabilization of the power plant operations, the revenue from sale of gas and CERs will continue to add to the bottom line. Appreciation The pig iron plant strictly adheres to the best standards of quality, environment, health and safety. It is certified to ISO–9001, ISO–14001 and OHSAS–18001 systems for Quality, Environment and Safety respectively. It has also won the prestigious British Council Award for safety in 2008. Your Company was Runners up in the “Good Green Governance Award” in the metallurgical Industry category. The Srishti G-Club Award is instituted by Srishti Publication and are given at the national level for sustainable environmental management excellence. The latest feather in the cap is that Pig Iron Plant has been awarded 5S certification in work place management by the Quality Circle Forum of India (QCFI) in July ’09. Acknowledgement I will fail in my duty if I do not recognize the enthusiastic contribution through sheer hard work/diligence made by the employees of the company, ably led by the management team, in one of the difficult year that passed by. It shows the resilience and passion of the full team that is really praiseworthy. Unlike many companies, your company didn’t resort to short term measures like lay off, etc., to counter such pessimistic business scenario during last year which only goes to show management’s full support to all its employees. I’d also like to take this opportunity to place on record our Board’s gratitude to all shareholders who have not only maintained their confidence in the management of the company but also waiting with patience to complete the merger process for last several years during which no dividend could be declared inspite of earning significant profits. I am also thankful to all other stakeholders of the Company, i.e. customers, suppliers, bankers, auditors, legal advisors, consultants, other business associates and various government authorities, for their unstinted support and co-operation. I’m also thankful to my colleagues in the Board for their tremendous support. I am fully confident that the year 2009-10 will be another year of memorable all round performance. Thank You. P K Mukherjee |
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