DIRECTORS' REPORT 2015-2016 To The Shareholders, 1.Your Directors present the Fifty Third Annual Report and the Audited Accounts for the year ended March 31, 2016. 2. MANAGEMENT DISCUSSION AND ANALYSIS/OPERATIONS REPORT COMPANY'S PERFORMANCE During the year under review, the freight earnings and charter hire receipts amounted to Rs. 467.05 lakhs as against Rs. 731.54 lakhs in the previous year showing a decrease of Rs. 264.49 lakhs. The Baltic Dry Bulk Index which started the year at 596 in April 2015 scaled down to 429 by March 2016. The dry bulk freight markets have remained depressed for most of the year. In view of the continued depressed freight market conditions and also in accordance with its policy of rationalization of fleet, the Company disposed off its 1995 built vessel Maratha Providence in October 2015. The Company acquired a new built river-sea vessel to explore opportunities in Indian coastal trade. INDUSTRY REVIEW & FUTURE OUTLOOK The year 2015 saw a significant shift in bulk carrier demand with sea borne dry bulk trade estimated to have declined by 5% y-o-y to 4.7 bn tones, following average growth of around 7% p.a. in the preceding five year period. The build-up of surplus capacity as well as limited growth in sea borne trade, continued to place pressure on fundamentals in 2015. The bulk carrier fleet expanded by 2.4% in 2015, which was the slowest pace of growth since 1999. Weak market conditions led to surge in demolition. Deliveries continued at a relatively steady pace but the ordering was very subdued in 2015. However, the problem has now shifted to the demand side, with the dramatic slowdown in Chinese dry bulk imports in 2015 contributing to 0.1% decline in sea borne dry bulk trade in 2015, causing a further build up of oversupply. The average bulker earnings dropped below operating cost of the vessel. The extremely difficult operating environment is leading to aggressive demolition. This is projected to help bulk carrier fleet growth to just 1.5% in 2016 and 0.7% in 2017, while new building interest is expected to be subdued. Despite this notable supply-side adjustment, the outlook for sea borne dry bulk trade growth remains difficult. Looking forward to 2016-17, world sea borne trade is projected to grow at a relatively muted pace. Global GDP expansion is expected to pick up slightly in the short term, to reach 3.4% in 2016 and sea borne trade volume is expected to grow by 2.2%. Considering existing imbalance between demand and supply, the market is likely to remain under pressure in 2016-17. INTERNAL FINANCIAL CONTROL SYSTEM The Board has adopted policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Company's policies, safeguarding of assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial disclosures. The Company has effective systems of internal controls, which are periodically reviewed by the Audit Committee of the Board of Directors. GOVERNMENT POLICIES The Indian economy and many developed countries continue to make effort for speedy economic recovery. As part of overall strategy however, the Governments in various countries continue to give priority for development of overall infrastructure. This bode well for overall trade. INDUSTRIAL RELATIONS The industrial relations during the year were very cordial and there were no industrial disputes. THREATS, RISKS & CONCERNS Freight Risks: The Hire income is subject to freight rate risks and therefore the Company follows the policy of mixture of short period and long period time charter contracts with first class charters to mitigate volatility in freight rates. Interest Rate Risk: With a view to avoid uncertainty in the interest rate, the necessary forward cover is taken at regular intervals. Forex Risk: As major portion of the Company's revenues is generated from international business in the US Dollar terms, the same creates a natural hedge against foreign exchange exposures. The Company reviews Rupee - US Dollar parity on regular basis to protect itself from currency fluctuation risks. Counter Party Risks: The Company engages into charter contracts with the reputed charters to avoid the risks to the freight earnings. Government Policies: The Company regularly reviews the changes in the applicable government policies affecting operations of the Company. Human Resources: There is a scarcity of floating staff. In view of outsourcing of crew management, the Company gets the benefit of having efficient and cost effective floating staff from the Ship Manager's pool. CAUTIONARY STATEMENT The statements, expressions, information given in this Management Discussion and Analysis Report describing the Company's objectives, projections, estimates, expectations or predictions may be deemed as 'forward looking statements'. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Company's operations include demand-supply conditions, changes in Government, global economic scenario, etc. 3. LOAN REPAYMENT During the year, the Company has repaid loan of Rs. 1,198.14 lakhs (US$ 1.90 million). The total outstanding loan at year end is R NIL. 4. DEFERRED TAX LIABILITY In terms of the Accounting Standard AS-22 of the Companies (Accounting Standards) Rules 2006, there is a reversal of Deferred Tax liabilities amounting to R 170.89 lakhs for the Financial Year 2015-2016, which is reflected in the Statement of Profit & Loss. The net Deferred Tax Liability of R 464.99 lakhs as at March 31, 2016 is reflected in the Balance Sheet. 5. SUBSIDIARIES The Company has five overseas subsidiaries including one wholly owned subsidiary and four step-down subsidiaries. During the year Sea Green LLC ceased to be a subsidiary of the Company. The Board of Directors of the Company reviewed the affairs of subsidiaries of the Company. In accordance with Section 129(3) of the Companies Act, 2013, the Company has prepared consolidated financial statements of the Company and all its subsidiaries, which form part of the Annual Report. Further, a statement containing the salient features of the financial statement of the subsidiaries in the prescribed format AOC-1 is appended as Annexure 2. The Company will make available these documents / details upon request by any member of the Company. However, pursuant to Accounting Standard AS-21 of the Companies (Accounting Standards) Rules 2006, Consolidated Financial Statements presented by the Company include the financial information of its subsidiaries. 6. INSURANCE The fleet of the Company has been adequately insured against Marine and War Risks. 7. DIRECTORS Mr. Vijay V. Chowgule, Chairman and Mr. Mangesh Sawant, Managing Director & CFO, retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment. Pursuant to the provisions of Section 149 of the Companies Act, 2013 the Independent Directors are not liable to retire by rotation and they shall hold office for a term up to five consecutive years on the Board of a company from the date of their appointment. Pursuant to Regulation 36 of the Listing Agreement, the background of the Directors proposed to be re-appointed at the Annual General Meeting is given in the Corporate Governance Report. Mr. Vijay V. Chowgule is a brother of Prof. Rohini V. Chowgule, Director of the Company. 8. INDEPENDENT DIRECTORS Pursuant to the requirements of Section 149 of the Companies act, 2013, the Board appointed all Independent Directors as Independent Directors for a period of five years and approval of the shareholders was obtained for the said appointments at the 51st Annual general Meeting held on July 9, 2014. The Independent Directors have submitted declaration pursuant to Section 149 (7) stating that they meet the criteria of independence as provided in Section 149 (6) of the Companies Act, 2013. 9. INDUCTION AND TRAINING OF THE BOARD MEMBERS Directors are issued a detailed appointment letter which inter alia sets out terms of appointment, duties, responsibilities etc. of such director Each independent director of the Company on appointment is given such letter of appointment and also briefed by the Managing Director/ Executive Director about the nature of business of the Company, its finances, operations etc. The Company Secretary also assists the Independent Directors in understanding their statutory duties, obligations and responsibilities as a Director/ Independent Director of the Company. The appointment letter of Independent Directors is available on the Company's website www.chowgulesteamships.co.in 10. EVALUATION OF PERFORMANCE OF THE BOARD, COMMITTEES AND DIRECTORS In compliance of the provisions of the Companies Act, 2013 and the Listing Agreement, the evaluation of the performance of the Board for the year under review was carried out. A formal mechanism for evaluation of the performance of the Board, its Chairman, Committees and Directors was adopted. The process was carried out through structured evaluation process covering various important attributes such as composition of Board and Committees, qualifications, experience and competencies, performance of specific duties, attendance of directors at meetings, contribution at the meetings etc. The evaluation of Independent Directors for the year under review was carried out by the entire Board and that of Chairman and Non Independent Directors was carried out by the Independent Directors. 11. CORPORATE GOVERNANCE In terms of the listing agreement with the Bombay Stock Exchange Ltd., the Corporate Governance Report is annexed hereto and forms a part of this Report. 12. CODE OF CONDUCT The Board of Directors has laid down a Code of Conduct for all the Board Members and Senior Management of the Company. The said Code has been hosted on the website of the Company. All the Board Members and Senior Management have affirmed compliance to the Code. 13. DIRECTORS' RESPONSIBILITY STATEMENT The Directors state: "That In the preparation of annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures. The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for that period. The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. The Directors have prepared the annual accounts on a "going concern basis". The Directors have laid down internal financial controls to be followed by the Company and such internal financial controls are adequate and are operating effectively. The Directors have devised proper system to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. 14. AUDITORS Statutory Auditors The shareholders at their Fifty First Annual General Meeting held on July 9, 2014 approved appointment of M/s S B Billimoria & Co, Chartered Accountants, as the Auditors of the Company, for a term of consecutive three years, subject to ratification by the shareholders every year, as per the provisions of Section 139 of the Companies Act 2013 read with Rules made there under. Accordingly, ratification of the shareholders for the appointment of M/s. S.B. Billimoria & Company, Chartered Accountants, as Auditors from conclusion of this Annual General Meeting till the conclusion of the next Annual General Meeting is being obtained at the ensuing Annual General Meeting. The Auditors, being eligible, have given their consent for re-appointment. Secretarial Auditors V. N. Deodhar & Co., Practicing Company Secretaries, were appointed to conduct the secretarial audit of the Company for the financial year 2015-16, as required under Section 204 of the Companies Act, 2013 and Rules thereunder. The secretarial audit report for FY 2015-16 forms part of the Annual Report as Annexure 5 to the Board's Report. 15. THE COMPANIES (Appointment and Remuneration of Managerial Personnel) RULES, 2014 There are no employees covered under the above Rules in respect of whom particulars are required to be furnished. 16. THE COMPANIES (Accounts) RULES, 2014 In accordance with the requirements of Rule 8 (A) of the Companies (Accounts) Rules 2014, a statement annexed hereto gives the particulars as required under the said rules and forms part of this Report (Annexure I). 17. Material Changes and Commitments affecting Financial Position There have been no material changes and commitments which have occurred between the end of financial year and the date of this report which can have impact on financial position of the Company. 18. The policy on appointment and remuneration of directors is discussed in Corporate Governance Section annexed to this Report. 19. There have been no significant material orders passed by courts, tribunals or regulatory authorities which can have impact on going concern status of the Company and its operations. 20. Loans, Investment and Guarantees etc - There have been no loans / guarantees given or investments made in the group companies during the year. 21. The Company has not accepted/renewed any Fixed Deposits during the year ended March 31, 2016. 22. CEO / CFO Certification The Managing Director & CFO has issued a certificate pursuant to the provisions of Regulation 17 of the Listing Agreement certifying that the financial statements do not contain any untrue statement and these statements represent a true and fair view of the Company's affairs. 23. CORPORATE SOCIAL RESPONSIBILITY The provisions of Corporate Social Responsibilities are not applicable to the Company. 24. EXTRACT OF ANNUAL RETURN In accordance with section 134(3)(a) of the Companies Act, 2013, an extract of annual return in form MGT-9 is appended as Annexure 4. 25. GENERAL The Board of Directors expresses its appreciation for the help and co-operation extended by the Ministry of Surface Transport, Maharashtra Maritime Board, Ministry of Finance, The Directorate General of Shipping, Reserve Bank of India and the Company's Bankers and Agents. The Board of Directors also appreciates the loyal services rendered and co-operation extended by the Company's officers and staff, both ashore and afloat. For Chowgule Steamships Limited VIJAY V. CHOWGULE Chairman Place : Mumbai, Date : May 06, 2016 |