Ladies and Gentlemen,
3 July 2012
Good morning! It is my pleasure to be here and welcome you on behalf of the Board of Directors to the 47 th Annual General Meeting and to take you through the business presentation.
I would like to introduce your directors to you. To my left is our Chief Executive Officer, Mr. P K Mukherjee. Further to my left is Mr. G D Kamat, Independent Non-Executive Director. On the far left is Mr. J P Singh, Independent Non-Executive Director.
On my right, we have Mr. Ashok Kini, Independent Non-Executive Director; further to him is Mr. Amit Pradhan, Whole Time Director in charge of your Value Addition and Steel Business. Next to Mr. Pradhan is Mr. S L Bajaj, Director – Finance, who joined us this year from our group company Hindustan Zinc Limited. Next to him is our Company Secretary, Mr. C D Chitnis.
During the year, we announced the retirement of Mr. Arun Kumar Rai. Mr. Rai made a valuable contribution to the Company during his tenure of more than 35 years, driving the successes in exploration and mining operations over the years, with his expertise and strong business acumen. He joined the Company as a Graduate Trainee and retired as a Director of this Company on 31 July 2011. The Board appreciates his contribution and wishes him and his family continued success. Mr. Rai continues to be associated with the Company as Chief Technical Advisor, providing valuable guidance to the exploration effort and Liberian operations.
Further this year, Mr. P G Kakodkar stepped down from his directorship and the Board accepted his resignation on 25 October 2011. Mr. Kakodkar rendered substantial contribution during his tenure of more than 11 years, from March 2000 to October 2011, and the Board places its appreciation and wishes him and his family a healthy life ahead.
The annual report containing the Director’s Report and Audited Accounts for the year ended 31 March 2012 has been with you for some time now and with your permission, I shall take the same as read.
Let me highlight a few salient aspects of the year’s operational and financial performance:
The Company has taken significant steps this year towards creating a global resource major with a number of acquisitions, which I will detail, culminating in the announcement of the merger of Sterlite Industries, along with other group companies, with Sesa Goa. With these acquisitions and mergers, Sesa’s exposure to diverse commodities and geographies, enhanced scale of operations and access to significant organic growth, will enable it to consistently deliver higher value to its shareholders at a reduced risk.
Despite a challenging environment, the Company continued to invest in long-term growth.
Expansion: While we are currently constrained in our efforts to increase our iron ore capacities in Goa and Karnataka, I am pleased to inform you that we have almost completed the expansions of our pig iron and met coke facilities along with a sinter plant and the associated power plant. The enhanced pig iron capacity of 625 ktpa will make Sesa the largest low-phosphorous pig iron producer in the country and the addition of the sinter plant will give us the ability to utilise iron ore fines, giving Sesa a strong cost advantage.
Exploration: The Company continues to invest in long-term resource generation with an aggressive drilling program. Exploration, which is a pillar of our growth strategy, added 68 million tonnes of additional resources in 2011-12, about 5 times what we extracted during the year. Sesa added over 257 million tonnes over the last 4 years, drilling more than 200,000 metres. As on 31 March 2012, the Company’s total reserves and resources in India were at 374 million tonnes.
This year was also significant for the strides the Company made in inorganic growth.
Cairn India: During the year, Sesa Goa Limited, along with its subsidiary, Sesa Resources Limited, acquired 20% of the share capital of Cairn India Limited for Rs. 13,075 crores. Cairn India is a unique oil and gas exploration and production platform with the second largest oil reserves in India. For the year 2011-12, Cairn India has declared a PAT of Rs. 7,938 crores, of which, for the period 8 December 2011 – 31 March 2012, Associate Income of Rs. 588 crores has accrued to your Company’s overall earnings.
Liberia: Taking Sesa’s iron ore business truly global, we acquired 51% stake in Western Cluster Limited in Liberia, with a potential iron ore resource of over 1 billion tonnes, for Rs. 411 crores. The Western Cluster Project presents an excellent opportunity for developing a large integrated mining operation and establishes our presence in Liberia and the upcoming iron ore hub in West Africa. The Company has successfully completed the aeromagnetic survey in Liberia and exploratory drilling is in full swing. As on date, the Company has completed over 10,000 metres of drilling.
Sterlite Merger: The Company also announced the intended merger of Sterlite Industries (India) Limited with Sesa Goa Limited, which will create one of the world’s largest diversified natural resources company, having exposure to zinc-lead-silver, iron ore, oil & gas, copper, aluminium and commercial power, with assets located in India, Australia, Liberia, South Africa, Namibia, Ireland and Sri Lanka. The Company has already received approvals from the Competition Commission of India, the Stock Exchanges and the Foreign Investment Promotion Board.
At the Court Convened Meeting held on 19 June 2012, you had given the Company the approval for the two Composite and Concurrent schemes. As on date, all the companies involved in the merger have received the approvals from their shareholders. The scheme is now subject to the approval of the High Court.
Sesa’s biggest asset is our dedicated and talented workforce of about 4,700 people driving Sesa towards greater achievements and success. We remain committed to sustaining a challenging and rewarding work environment for all our employees.
Sesa continues to focus on its two-pronged approach to the identification and development of next-generation business and operational leaders, through its on-going GOLD and ACT UP processes. During the year, the Company has focussed on specific organisational development initiatives, directed at improving managerial performance, by profiling personalities, strengthening interpersonal relations and employee engagement.
During the year, Sesa Goa Limited has been certified for SA 8000 for all its units. SA 8000 is an international standard on human rights at the workplace, and involves the development and maintenance of management systems that promote socially acceptable working practices. It is an auditable certification standard based on international norms laid down by ILO and other human rights bodies.
You may note with pride that your Company is the first iron ore company in the world to have achieved this certification. This certification has been awarded for the Goa and Karnataka Mines, Corporate Office, Pig Iron & Met Coke Division and Ship Building Division.
Sesa remains committed to sustainable development, which focuses on maintaining a pre-eminent position in health, safety and environment practices, and in contributing to the development of communities where it operates.
Health, safety and environment are always a priority for Sesa. The Company continues to take a proactive role in providing employees a safe working environment through responsibility, training, monitoring and implementing the best safety and environmental practices across all locations.
I take pride in informing you all that Sesa was among the few companies in India, to take the initiative in voluntarily preparing Sustainability Development Report adhering to GRI guidelines, since 2005-06. We continue to maintain high levels of disclosures in our reporting, and this year’s report will be published soon.
Since few years, Sesa has been disclosing its carbon emissions, and strategies to minimise GHG emissions, through CDP reporting. During the year, your Company was ranked 7th in the CDP India 200 Report, 2011.
The Company has an integrated approach to the management of health, safety and environment systems in all its units, which are certified for ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007.
In 2011-12, Sesa’s overall Lost Time Injury Frequency Rate (LTIFR) reduced from 0.86 in 2010-11 to 0.81 per million man-hours worked. I am happy to report that the pig iron division (PID) maintained its zero-accident record for the second consecutive yeas and that the shipbuilding division achieved a zero-accident record for 2011-12.
Our community development work, through the Sesa Community Development Foundation, Mineral Foundation of Goa and other specific need-based initiatives, continues to focus on social projects in line with our overall sustainability objectives. Our development initiatives have impacted about 4 lakh lives, in and around the areas in which we operate.
While we continue to focus on the four critical dimensions of education, healthcare, infrastructure and livelihood, in our community development activities; a few specific interventions during the year need special mention:
During the year, Sesa has contributed over Rs. 3,500 crores to the exchequer, in terms of taxes, duties and royalties paid.
Global economy is passing through difficult times. China and India exhibited comparatively less robust growth of around 9.2% and 7.2% in 2011 respectively. Despite uncertainties on the economic front, global steel output in 2011 increased and, in turn, global seaborne iron ore trade increased on the back of sustained and robust demand from China.
China and India continue to expand in their urbanisation, which will keep the demand robust for metal consumption. The global deficit in seaborne iron ore supply is expected to continue for the next two years. This is expected to provide some support and stabilise prices in the near term.
On the cost front, royalty rates, railway and road freight and export duties are expected to exert pressure on the Company, while volumes would continue to be challenged by uncertainties in policy decisions and hurdles in logistics.
Notwithstanding these, the strategic positioning of Sesa as a low-cost producer, coupled with accessibility to ports and strong customer relations, remains the key to mitigating downside risks and exploiting opportunities. The Company continues to work on furthering its internal systemic robustness and strengthening processes to handle such future challenges.
As you may be aware, SFIO had submitted its report on the investigation into Sesa’s affairs pursuant to section 235 of the Indian Companies Act, in which it made certain allegations, and recommended, inter alia, action against the directors of Sesa Goa Limited during 2001-2008.
In response to this report received by the Company on 26 May 2011, Sesa filed few representations to the Secretary, Ministry of Corporate Affairs, with a copy to SFIO, explaining in detail Sesa’s position on the allegations in the SFIO report and denying the allegations made therein. No further communication has been received till date.
The Board has recommended a final dividend of Rs. 2 per share, in addition to the earlier declared interim dividend of Rs. 2.
I would like to take this opportunity to thank all our employees, my colleagues on the executive team, the Group Management and the Board of Directors for their unwavering support and would like to use the opportunity to welcome our colleagues in Western Cluster Limited, Liberia and GEPL to the Sesa family.
I thank all the shareholders for reposing faith in Sesa’s business in these difficult circumstances.
Thank you ladies and gentlemen,
Kuldip K Kaura
21 July 2011
Good morning ladies and gentlemen. It is my pleasure to be here in welcoming you on behalf of the Board of Directors to the 46th Annual General Meeting of your Company.
It is our endeavor to continuously explore opportunities for growth by synergizing and blending our core competencies to create value for our stakeholders. It is undoubtedly a moment of immense pride for all of us who have been part of our inspiring journey for more than five decades. Even more so, a sense of fulfillment that comes from the creation of an exemplary India's largest private sector producer-exporter of iron ore.
The Annual Report containing the Director's Report and Audited Accounts for the year ended 31 March 2011, have been with you for some time now and with your permission, I shall take the same as read.
Financial year 2010-11 has been a landmark year for Sesa Goa.; let me take you through some of the Highlights:
World output growth is back in positive territory at 5% in 2010, after contracting by 0.5% in the previous year. Emerging and developing economies continue to drive most of this growth. Renewed growth has revived steel demand. This provided for strong demand pull right across the ferrous metal value chain. China and India are also back on their high growth momentum. India grew by 8.6% in 2010-11, while China recorded a growth of around 10% in 2010.
Estimates suggest that global steel consumption has grown by around 1.5x of world GDP growth over the last decade. Global steel production rose by 16.8%, to 1,414 million tonnes in 2010. Such growth in steel output resulted in a strong demand for iron ore and met coke. This, coupled with logistics and environment related constraints on the supply side, saw significant increase in price of these raw materials during much of 2010-11.
At the beginning of the financial year 2011, we had projected a volume growth of 20-25%. Your Company managed to nearly maintain its production and sales volume levels at 18.8 million tonnes and 18.1 million tonnes respectively, almost on par with 2009-10. This was a result of some factors which adversely affected our operations like export ban by the State Government of Karnataka since end July 2010, longer than normal monsoons in Goa and logistics constraints in Orissa and Goa.
However, our external sales revenue from iron ore increased by 62% to Rs 8,387 crores in 2010-11. This trend was replicated in the pig iron business. Although sales volumes decreased by 5%, external sales revenues grew by 22% to Rs 674 crores in 2010-11, while in metallurgical coke our production and sales volumes were almost similar while segment revenues increased by 32% to Rs 506 crores in 2010-11.
As you all may be aware that the Supreme Court has stayed the export ban of the State Government of Karnataka from 20th April. Despite the orders permits for transportation of ore for exports have still not been issued, which we expect to happen soon. Meanwhile, we have increased sales in the domestic market significantly.
On 28th February, 2011, Government of India raised export duty on both lumps and fines to 20%. The effect of this was restricted to only the month of March in 2010-11, but going forward this will affect our margins.
In the near future, there is considerable market potential for a low cost producer like Sesa Goa to efficiently service the global seaborne iron ore trade.
Your company believes in highest standards of corporate governance based on transparency, ethics and beyond compliance.
As informed in the previous meeting that your company was subjected to investigation by SFIO, Ministry of Corporate Affairs, New Delhi. The SFIO has issued its report, alleging mainly under invoicing of exports, over invoicing of imports, higher commission payment and higher transfer price of iron ore to erstwhile SIL amongst others. The Company has made its representations and submissions to Ministry of Corporate affairs and SFIO and we believe that the same will be fully considered before any further proceedings.
Merger of SIL
At this juncture, it gives me great pleasure to inform you that the long pending case regarding the amalgamation of the erstwhile SIL with your Company has finally received the approval of the Supreme Court. The merger was completed in February 2011 with appointed date of 1 April, 2005.
Consequently actions like issue of share and distribution of dividend to the erstwhile shareholders of Sesa Industries Limited have been completed.
Strategic Developments & Acquisitions
Your Company made two long term commitments in 2010-11. The first is a commitment to buy 20% stake in Cairn India Limited (CIL) as part of the Vedanta Group's bid to buy majority stake in that entity. As mentioned earlier this will be a strategic investment for your Company which will provide an opportunity to not only earn superior returns but also a step towards diversification. Your Company at present holds 18.5% stake in Cairn India Ltd acquired through market purchase and open offer.
The second is a move to diversify up the ferrous metal value chain. Sesa Goa acquired the assets of the upcoming steel plant unit of Bellary Steel and Alloys Limited for an all cash deal of Rs 220 crores. Apart from the direct benefits of leveraging growing opportunities in the Indian steel sector, this acquisition will allow us to add value to the iron ore mined in the state of Karnataka. However, this acquisition has been challenged by JSW Steel Ltd in the Supreme Court of India, which has asked the parties to maintain status quo until the matter is decided.
I am also pleased to inform you that we have successfully integrated the operations of Sesa Resources Limited (SRL) and the Sesa Mining Corporation (SMC) - the erstwhile V S Dempo Limited - with the Company's operations.
Growth and Long Term Value
Last year, I had also stated your Company's iron ore vision of 50 million tonnes production and sales by 2012-13. There has been a revision to this. In 2010-11, we did not renew our agreement for third party operations at the Thakurani mines in Barbil, Orissa, due to unfavorable commercial terms, and terminated our contract in Orissa. We continue to maintain our target for increasing ore production in Goa and Karnataka to 40 million tonnes. Although we made satisfactory progress in logistics, mining and processing capacities, we are awaiting certain statutory clearances for increasing iron ore production.
The projects to increase pig iron capacities by 375,000 tonnes along with non-recovery coke plant with a capacity of 280,000 tonnes, sinter plant and waste heat recovery power plant are all progressing well, for commissioning by Q3, 2011-12.
In our pursuit to access iron ore mining in Jharkhand, our efforts for land acquisition to set up a steel plant is making steady progress.
As a part of our sustainable growth strategy, in the past few years your Company has focused systematically to expand its resources base through continued exploration. I am delighted to report that our ongoing exploration activities have yielded significant success with an increase of 53 million tonnes to the gross reserves and resources, in FY 2011. Total reserves and resources as at 31 March 2011 stands at 306 million tonnes.
We believe people play a vital role in the growth of the organization. Our biggest asset is our dedicated and talented workforce of over 4,750 people who are driving your Company towards greater achievements and success. Their commitment has enabled your company to succeed in a most difficult environment. I would like to thank each one of them for their continued superior efforts this year. We remain committed to continue to provide a challenging and rewarding work environment for all our employees.
When we are successful, as we have been in recent years, the return to the community is considerable both directly and indirectly. The returns come in the form of increased employment, the creation of new small and medium size businesses, export earnings and a boost to economic growth. When resources are developed, companies like Sesa Goa pay royalties and taxes to governments, which in turn, contribute to community development and economic growth.
In 2010-11, we are proud to have contributed Rs 2,571 crores, as against Rs 1130 crores in the previous year, to the exchequer in the form of various taxes, duties, levies, royalties, etc., to Government of India and other Government agencies.
To deliver value to our shareholders we must deliver value to society, beyond our financial performance. We understand the need to work with passion for the communities in which we operate. There are three elements to this: environment management; health & safety and community development.
We pride ourselves in the environment practices and set new records every year. All our locations are certified for ISO 14001.
For Sesa Goa, safety is a fundamental value and is integrated into the way we work. Our Lost Time Injury Frequency Rate (LTIFR) reduced from 1.13 in 2009-10 to 0.86 hours per million man hours worked in 2010-11. I am also happy to report that our Met Coke Division (MCD) achieved zero lost time accidents for the last two consecutive years and Pig Iron Division (PID) also achieved zero lost time accidents in 2010-11. The Frequency Severity Index (FSI) is disclosed in Annual Report, page no.24.
The community development work - through the Sesa Community Development Foundation, Mineral Foundation of Goa and specific need based initiatives - continues to focus on social projects in line with our over-all sustainability objectives.
As a part of sustainable development communication and reporting system, your company publishes every year Sustainability Development Report, complaint to GRI G3 guidelines and maintaining its application level A+ since last 3 years. Your company is a signatory to UN Global Compact since 2009-10, and submitting the communication of progress to the principles of UNGC.
For the near term, we remain optimistic about the prospects of iron ore demand and consequently the price, in the global seaborne trade. In line with consensus expectations, we expect global deficit in iron ore to continue for the next two years. In the longer term, the market will move towards equilibrium at lower prices as new capacities for iron ore come on stream. On the cost front, we expect royalty rates, railway & road freight and export duties to exert some pressure, while volumes could be challenged by uncertainties in policy decisions and hurdles in logistics. We remain cautiously optimistic of overcoming such obstacles.
The long awaited new MMDR (Mines and Minerals Development Regulation) Bill has been approved by the 10-member Group of Ministers (GoM). This is still in a draft stage; some of the proposed provisions of this bill will pose significant challenges to our margins, when enacted.
Awards and Recognition
A number of prestigious awards and recognition were bestowed on us; some of them are;
The Board has recommended a dividend of Rs 3.50 per equity share of Re.1/- each for the financial year 2011.
On behalf of the Board of Directors, I would like to place on record our appreciation to our customers, vendor-partners, investors, bankers, contractors and business associates. We thank the Government of India, particularly the Ministry of Mines, Ministry of Environment & Forests, Customs and Excise Departments, Income Tax Department, various port authorities, the various State Governments and all other regulatory agencies.
We recently announced that our Chairman, Mr. SD Kulkarni, has stepped down from the Board after serving the Company for 10 years. On behalf of the Board of Directors, I would like to take this opportunity to thank, Mr. Kulkarni for his substantial contributions, and for guiding Sesa Goa to its pioneering position.
The Company has recently appointed Mr. Jagdish P Singh and Mr. Ashok Kini as Directors. I welcome them on board and look forward to their support and guidance in taking Sesa Goa to new levels of success.
I take this opportunity to thank all the board members and the executive management team for their guidance and their unending support in building an organization for the future.
Lastly on behalf of the Board of Directors, I thank all our shareholders for their support. We can assure you that we will continue to drive our Business Excellence model to take your Company to further heights in the years to come.
Thank you ladies and gentlemen,
Kuldip K Kaura
I am delighted to report another excellent set of results in a challenging year for your company.
Financial year 2009-10 began with developed markets in recession and commodity prices and industrial demand at multi-year lows. Emerging markets - especially India and China - proved more resilient to the economic downturn, with continued economic and metals consumption growth. The large and coordinated stimulus from Governments globally has secured greater stability in financial markets and return to economic growth.
Despite a slow first half and expectations of a sharp drop in growth, China achieved 8.7% GDP growth in 2009-10, and is forecasted to grow at around 9.7% in 2010. India posted a 7.4% growth in 2009-10, and is estimated to grow above 8% in 2010-11. Brazil is stated to grow at over 5.5% in 2010. These three major emerging economies have not only emerged out of the slowdown, but are also expected to deliver significantly higher GDP growth in the next few years. From a macroeconomic point of view these developments reinforce the strength in Sesa's business strategy.
2010 was another outstanding year. Record productions for Iron Ore and Pig Iron were achieved along with maintaining the costs under control. With a share of 88% of total external sales, iron ore is your Company's primary business segment. During the year, there was a 11.6% increase in sales volume of iron ore from Sesa Goa's existing business and 36% increase on a consolidated basis with 20.5 million tonnes in FY2010 (including 3.6 million tones sales from Dempo mines) as compared to 15.1 million tonnes in FY2009. Even with the sharp increase in production and sales volumes during the year, your Company's cost of productions were competitive and were maintained at same levels as compared to the previous year's cost.
Pig Iron business in FY2010 has seen an increase in production and sales volumes by 29% to 280 thousand tonnes and 24% at 279 thousand tonnes respectively - a record production and sales volumes since the inception of the business.
In the Met Coke business; during the FY2010 we achieved a 17% increase in production volumes at 263 thousand tonnes and 22% increase in sales volumes at 265 thousand tonnes as compared to FY2009. As regards to the Technology Sale for our 'Energy Recovery Coke Oven Facility', it may be noted that your company has received United States patent and also our application made for European patent has also been granted, qualifying through the stringent pollution norms in US & EU.
As you are aware, due to prolonged litigation by one single shareholder, the merger of Subsidiary Company, Sesa Industries Limited with the Company is still pending before Supreme Court of India for approval and the hearing is expected in the first week of August 2010.
The Company has been subjected to investigation by Serious Fraud Investigation Office (SFIO) since December 2009 on the conduct of business affairs of the Company. The Company is co-operating with SFIO and providing the required information. Given the high standards of governance practiced by the companies under scrutiny, I am confident that the issues will be favorably sorted out at the earliest.
As informed in the last AGM, Dempo has been the first major acquisition by your Company. In June 2009, your Company acquired the mining assets of V.S.Dempo and Company Private Limited ('VSD' or 'Dempo') and its subsidiaries and associates. The acquisition was on a debt-free and cash-free basis for Rs. 1,750 crore (based on normative working capital) which was financed through internal accruals. Dempo is a logical and strategic fit with Sesa's existing iron ore business. Your Company has started leveraging synergies to create significant long term value for all shareholders. There has been a significant growth in production of saleable ore from Dempo and the success of the post-merger fit has given us confidence to pursue the acquisition route for growth in coming years.
Our exploration philosophy has been to replace every tonne of ore mined with at least one tonne of resource. I am pleased to report that our ongoing exploration activities have yielded significant success with a net increase of 43 million tonnes to reserves and resources, post depletion of 21.4 million tonnes of saleable ore production in FY 2010. As on 31st March 2010, total consolidated reserves and resources stands at 353 million tones including 70 million tonnes from Dempo acquisition.
Over the last few years, your company has been growing profitably, and at a rapid pace. The lessons learnt and the experience gained has given your Company the conviction to set a time bound target for aggressive growth. The goal is to be the fourth largest iron ore producer in the course of next 2/3 years with an annual production of 50 million tonnes from various mines. This is the vision that your Company has adopted to guide its activities in the next three years. Such a large increase in production and transportation of iron ore over a short span of time will need aggressive investments and concerted efforts not only at the mines but also in developing the associated logistics infrastructure. The Company intends to invest around Rs.2,300 crores to support this plan. However, the regulatory environment for iron ore mining in India is quite challenging and hence the time line for growth projects in iron ore mining to that extent suffers from uncertainity.
Your company has also announced for setting up of new integrated project to increase the pig iron production capacity by 375 thousand tonnes per annum along with non recovery coke plant with a capacity of 280 thousand tones, based on its own patented coke-making technology, a sinter plant and a waste heat recovery power plant. Post commissioning of the new projects, your company will be the only manufacturer of pig iron in the secondary sector in India, with total backward integration. Total investment in these projects is estimated at Rs.605 crore. The project is expected to be completed by Q1, FY2012 and is being executed as per schedule.
Driving our achievements and success is our dedicated and talented workforce of over 4,000 people. I would like to thank each one of them for their continued superior efforts this year. We remain committed to continue to provide a challenging and rewarding work environment for all our employees, and building a high performance organisation where careers are nurtured, capabilities are valued, leaders are developed from within and performance is rewarded.
Your company has long standing commitment to sustainable development, and we believe that business today has greater responsibility than ever before to enhance society's overall well being. We continue to proactively foresee social and environmental factors that will be influencing our business in the long term and prepare for those changes now, so that we can emerge as a more effective and stronger company.
I am pleased to report that your company's safety record measured in terms of FSI - an index which simultaneously accounts for the frequency and the severity of accidents reduced substantially on consolidated basis by 79% from 1.505 in FY2009 to 0.319 in FY 2010.
On sustainable development, annual targets are set and monitored in line with your Company's HSE and social policies with a clear focus on integrating HSE aspects in the decision-making process. All locations are certified for ISO 9001, ISO 14001 and OHSAS 18001 except Orissa operations and OHSAS for Dempo operations. Your Company's community development work through the Sesa Community Development Foundation, Mineral Foundation of Goa and specific need based initiatives continues to focus on social projects including alternate livelihood developments in line with its over-all sustainability objectives.
We have also remained focused on actively engaging with our key stakeholders, enhancing our reporting and increasing transparency; from the past several years your company has been producing the Sustainable Development Report every year and for the FY2009 your company's sustainable development report was produced based on International Guidelines GRI G3 with A+ level of reporting and your company has plans to publish at same level for the financial year 2010.
It is clear that the primary markets - India and China - are moving back to a relatively high growth trajectory. Iron ore prices have recovered from the lows of 2009 and are expected to be buoyant on the back of strong demand from China and India. We are also looking at iron ore market outside China including domestic market of iron ore with more focus. We have also started shipment on CFR basis in a large way to capture extra realization potential. On the cost front, royalty rates have gone up in India, railway freight costs too are increasing, and there are always risks of ever changing export levies. In this milieu, while your company is committed to its long term growth objective, it is aware of the critical role that internal efficiencies and operational productivity will play for the future fortunes of your Company. Your Company remains cautiously optimistic of overcoming the obstacles and delivering a strong performance in FY2011.
The Board has recommended a dividend of Rs 3.25 per equity share of Re.1/- each for the financial year 2010.
I am happy that our efforts are acknowledged by external agencies. During the year we won several awards in the areas of environment, safety, corporate social responsibility, etc notable among them being the International Safety Award for 2009 by the British Safety Council, Appreciation award for the Mine reclamation work by CII, Overall CSR Excellence Award-2009 for second consecutive year by Green Triangle Society and GCCI, Best performer award by FE - EVI for contributions towards the environment and the excellence in the area of 'Green Businesses'.
On behalf of the Board, I express my sincere appreciation for the support and contribution made by employees at all levels in dealing with the challenges of the new era and look forward to their continued support.
I am also thankful to all our customers for their loyalty and we reiterate our commitment to deliver value to them. Our thanks are also due to suppliers, an important part of our value chain. I would also like to place on record my gratitude & thanks to my esteemed colleagues on the Board for their valuable support & contribution. We are grateful for the support extended by the community around our operating areas and government authorities in the respective states.
We are also grateful to the Ministry of Mines, Ministry of Environment & Forest, Government of India, and State Governments of Goa, Karnataka and Orissa for the support and cooperation extended to us in all our endeavors.
I sincerely appreciate the collective endeavor of the entire management team under the 'able leadership of our Managing Director, Mr. PK. Mukherjee, for working tirelessly to realize the company's vision, meeting stakeholders' aspirations and continuing the growth and success story of the Company.
Last but not the least I am thankful to all shareholders for reposing their confidence in the Company.
Thank you, Ladies and Gentlemen
It's a matter of gratification to report that your company has registered the record production and sales volumes since the inception of its business. The profit after tax has seen an increase of 46% from previous year, which is creditable keeping in view the fact that it has been an extremely volatile year, with a particularly challenging first six months.
The merger of your company and Sesa Goa Limited is still pending owing to objection from one shareholder of your company. The case is pending before Supreme Court of India for approval and the hearing is expected in the first week of August 2010.
The Company has been subjected to investigation by Serious Fraud Investigation Office (SFIO) since December 2009 on the conduct of business affairs of the Company. The Company is co-operating with SFIO and providing the required information. Given the high standards of corporate governance practiced by the companies under scrutiny, I am confident that the issues will be favorably sorted out at the earliest.
The world economy is recovering after the severe recession of late 2008 and the early part of 2009. Unprecedented stimulus packages announced by various Governments globally have contributed to the upturn.
The Indian economy seems to have a strong foothold on the recovery path backed by timely and aggressive policy responses by the Government and the Reserve Bank of India (RBI) to tackle the crisis and a turnaround in consumer as well as business sentiment. However, some downside risks in the form of inflation do persist. The RBI has projected real GDP growth for 2010-11 at 8.4% against 7.4% in 2009-10.
As mentioned earlier in my speech, your company has achieved record production and sales volumes during the year under review. There has been an increase in production volume by 29% from 217,114 tonnes in 2008-09 to 280,129 tonnes in 2009-10 while sales volume was increased by 24% from 224,478 tonnes in 2008-09 to 278,747 tonnes in 2009-10.
There was an increase of 48% in pre-tax profit for the year under review as against previous year. This was primarily due to lower price of raw material, mainly coke & iron ore and partly due to higher sales which was partly off-set by lower average price realization.
While there was an improvement in the latter part of the year, overall demand and price levels remained subdued during the year. Your company focused on higher sales and production volumes with both the blast furnaces operating at the optimum level.
As per the World Steel Association's short range outlook the economic recovery is not only earlier but also stronger than expected. India's steel demand maintained stable growth during the crisis and is expected to grow by 13.9% and 13.7% in 2010 and 2011 respectively, after 7.7% in 2009.
The demand for pig iron is expected to be buoyant, especially with the auto, pump and engineering goods sector projected to do well. However, the international trend of quarterly pricing in the coal and iron ore trade is likely to keep the prices of inputs i.e., coke & iron ore fluctuating which render the prices of pig iron volatile. Your company continues to focus on reductions in operating costs, product quality improvement and development of new products for downstream industries. As we march ahead we look forward to 2010-11 with guarded optimism
Appreciation and accolades always uphold the confidence we have in our strengths and capabilities. Our sustained all round efforts have won us several awards and accolades this year also. Significant amongst which are: National Award for Excellence in Water Management 2009 as Water Efficient Unit by Confederation of Indian Industry (CII), International Safety Award for 2009 by British Safety Council for the second consecutive year and Corporate Social Responsibility Award in Environment category by Green Triangle Society & Goa Chamber of Commerce and Industry (GCCI).
I am greatly obliged to appreciate the passionate contribution made by the employees of the company under the competent leadership of management team. I'd like to take this precious opportunity to put across our Board's gratitude to all shareholders for retaining their trust on the management and also for their endurance over the past several years in waiting for the completion of the merger process. I am also thankful to all stakeholders of the company viz; customers, suppliers, bankers, auditors, legal advisors, consultants, other business associates and various government authorities, for their unstinted support and co-operation.
I am also grateful to my esteemed colleagues on the Board for their enormous support. I am fully confident that the year 2010-11 will be another year of remarkable performance.
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.
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.
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. Wage settlement has been signed with Workers Union, in Goa & Karnataka, two major operational areas, for a period of 4 years.
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.
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.
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 .
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.
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:
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.
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.
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.
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.
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.
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.
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.