ACC - Annual Report - 2008-2009

ACC LIMITED
ANNUAL REPORT 2008
DIRECTOR'S REPORT
DIRECTORS' REPORT & MANAGEMENT DISCUSSION AND ANALYSIS:
TO
THE MEMBERS OF
ACC LIMITED
The Directors have pleasure in presenting the Seventy Third Annual Report,
together with the audited accounts, for the year ended December 31, 2008.
The Management Discussion and Analysis has also been incorporated into this
report.
1. PREAMBLE - 2008: A YEAR IN WHICH WE OVERCAME THE ODDS:
During the year, your Company concentrated on robust cost management
processes and productivity gains to negotiate the challenges posed by a
progressively worsening external business environment.
We began 2008 with plans to meet the needs of a rapidly growing economy.
But India, like other world markets, soon began showing signs of strain, as
inflation reached double digits, and prices of commodities such as coal,
petroleum products, steel and food items escalated. Your Company's input
costs increased sharply, as prices of coal and gypsum rose, and
distribution costs also went up with higher oil prices. As inflation
reached a 16-year high by August, growth slowed and the cement industry was
also blamed for the rise in inflation. Banks continued to raise interest
rates to tame inflation. The cost of funds for both home buyers and
companies dealing in real estate increased accordingly, hurting demand for
cement.
Against this backdrop, your Company had to adjust its plans to weather the
uncertainties. ACC focused on enhancing productivity and efficiency, as it
sought to attain its twin objectives-one to emerge stronger through the
downturn and the other to maintain its leadership position. To reduce
operating and input costs, your Company focused on augmenting blended
cement production, improving the efficiency of factory equipment and
lowering power consumption. The Company also launched an organization wide
cost reduction project to improve its competitiveness.
A large number of human capital initiatives were implemented with the
objective of creating a more accountable and motivated team.
2. HIGHLIGHTS OF PERFORMANCE / EVENTS:
* Production at 20.83 million tonnes and sale of cement at 21.01 million
tonnes grew by 4.6% and 5% respectively.
* Total consolidated income for the year 2008 at Rs. 8000 crore, up 11%
over the previous year.
* The consolidated profit before exceptional items and tax for the year
ended December 31, 2008 was Rs. 1582 crore against Rs. 1716 crore in 2007.
* Consolidated profit after tax for the year ended December 31, 2008 was
Rs. 1100 crore against Rs. 1427 crore in 2007.
* There was substantial progress in the implementation of projects
augmenting capacity at Bargarh and Wadi II, with satellite grinding units
in Karnataka.
* The Company began building a new clinker and cement line of 3 MTPA
capacity at Chanda.
3. FINANCIAL RESULTS:
The consolidated profit before tax and exceptional items for the financial
year under review was Rs. 1582 crore, while profit after tax (including
extraordinary items) was Rs. 1100 crore, as against Rs. 1716 crore and
Rs.1427 crore, respectively, in the previous year.
FINANCIAL RESULTS:
A B C D
Sale of products and 8000.03 7221.71 7597.33 7168.17
services (net of excise
duty) and other income
Profit before 1942.75 2103.17 2021.88 2096.12
depreciation, interest,
exceptional items, tax
and minority interest
Depreciation 320.53 313.02 294.18 305.07
Interest 39.98 74.38 39.96 73.87
360.51 387.40 334.14 378.94
Minority Interest 0.03 (0.19) - -
Profit before 1582.27 1715.58 1687.74 1717.18
exceptional items and
tax Exceptional Items
Profit on sale of 29.97 8.42 36.57 11.68
investment in
subsidiary and
associate
Profit on sale of land 12.58 201.43 12.29 201.43
Profit after exceptional 1624.82 1925.43 1736.60 1930.29
items and before tax
Consists of:
Continuing Operation 1624.82 1925.43 1736.60 1991.00
Discontinued Operation - - - (60.71)
1624.82 1925.43 1736.60 1930.29
Provision for Tax:
Current Tax (511.68) (478.22) (510.47) (472.75)
Deferred Tax (3.71) (11.60) (4.34) (10.73)
Fringe benefit tax (9.78) (8.27) (9.00) (8.22)
(525.17) (498.09) (523.81) (491.70)
Profit after Tax 1099.65 1427.34 1212.79 1438.59
Consists of:
Continuing Operation 1099.65 1427.34 1212.79 1478.87
Discontinued Operation - - - (40.28)
1099.65 1427.34 1212.79 1438.59
Balance brought forward 2057.37 1254.97 2064.89 1248.94
from previous year
Transferred from - 166.63 - 166.63
Debenture redemption
reserve
Profit available for 3157.02 2848.94 3277.68 2854.16
appropriations
Appropriations:
Interim Dividend 187.65 187.40 187.65 187.40
Proposed Dividend 187.68 187.62 187.68 187.62
Dividend Distribution 63.79 65.04 63.79 63.74
Tax
General Reserve 350.00 351.00 350.00 350.00
Debenture Redemption 10.00 - 10.00 -
Reserve
Previous Year Dividend 0.02 0.16 0.02 0.16
Amortisation Reserves 0.63 0.35 0.63 0.35
799.77 791.57 799.77 789.27
Balance carried forward 2357.25 2057.37 2477.91 2064.89
to the next year's
account
A = Consolidated - This year - Rs. Crore
B = Consolidated - Previous year - Rs. Crore
C = Standalone - This year - Rs. Crore
D = Standalone - Previous year - Rs. Crore
4. DIVIDEND:
In July 2008, your Company had paid an interim dividend of Rs. 10 per
share, involving an outgo (including the dividend distribution tax) of
Rs.219.54 crore. Your Directors are pleased to recommend a final dividend
of Rs. 10 per equity share of Rs. 10 each. Thus, the total dividend for the
year 2008 would be Rs. 20 per equity share as against the same amount per
equity share for the year ended December 31, 2007.
The total dividend outgo for the current year would amount to Rs. 439.12
crore, including dividend distribution tax of Rs. 63.79 crore, as against
Rs. 438.76 crore, including dividend distribution tax of Rs. 63.74 crore,
in the previous year.
5. ECONOMIC SCENARIO AND OUTLOOK:
The year 2008 was unparalleled, with the unfolding of an unprecedented
financial crisis on Wall Street. Falling property prices, coupled with
massive leveraging, sparked off the sub-prime crisis in the housing
mortgage sector in the U.S. Due to the tight integration of the financial
markets across the world, this contagion has spread to the global banking
sector. Finally, this has traversed from the financial to the real estate
sector, and has precipitated into a global economic slowdown.
The global financial situation is uncertain as the financial markets in
major advanced economies are in a tailspin, causing dramatic reversals in
investment flows to emerging economies. Growth rates in the industrial
economies have turned negative, forcing a liquidity crunch. It now appears
that the recession will be deeper and the recovery longer than earlier
anticipated.
The growth prospects of emerging economies such as India have most
definitively been undermined by the ongoing crisis and the resilience of
the Indian economy is being tested like never before. There is evidence of
a slowdown in the economy with moderation of real GDP growth in the first
half of 2008-09. Industrial activity, particularly in the manufacturing and
infrastructure sectors, is decelerating. The services sector, which has
been our prime growth engine in the past five years, is slowing, mainly in
the sub-sectors of construction, transport, communication, trade and
hotels. For the first time in seven years, exports have declined in
absolute terms in the October-December 2008 quarter. Higher input costs and
softening demand have dented corporate margins, while the uncertainty
surrounding the crisis has affected business confidence.
The Central Government and the Reserve Bank of India have announced fiscal
and monetary measures to revive growth. The Government is seeking to boost
demand through enhanced expenditure on infrastructure and through tax
reductions. The central bank has progressively lowered benchmark rates to
infuse liquidity in the system and spur consumers to borrow but business
confidence and economy may take a while to rebound due to the traditional
lag effect associated with stimulus packages.
It is heartening to note that as our growth has relatively strong domestic
underpinnings, the fundamentals of our economy remain strong. Once
confidence is restored in the global markets, economic activity in India
will rebound quickly but a period of painful adjustment looks inevitable.
6. CEMENT INDUSTRY OUTLOOK AND OPPORTUNITIES:
India's cement industry recorded a growth of 7.8% in the calendar year
2008, reflecting the slowing trend in the Indian economy. The cost of
inputs, such as coal, power, gypsum and packing bags increased steeply
during the year 2008. The sharp increase in the prices of diesel, India's
primary cargo fuel, and higher railway freight tariffs pushed up our
transportation and logistics expenses substantially.
The Government's responses to the cement industry's requirements remain
ambivalent. The change in the excise duty structure imposed by the
Government during early 2008 adversely affected our sales realization. The
Government abolished import duty on cement, affecting our sales in the
Punjab and Haryana markets, where cement imported from Pakistan was
relatively cheap. Furthermore, the ban on cement exports upset the demand
and supply balance in the western Indian markets. A four percent cut in
excise duty and a stimulus package for the housing industry (which consumes
around 65% of the cement produced) were announced later in December 2008
but potential gains of this may be offset by an announced increase in
railway freight costs.
Some companies in the cement industry, including ACC, had voluntarily
decided to hold cement prices in response to the Government's concerns over
acceleration in inflation and, therefore, were unable to materially pass on
the increases in input costs to customers.
As the economic downturn became more evident and pronounced in the second
half of 2008, demand growth crawled. The realty sector started reeling
under the combined impact of a liquidity crunch, erosion in demand,
oversupply in key urban centers and falling prices - all leading to softer
institutional demand for cement.
Across the country, planned capacity additions have started to come on
stream. Cement capacity increased by around 28 million tonnes to 207
million tonnes in 2008. Further capacity additions of approximately 46
million tonnes are expected in 2009, based on the capacity expansion plans
announced by companies. The additional capacity, coupled with slowing
demand, will potentially bring down capacity utilizations.
Demand in 2009 will largely be driven by the pass-through effect of the
stimulus packages announced by the Government for housing and
infrastructure sectors. While urban demand has slackened significantly,
semi-urban and rural demands in the housing sector still show some
robustness. Affordable housing in India, as noted by Goldman Sachs Global
ECS Research, still remains a dream for many citizens while demand exceeds
supply by more than 30 million units. With an increasing number of joint
families splitting up and increasing urbanization, the demand for housing
is only expected to grow.
7. RISKS AND CONCERNS:
Although cement prices may be reasonably stable, the bunching of fresh
capacity, particularly in the second half of 2009, could cause a supply
overhang.
The economic slowdown has affected all sectors of the economy, reducing the
rate of GDP growth. The Reserve Bank of India has also progressively
reduced its forecast growth rate for 2008-09. It is expected that the
impetus to economic growth will largely come from investments in the
infrastructure sector. However, the efficacy of the stimulus packages
remains to be seen.
The major inputs for cement - coal, limestone and gypsum - show varying
signs of difficulty in assured availability at stable prices. Although
international coal prices have retreated from record highs, the
availability of indigenous coal is an area of great concern.
8. CEMENT BUSINESS - PERFORMANCE AT A GLANCE:
2008 2007 Change %
Production-million tonnes 20.83 19.92 4.6%
Sales volume-million tonnes* 21.01 19.97 5.0%
Sales value - Rs crore** 7308.62 6623.66 10.3%
EBITDA % 26.00% 31.00%
* Cement sales volume included sale to RMX and trading sales.
** Sales value as per cement segment / activity (includes trading).
9. 2008 - INNOVATION AND STRATEGIES:
As the economic slowdown, extreme volatility, steep increases in input
costs and falling margins evolved through 2008, your Company proactively
initiated a series of internal actions to weather the tough externalities.
Our technical and operational innovations have sought to reduce costs,
improve our cash flow and enhance the Company's sustainable competitive
advantage in the cement industry.
As part of processes innovation and adoption of technologies, your Company
promoted the use of alternative fuels and focused on the production of
blended cement, saving on expensive fossil fuels and input costs. Your
Company also continued to invest in renewable energy resources, expanding
its wind farm in Rajasthan.
Marketing was a focus area of our strategy in the year under review. Your
Company enhanced its marketing capability with select institutional
customers and strengthened its existing relationships with the extensive
dealer network. Furthermore, to harvest the rural and semi-urban
consumption demand, your Company is seeking to bolster the distribution
network and the brand in these areas.
Your Company also maximized cash generation by reducing its working capital
build-up and by spending its capex budget judiciously.
10. OVERSEAS BUSINESS:
The contract with Yanbu Cement Company, Saudi Arabia, for management and
operation of its cement plants crossed 29 years of successful operation,
and the contract stands renewed up to February 28, 2011.
The contracts with Dangote Group of Nigeria for providing operations and
maintenance services for its plants at Obajana and Benue have been
completed successfully and the agreement came to an end during 2008.
The project management and consultancy services contract with Dangote Group
for Benue, Nigeria, also ended in December 2008, after successful
completion of the project.
The contracts with M/s. IHI, Japan, for providing support/assistance have
been completed successfully.
The contract with Mugher Cement Enterprises, Ethiopia, for providing
project engineering and consultancy services for setting up a 3,000 TPD
greenfield clinkering line, along with a satellite grinding and packing
plant, is progressing satisfactorily.
11. MODERNISATION / EXPANSION PROJECTS:
The project to expand capacity at the Bargarh works to 2.3 million tonnes
per annum, together with two captive power plants of 15 MW each, made
considerable progress during the year. The project is now slated to be
completed by mid-2009.
The expansion of Wadi II plant with two captive power plants of 25 MW each,
along with the setting up of two separate new grinding plants near Bellary
and Kolar in Karnataka, has made further headway during the year and will
be commissioned in phases between August 2009 and February 2010. These
projects would add three million tonnes additional cement capacity.
Your Company commenced work on a new clinker line, with a capacity of 7,000
TPD, at Chanda in Maharashtra, where a new 25-MW captive power plant is
also being set up. This project is expected to be completed by mid-2010.
The total capacity of ACC as on December 31, 2008 was 22.63 million tonnes
per annum. After completion of all the above projects, the total capacity
of ACC will stand enhanced to 30.58 million tonnes per annum.
12. ACQUISITIONS / DIVESTMENTS:
To strengthen the presence in Goa and its adjoining markets, your Company
has acquired 40% in Alcon Cement Company Private Limited (Alcon). Alcon has
a cement grinding facility at Surla in Saqualim Taluka, Goa. Your Company
already had a trading arrangement for cement manufactured by Alcon.
Your Company acquired from IDBI Bank Limited 12.41% equity shares of Bulk
Cement Corporation (India) Limited, thereby increasing its shareholding in
the said subsidiary company to 94.65%.
Your Company sold its wholly owned subsidiary, ACC Machinery Company
Limited, in March 2008 for a consideration of Rs. 45 crore.
13. CORPORATE SOCIAL RESPONSIBILITY & SUSTAINABLE DEVELOPMENT:
The year saw your Company achieve a milestone by bringing out its first
report on sustainable development. The report brings out in detail various
initiatives taken by your Company on the 'triple bottom line' goals, viz.
social, economic and environmental fronts, befitting the status of India's
leading cement producer.
To ensure accountability to the sustainable development agenda and to
better integrate it with business strategy, your Company has put in place a
sustainable development organisation through a nominated apex corporate
council and plant-specific councils. This can be seen as one of the rare
achievements by an Indian cement producer with the scale and geographical
diversity of your Company. This would also go a long way in reinforcing the
sustainable development mindset at various levels across functions. It also
is a step toward the Company's goal of a matrix form of working, a
structure and culture that would enhance stakeholder responsiveness.
Accordingly, a cross-functional team actively participated in discussions
on the role of business in the National Action Plan on Climate Change. In
yet another step in this direction, your Company undertook a materiality
mapping of issues that are of concern to stakeholders. This map would guide
the sustainable development organisation about prioritizing the proposed
initiatives.
Corporate social responsibility continued to be actively pursued during the
year. Our involvement in communities around our manufacturing sites saw us
undertake a structured approach, commencing with an assessment of their
needs. We involved independent NGOs and academic organisations to avoid
biases and conflicts of interests. Based on these assessments, projects
were designed and implementation initiated in these communities. Your
Company supported important national issues like the fight against
HIV/AIDS, tuberculosis and leprosy. At the same time, we supported
sustainable construction.
Your Company's outstanding contribution towards achieving the national goal
of sustainable development was rewarded by the Federation of Indian Mineral
Industries, New Delhi, which chose ACC and three other companies to be
members of the Sustainable Miners' Club.
ACC's sustained focus on building renewable energy assets was evident in
the expansion of the wind farm in Rajasthan. The fresh investment would
help ACC achieve its objective of attaining sustainable development of its
business and underscore the Company's commitment to a greener tomorrow.
During the year, the Company generated 27.2 million units of clean and
green power from its wind farms in Tamil Nadu and Rajasthan.
Despite the fast-changing business environment imposing operational
challenges, your Company will steadfastly pursue its 'triple bottom line'
goals.
14. ALTERNATIVE FUELS AND RAW MATERIALS:
This year, the Alternative Fuels and Raw Materials (AFR) business of your
Company focused on extending sustainable waste management solutions to
industries through conserving natural resources. We are now in the
acceleration stage of the growth cycle of our AFR business, which has
expanded 37% in 2008 as compared to 2007. This year, the AFR business has
recorded savings of Rs. 22.8 crore (previous year, Rs 16.7 crores), with a
paradigm shift in the focus on the industrial wastes market. In 2008, the
team has put in concerted effort in building up a strong clientele,
comprising leaders in industrial sectors such as chemicals, automobiles,
pharmaceuticals, fast-moving consumer goods (FMCGs), etc. This year, our
works have co-processed around 12,900 tonnes of industrial waste as
compared to around 3200 tonnes in 2007. The business has also increased its
portfolio, safely and successfully co-processing twenty different
industrial-waste streams at our various cement works. The global experience
and expertise of the Holcim Group in this field has helped the team in
working intensively on the difficult-to-handle materials and making them
compatible with the process of cement manufacturing.
The efforts made by the AFR Department and its contributions to the cause
of sustainable development were recognized by the World Environment
Foundation (WEF) and an eminent body of juries conferred upon ACC the
prestigious Golden Peacock Eco-Innovation Award in 2008. ACC has also won
the Greentech Foundation's Silver Award for Environment Excellence in the
cement sector.
15. OCCUPATIONAL HEALTH & SAFETY (OH&S):
Occupational Health and Safety (OH&S) was on the top of your Company's
priority list and various initiatives were implemented during the year for
improving safety performance. To drive our OH&S Policy of 'No Harm' to
contractors and visitors, a new directive on contractor safety management
has been introduced to ensure that adequate processes are developed and
implemented to control and minimize risks associated with outsourced
activities. Emphasis has been laid on safety-induction training for a
period of two days for all contract workers at our sites. Safety-induction
training for visitors has also been strengthened for making them aware of
risks during site visits.
Training in auditing principles for internal auditors was organized to
improve the auditing skills, thereby making them more competent for
validating the implementation of the OH&S management system at our sites.
Second-party audits were conducted during 2008 for checking the progress of
implementation of the OH&S management system. Construction safety audits
were also carried out to check the effectiveness of the safety measures
adopted at our projects' sites.
The system for reporting 'near-miss' incidents online, a feature accessible
to all employee-users, has been developed so that everybody can share the
learnings from any incident and take appropriate measures to avoid re-
occurrence.
A safety campaign was conducted to generate awareness amongst the persons
working in the offices. During this campaign, OH&S policy, principles, OH&S
management system and off-the job safety aspects were communicated. Besides
this, a safety leadership workshop was organized for our top management
team to make them more passionate about safety.
ACC has won the Safety Innovation Award 2008, conferred by the Safety and
Quality Forum of the Institute of Engineers for outstanding performance in
safety and for introducing innovative measures.
16. HUMAN RESOURCES:
Our Vision:
Our Vision statement is a critical thread to connect our people. The Vision
drives strategic and management decision, business plans, processes, team
and individual goals and day to day behaviour across organization. The
Vision statement reads as:
'To be one of the most respected companies in India; recognized for
challenging conventions and delivering on our promises.'
There are three key components of our Vision statement:
* We wish to be one of the most respected companies in India - respect that
is earned through professionalism, excellence and community service.
* We wish to be recognized for challenging conventions - displaying a
questioning mind, retaining convention that merit continuity, discarding
those that are obsolete, thinking out of the box and being innovative.
* We wish to be recognized for delivering on our promises - keeping our
word, honoring our commitments and emphasizing integrity.
Productive high performing employees are vital to the Company's success.
The Board values and appreciates the contribution and commitment of the
employees towards the performance of your Company during the year. To
create the leadership bench and for sustainable competitive advantage, your
Company has inducted 2600 employees since 2005. Majority of the new hires
have joined in critical functions like Alternative Fuel and Raw Materials,
Corporate Social Responsibility (CSR), Safety, Logistics, Customer
Services, Projects and Internal Audit.
ACC has created an enabling work environment that fosters transparency,
agility, and meritocracy. This can be seen from the improvement in the
Company's Employee Engagement Scores in which 87% of full time employees
participated. The overall satisfaction score in the 2008 survey has
improved from 3.6 to 3.9, while the overall engagement score has improved
from 3.6 to 3.8, on a 5-point scale.
Employee safety:
Employee safety is of paramount importance for ACC. All the Executives in
ACC have a personal objective of ensuring a safe working environment for
its employees. The Safety performance is analyzed in all the important
forums.
Enabling employees:
In 2008 ACC launched several new initiatives that favourably impacted its
employees:
* ACC modified its Performance Management System that aligns all its
employees around six corporate objectives covering Safety, EBIDTA, Market
Share, Competitiveness, Organization and Corporate Citizenship.
* ACC launched an employee Portal called 'Accelerate' for its employees to
share views and to communicate across levels and locations on a wide
variety of work and Company related themes.
* ACC introduced the Hay Job Evaluation System for its senior management.
This will be extended to all other levels of management in 2009.
* ACC launched a number of transformation initiatives that involve a cross
section of employees. These initiatives will help the Company and its
employee teams to become more competitive and agile. Some of these are the
Sales and Marketing Excellence Project, Manufacturing Transformation
Project, Safety Transformation Project, the Value Chain Excellence Project
and the Human Resources Transformation Project.
Employee Learning and Development:
The Company continues to place emphasis on enhancement of skills and
capabilities of its employees and on imparting required training for
meeting customers' requirements. The training inputs are focused to suit
the specific needs of the Company and also attain all round employee
development and growth objectives.
* Members of the Company's senior management team have participated in
assessment centers customized around the strategic business needs of the
Company and the Holcim Leadership Competencies. Individual Development
Plans have been developed and are being implemented.
* ACC's Sumant Moolgaonkar Technical Institute (SMTI) at Kymore, Madhya
Pradesh conducts an 18 months Post National Council for Vocational Training
(NCVT) course in the trades of Electrical cum Instrumentation and Diesel
Mechanic cum Fitter. The annual intake on an all India basis is of about
100 students who meet the prescribed norms. Students who successfully
complete this course can be absorbed as Technicians in any cement company,
including ACC. This facility is also being utilized to upgrade the skills
of the existing technicians at ACC Plants through short term skill
development programmes.
* ACC has built a state-of-the-art training facility 'ACC Academy' which
was inaugurated in January 2008 at the Company's Thane complex. This
facility has an auditorium, classrooms and break-out rooms which can
accommodate 100 participants to undergo training programmes simultaneously.
Programmes involving technical courses, commercial courses and management
courses are conducted throughout the year for the executive and other
personnel.
* ACC has also built a training facility plus residential campus 'ACC
Cement Technology Institute' in July 2008 at its Plant at Jamul,
Chattisgarh, and started a 12 months Advanced Course in Cement Technology.
Students completing this course successfully could be absorbed by ACC as
frontline managers. This is an approach by ACC to give academic knowledge
coupled with practical training in the operations and maintenance of cement
plants so that the qualified candidates become knowledgeable and effective
in shop floor activities of cement plants. ACC thus develops its technical
talent pipeline.
* The Company has framed an HR policy to ensure achievement of a target of
at least five man days of training per employee per year. This target has
been consistently achieved by the Company since 2006. The effectiveness is
now being measured not only by man days attended but also by computing the
impact of these programmes on the Company's performance.
For sustainable competitive advantage, the Company believes in putting
people at the center of the strategy. All the efforts are towards creating
a learning and self-refreshing organization with in-depth engagement of
people.
17. FINANCE:
Your Company's rating for long-term non convertible debenture programme has
been upgraded to AAA by CRISIL. The bank loan rating for working capital
facilities has been rated AAA by both CRISIL and FITCH, and the prime
rating of A1+ for short-term borrowing has been retained by ICRA. In
December 2008, your Company borrowed Rs. 200 crore by a non-convertible
bond placement, with a five- year tenor and coupon rate of 11.30% per
annum.
The debt-equity ratio of the Company stands, as on December 31, 2008, at a
very comfortable 0.10:1. When one factors the cash and cash equivalents,
the Company has negative net financial debt as at the end of financial year
2008. This is a vindication of various measures taken by your Board and
Management for conserving cash and maintaining liquiditythat are paramount
in the present business context. Your Company is committed to following
these conservative and prudential policies in future.
18. SHARE CAPITAL:
The Company allotted 57401 equity shares of the face value of Rs. 10 each,
consequent to the exercising of stock options by its employees.
Details of Employees' Stock Option Schemes, as required to be disclosed
under the SEBI Guidelines, are set out in Annexure C' to the Directors'
Report.
19. FIXED DEPOSITS:
Your Company had discontinued its fixed deposits scheme in financial year
2001-02 and as on December 31, 2008, the total amount of fixed deposits
held by your Company was Rs. 0.23 crore, which represents the unclaimed
deposits that have matured.
20. PERFORMANCE OF SUBSIDIARY COMPANIES:
20.1 ACC Concrete Limited (ACCCL):
The strategic importance of ready mix concrete (RMX) as a channel business
for cement was recognized some time ago and a commitment was made to expand
this vertically integrated and value-adding business exponentially during
2008 and throughout the following four years with a view to establish a
strong position in this fast growing channel market.
To operate the business and carry out the planned expansion in the most
effective manner, it was decided that an independent and wholly dedicated
business led by a professional and experienced RMX management team be put
in place. In 2008, the required platform for total resource building,
including human capacity and capability as well as plant and equipment, was
initiated.
Sales volumes in 2008 grew by 37.4% from 2007, as the number of available
production units increased from 23 to 38. Turnover showed corresponding
increase of 40% from Rs.367.02 crore to Rs. 514.53 crore. However, being
the first year of its operations and with the global sub-prime crises
taking its toll on the Indian Market and in particular the real estate and
construction businesses, ACC Concrete Limited posted a net loss of Rs.96.81
crore after providing for Fringe Benefit Tax.
ACC Concrete Limited is taking steps to improve its performance in the
current financial year 2009. The extensive expansion plans have been put on
hold for 2009. Focus shall be on consolidating the existing business,
whilst continuing to grow volumes from the current base of available 38
batching plants as well as from dedicated onsite project solutions.
The current plant capacity of ACC Concrete Limited is more than seven
million cubic meters per annum from batching plants based in all of the
main cities across India. The business has been set up to ensure that the
best international standards are achieved within the total operation, with
quality and service being the top priority. Computerized controlled
production is fully integrated with dispatching and quality systems linked
to the Company's ERP platform.
ACC Concrete Limited is well placed to add value to the Group companies in
both the immediate challenging times and well into the future.
20.2 Bulk Cement Corporation of (India) Limited (BCCI):
BCCI, which is located at Kalamboli near Mumbai, handled 7.60 lakh tonnes
of bulk cement during the year, as compared to 7.59 lakh tonnes in the
previous year. BCCI reported a net loss of Rs. 0.53 crore during the year
as compared to a net profit of Rs. 1.07 crore reported during the previous
year, due to reduction in freight rebate by railways and unplanned empty
haulage charges. However, BCCI has improved plant performance in terms of
specific power consumption, packer output, equipment conditions, safety and
environment during the year 2008. BCCI made record dispatch of 83,044
tonnes to the market in December 2008.
BCCI is procuring its fourth rake that will be in operation by April 2009.
Land sub-lease agreement was registered in the name of Bulk Cement
Corporation (India) Limited up to December 31, 2051.
20.3 Lucky Minmat Limited (LML):
Lucky Minmat Limited did not undertake commercial operations during the
year under review. The company which was acquired in November 2007, owns
mining leases in Rajasthan. It proposes to commence mining operations
shortly. During the year under review, ACC invested Rs. 3 crore in the
Equity of that company.
20.4 As required under Section 212 of the Companies Act 1956, the audited
statements of accounts, along with the report of the Board of Directors
relating to the Company's subsidiaries, ACC Concrete Limited, Bulk Cement
Corporation (India) Limited, Lucky Minmat Limited and The Cement Marketing
Company of India Limited and respective Auditors' Report thereon for the
year ended December 31, 2008, are annexed.
21. DIRECTORS:
Mr. A.L. Kapur, who was appointed on the Board of Directors of this Company
on December 27, 1999, resigned as a Director with effect from July 24,
2008. The Board has placed on record its warm appreciation of the valuable
services rendered by Mr. A.L. Kapur during his tenure as Director of the
Company.
Dr. Nirmalya Kumar, who was appointed on the Board of Directors with effect
from January 24, 2006, resigned as Director with effect from January 9,
2009. The Board has placed on record its warm appreciation of the valuable
services rendered by Dr. Nirmalya Kumar during his tenure as Director of
the Company.
Mr. Onne van der Weijde, the former Chief Financial Officer of your Company
and presently Senior Vice President, Holcim Ltd., South Asia Operations, is
appointed as an Additional Director to hold office until the ensuing Annual
General Meeting (AGM). Accordingly, his appointment as a Director is
included in the AGM Notice.
In accordance with the provisions of the Companies Act, 1956, and the
Articles of Association,
Mr. N.S. Sekhsaria, Mr. Paul Hugentobler, Mr. Markus Akermann and Mr. M.L.
Narula retire by rotation and are eligible for reappointment.
22. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
Your Company's Internal Audit Department is headed by the Chief Internal
Auditor and assisted by a team of highly qualified finance and engineering
professionals. The audit team is fully trained in 'state-of-the-art'
internal audit methodology and equipped with latest audit tools and
techniques to audit in SAP environment. Adopting the 'closer to business'
approach, the Department has been reorganized and in addition to having
audit teams based in Mumbai for South & West region and HO operations,
there are two audit teams based in Delhi and Kolkata for the Northern and
Eastern regions' operations, respectively.
The Department functions independently to ensure smooth operations of the
Organization. It closely monitors and evaluates the efficacy and adequacy
of internal control systems, their compliance with operating systems,
accounting procedures and policies at all the Company's locations,
including its subsidiaries. The Department is authorized to give
suggestions on various operations, finance and risk management. The
Department follows risk-based audit approach and draws annual audit plan
based on the risks perceived in each business process, validated by the
line management and top management. The audit plan is approved by the Audit
Committee.
Besides, your Company has also implemented a well-structured internal
control system (ICS) and the Internal Audit Department periodically tests
all the defined controls to ensure full compliance. This testing forms the
basis for the Chief Executive Officer/Chief Financial Officer certification
for financial reporting required under Clause 49 of the Listing Agreement.
23. ENHANCING SHAREHOLDER VALUE:
Your Company's strategic vision statement accords top position to value
creation. All the Company's operations are guided and aligned toward
maximizing shareholder value. New projects for capacity expansion and cost
reduction are taken up to enhance growth in sales and profitability. During
the year, your Company also divested its remaining non-core assets to
unlock value.
24. DIRECTORS' RESPONSIBILITIES:
To the best of their knowledge and belief and according to the information
and explanations obtained by them, your Directors make the following
statement in terms of Section 217(2AA) of the Companies Act, 1956:
a) That in the preparation of the annual accounts for the year ended
December 31, 2008, the applicable accounting standards have been followed
along with proper explanation relating to material departures, if any;
b) That such accounting policies as mentioned in Note 1 of the Notes to the
Accounts have been selected and applied consistently and judgements and
estimates have been made that are reasonable and prudent so as to give a
true and fair view of the state of affairs of the Company as on December
31, 2008, and of the profit of the Company for the year ended on that date;
c) That proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and
d) The annual accounts have been prepared on a going concern basis.
25. AUDIT:
Messrs. S.R. Batliboi & Associates, Chartered Accountants, who are the
Statutory Auditors of the Company, hold office upto the date of the ensuing
Annual General Meeting and are eligible for reappointment. As required
under the provisions of Section 224(1B) of the Companies Act, 1956, the
Company has obtained written confirmation from M/s. S.R. Batliboi &
Associates that their appointment, if made, would be in conformity with the
limits specified in the said Section.
As per the requirement of the Central Government and pursuant to Section
233 B of the Companies Act, 1956, your Company carries out an audit of cost
records relating to cement every year. Subject to the approval of the
Central Government, the Company has appointed M/s. N.I. Mehta & Co., Cost
Auditors, to audit the cost accounts for the financial year 2009.
In 2008, your Company's Audit Committee was presented the Best Audit
Committee Award by the Asian Centre for Corporate Governance &
Sustainability and Indian Merchants' Chamber. The award was given in
recognition of the high ethical standards adopted by the Directors of your
Company, and for their contribution to overall transparent and accountable
governance.
26. CORPORATE GOVERNANCE:
As per Clause 49 of the Listing Agreement with the Stock Exchanges, a
separate section on corporate governance practices followed by the Company,
together with a certificate from the Company's auditors confirming
compliance, is set out in the Annexure forming part of this report.
27. CONSOLIDATED FINANCIAL STATEMENTS:
The Consolidated Financial Statements are attached. The consolidated net
worth as on December 31, 2008 is Rs. 4789.72 crore, as against Rs. 4125.55
crore, as at the end of the previous year.
28. ENERGY, TECHNOLOGY & FOREIGN EXCHANGE:
Details of conservation of energy, technology absorption and foreign
exchange earnings and outgo in accordance with the provisions of Section
217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of the Board of Directors) Rules, 1988 are given
in Annexure A' to the Directors' Report.
29. PARTICULARS OF EMPLOYEES:
Information in accordance with the provisions of Section 217(2A) of the
Companies Act, 1956, read with the Companies (Particulars of Employees)
Rules 1975 as amended regarding employees is given in Annexure B' to the
Directors' Report.
30. CAUTIONARY STATEMENT:
Statements in the Directors' Report and the Management Discussion &
Analysis describing the Company's objectives, expectations or predictions
may be forward-looking within the meaning of applicable securities laws and
regulations. Actual results may differ materially from those expressed in
the statement. Important factors that could influence the Company's
operations include global and domestic demand and supply conditions
affecting selling prices of finished goods, input availability and prices,
changes in government regulations, tax laws, economic developments within
the country and other factors such as litigation and industrial relations.
31. ACKNOWLEDGEMENT:
Your Directors wish to acknowledge all their stakeholders and are grateful
for the excellent support received from the shareholders, banks, dealers
and other business associates. Your Directors recognize and appreciate the
hard work and efforts put in by all the employees of the Company and their
contribution to the progress of the Company in a very challenging
environment.
For and on behalf of the Board
Place: Mumbai N.S. Sekhsaria
Dated: February 5, 2009 Chairman
ANNEXURE A' TO DIRECTORS' REPORT
Section 217(1)(e) of the Companies Act, 1956, read with the Companies
(Disclosure of Particulars in the Report of Board of Directors) Rules,
1988.
A. CONSERVATION OF ENERGY:
(a) Energy conservation and efficiency measures were undertaken in various
areas of the cement plants:
At Kymore, synchronization of mines, crushers and over land conveyor
operation facilitated two shift operations instead of three shift
operation. A new Coal Stacker - Reclaimer was installed to improve coal
feed thereby improving the kiln stability. Replacement of HT Motor's by LT
motors with Variable Voltage Variable Frequency Drive (VVVFD). Close
circuiting of all Raw Mills with a common hydro cyclone at Madukkarai.
Operation of all Kilns through Distributed Control System (DCS) at Jamul
and up-gradation of DCS at Wadi-I. Optimisation of major fans across ACC
Plants. Augmentation of cement grinding capacity by installing Pre-grinders
at Wadi - II and at Madukkarai. Operation of cement mills through PLC at
Jamul & operation of slag grinding through DCS at Bargarh. Installation of
mechanical conveying in place of pneumatic conveying for cement mills at
Jamul. Replacement of Cement Mill main drive motor with energy efficient
motor at Gagal and Sindri. Converted Stoker Fired Boilers to AFBC boilers
at Wadi, and commenced the conversion to AFBC at Chaibasa. Optimized the
operating voltage and frequency of turbines for all CPP's to reduce
auxiliary power consumption. Detailed compressor audit was conducted at
Gagal which has resulted in energy savings. Similar studies have been
initiated at Wadi. New energy efficient compressors were procured for
Madukkarai, Damodhar, Gagal, Kymore, Chaibasa, Jamul and Wadi II plants.
Energy Management System (EMS) installed at Damodhar and is being planned
to be installed at other locations. Installation of capacitor banks with
series reactor helped to improve power factor from 0.93 lagging to 0.99
lagging at Bargarh. Capacitor Banks were also installed to improve the
power factor in most of the plants which also resulted in reduction in
losses.
Green power Installation of 7.5 MW Wind Power Plant in Rajasthan. Three
fold increase in power generated from Wind Power Plant in Tamil Nadu as
compared to year 2007.
Alternative fuels The utilization of alternative fuels was increased at
Kymore, Lakheri, Gagal, Madukkarai, Bargarh, Chaibasa and Wadi I.
(b) Additional Proposals being implemented for further conservation of
energy:
Installation of mechanical conveying (Bucket elevator) in place of
pneumatic conveying for kiln feed at Bargarh. Compressed air audit is being
planned at Bargarh and Lakheri. Uses of grinding aid for reduction of
grinding power and productivity improvement at Bargarh. Installation of
VVVFD for various bag filter fans, Vent fans ,instrument air compressor.
Installation of ROTO SCALE for fine coal firing in Kiln I at Kymore.
Replacement of low efficiency pumps with a single high efficiency pump at
Lakheri.
(c) Impact of the above measures for reduction of energy consumption and
consequent impact on cost of production The measures stated in points (a)
and (b) above would improve the thermal and electrical energy efficiency of
the Plants. Year 2008 saw a reduction of 2.25% in Electrical Energy over
2007.
(d) Total energy consumption and energy consumption per unit of production
as per Form A.
Form A
Power and Fuel Consumption:
A B C D E F
1. Electricity:
a) Purchased 6812 25868 3.80 6667 23635 3.55
b) Own Generation:
i) Through DG 129 1294 10.00 144 1411 9.81
ii) Through Steam 15437 47627 3.09 14398 34580 2.40
Turbine/Generator*
A = Current year - Lakh Units (Kwh)
B = Current year - Total Cost (Rs. Lakhs)
C = Current year - Rs. per Unit
D = Previous year - Lakh Units (Kwh)
E = Previous year - Total Cost (Rs. Lakhs)
F = Previous year - Rs. per Unit
* Includes WTG generation.
A B C D E F
2. Coal (for Kiln)** 22.89 84628 3697 24.72 62006 2,508
A = Quantity (Lakh Tonnes) - Current Year
B = Total Cost - Current Year
C = Average Rate (Rs./Tonne) - Current Year
D = Quantity (Lakh Tonnes) - Previous Year
E = Total Cost - Previous Year
F = Average Rate (Rs./Tonne) - Previous Year
** Does not include other fuel/alternative fuels used in Kiln.
Consumption Per Unit of Production:
Standard Current Year Previous Year
a) Electricity Kwh/T*:
Cement:
Wet Process 89-105 - -
Semidry/Dry process 98-110 87 89
b) Furnace Oil KLtrs/T:
Cement - - -
c) Coal for Kiln:
Kcal/Kg of clinker:
Cement:
Wet process 1350 - -
Semidry/Dry process 720-990 754 752
@Source: Publication of Confederation of Indian Industries
* Excludes non-process power consumption.
(B) TECHNOLOGY ABSORPTION:
Research & Development:
1. Specific areas in which R&D is carried out by the Company:
a) Improving quality of blended cement through innovative processing
utilizing industrial by-products.
b) Conservation of resources through use of low-grade limestone for cement
manufacture.
c) Enhanced absorption of blending materials.
d) Process / product design improvements.
e) Development of new products or discovering new methods of analysis.
f) Productivity research for increase efficiency in use of resources.
g) Recycling of wastes and research for efficient use of scarce materials.
h) Beneficiations of raw materials and fuels.
i) Quality Benchmarking exercise for different market clusters of ACC
products.
j) Characterization and evolving recommendation for use of alternative
fuels and raw materials.
2. Benefits derived as result of above R&D:
a) Effective use of marginal quality raw materials and fuels with improved
clinker quality.
b) Increased absorption of blending materials in blended cements.
c) Effective replacement of the costlier natural Gypsum by cheaper by-
product phospho-gypsum without affecting the quality of cement.
d) Maintain a lead position in all the market clusters of the country.
e) Fuel efficiency.
3. Future plan of action:
a) Exploratory research works on the above specific areas.
b) Focus on development of products aimed at enhancing use of cement in
various applications.
c) Use of waste / by-products in cement manufacture as alternative
materials.
d) Improve product quality particularly with respect to long term
durability and reduction in cost of manufacture.
4. Expenditure on R&D:
Rs. Lakhs
a) Capital 180
b) Recurring (Gross) 329
c) Total 509
d) Total R&D expenditure as percentage of total turnover 0.07%
5. Foreign Exchange Earnings & Outgo:
Rs. Lakhs
Foreign exchange earned 7170
Foreign exchange used 6123
For and on behalf of the Board
Place: Mumbai N.S. Sekhsaria
Dated: February 5, 2009 Chairman
ANNEXURE C' TO DIRECTORS' REPORT:
Statement pursuant to Clause 12 'Disclosure in the Directors' Report' of
SEBI (Employees' Stock Option Scheme and Employees' Stock Purchase Scheme)
Guidelines, 1999.
Pursuant to the Resolutions passed by the shareholders at the Annual
General Meetings held on July 12, 2001, July 9, 2003 and July 9, 2004 the
Compensation Committee of Directors have granted Stock Options to eligible
employees and Wholetime Directors for the financial years 2001-2002, 2003-
2004 and 2004-2005. The employees are entitled to get one equity share per
option. The details of the Stock Options are given here below.
ESOS 2001: Financial year 2001-2002
a. Options granted:
7,30,000 (on 31.10.2001)
b. The pricing formula:
@ Rs.127/-(Being the average of the daily closing price of the Equity
shares of the Company on the Stock Exchange, Mumbai (BSE) during the period
of ninety days immediately preceding the date on which the options were
granted) No discount on the above price was granted by the Compensation
Committee.(The closing market price on BSE as on the date of grant was
Rs.133/-)
c. Options vested:
6,47,336
d. Options exercised (till 31.12.2008) (including 749 options of ESOS 2003
exercised before 17.12.2008 and shares allotted in January 2009):
6,31,033
e. The total number of shares arising as a result of exercise of options:
6,31,033
f. Options Lapsed:
91,400
g. Variation of terms of options:
Nil
h. Money realised by exercise of Options:
Rs.801.41 lakhs
i. Total number of options in force:
7,567
j. Employee wise details of options granted to:
i) Senior Managerial Personnel:
Nil
(ii) Any other employee who receives a grant in any one year of option
amounting to 5% or more of option granted during that year:
Nil
(iii) Identified Employees who were granted option during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the Company at the time of grant:
NIL
k. Diluted Earnings Per Share (EPS) pursuant to issue of Shares on exercise
of option calculated in accordance with Accounting Standard (AS) 20 -
Earnings Per Share:
7.62
l. Where the company has calculated the employee compensation cost using
the intrinsic value of the stock options, the difference between the
employee compensation cost so computed and the employee compensation cost
that shall have been recognised if it had used the fair value of the
options, shall be disclosed. The impact of this difference on profits and
on EPS of the Company shall also be disclosed:
N/A
m. Weighted average exercise prices and weighted average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock:
N/A
n. A description of the method and significant assumptions used during the
year to estimate the fair values of options, including the following
weighted average information:
(i) Risk free interest rate }
}
(ii) Expected life }
}
(iii) Expected volatility } N/A
}
(iv) Expected dividends and }
}
(v) The price of the underlying share in }
market at the time of option grant }
ESOS 2003
Financial year 2003-2004
a. Options granted:
6,45,850 (on 17.12.2003)
b. The pricing formula:
@Rs.225/- (Being the average of the daily closing price of the Equity
Shares of the Company on the Stock Exchange Mumbai (BSE) during the period
of thirty days immediately preceding the date on which the options were
granted or the day's closing price whichever is higher.) Accordingly, the
exercise price has been determined at Rs.225/- per share.
c. Options vested:
6,29,850
d. Options exercised (till 31.12.2008) (including 749 options of ESOS 2003
exercised before 17.12.2008 and shares allotted in January 2009):
6,16,544
e. The total number of shares arising as a result of exercise of options:
6,16,544
f. Options Lapsed:
Nil
g. Variation of terms of options:
Rs.1,378,722 lakhs
h. Money realised by exercise of Options:
Nil
i. Total number of options in force:
Nil
j. Employee wise details of options granted to:
(i) Senior Managerial Personnel:
Nil
(ii) Any other employee who receives a grant in any one year of option
amounting to 5% or more of option granted during that year:
Nil
(iii) Identified Employees who were granted option during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the Company at the time of grant:
Nil
k. Diluted Earnings Per Share (EPS) pursuant to issue of Shares on exercise
of option calculated in accordance with Accounting Standard (AS) 20 -
Earnings Per Share:
11.61
l. Where the company has calculated the employee compensation cost using
the intrinsic value of the stock options, the difference between the
employee compensation cost so computed and the employee compensation cost
that shall have been recognised if it had used the fair value of the
options, shall be disclosed. The impact of this difference on profits and
on EPS of the Company shall also be disclosed:
N/A
m. Weighted average exercise prices and weighted average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock:
N/A
n. A description of the method and significant assumptions used during the
year to estimate the fair values of options, including the following
weighted average information:
(i) Risk free interest rate }
}
(ii) Expected life }
}
(iii) Expected volatility }
}
(iv) Expected dividends and } N/A
}
(v) The price of the underlying share in }
market at the time of option grant }
ESOS 2004
Financial year 2004-2005
a. Options granted:
6,04,150, (on 16.12.2004)
b. The pricing formula:
@ Rs.314/- (Being the average of the two weeks high and low price of the
share preceding the date of grant of options on either BSE / NSE where the
trading volume is higher or the latest available closing price prior to the
Meeting of the Committee as may be decided by the Committee.
Notwithstanding what is stated above, the Committee shall have the
discretion to fix the exercise price at a level higher than the one
indicated above). Accordingly, the exercise price has been determined at
Rs. 314/- per share (The closing price as on 15.12.2004 at NSE being
Rs.313.70).
c. Options vested:
5,82,150
d. Options exercised (till 31.12.2008) (including 749 options of ESOS 2003
exercised before 17.12.2008 and shares allotted in January 2009):
5,08,063
e. The total number of shares arising as a result of exercise of options:
5,08,063
f. Options Lapsed:
22,000
g. Variation of terms of options:
Rs.1,595.32 lakhs
h. Money realised by exercise of Options:
74087
i. Total number of options in force:
Nil
j. Employee wise details of options granted to:
(i) Senior Managerial Personnel:
Nil
(ii) Any other employee who receives a grant in any one year of option
amounting to 5% or more of option granted during that year:
Nil
(iii) Identified Employees who were granted option during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the Company at the time of grant:
Nil
k. Diluted Earnings Per Share (EPS) pursuant to issue of Shares on exercise
of option calculated in accordance with Accounting Standard (AS) 20 -
Earnings Per Share:
20.43
l. Where the company has calculated the employee compensation cost using
the intrinsic value of the stock options, the difference between the
employee compensation cost so computed and the employee compensation cost
that shall have been recognised if it had used the fair value of the
options, shall be disclosed. The impact of this difference on profits and
on EPS of the Company shall also be disclosed:
N/A
m. Weighted average exercise prices and weighted average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock:
N/A
n. A description of the method and significant assumptions used during the
year to estimate the fair values of options, including the following
weighted average information:
(i) Risk free interest rate }
}
(ii) Expected life }
}
(iii) Expected volatility } N/A
}
(iv) Expected dividends and }
}
(v) The price of the underlying share in }
market at the time of option grant }
Note:
i) The Employee stock Option Scheme 2002 (ESOS 2002) expired on 19.09.2007.
Hence the details of that scheme are not shown above.
ii) Details of options granted to Employees who had retired in earlier
years have not been considered for Disclosure against item (j).
For and on behalf of the Board
Place: Mumbai N.S. Sekhsaria
Dated: February 5, 2009 Chairman