elbee services ltd Directors report

ELBEE SERVICES LIMITED ANNUAL REPORT 2001-2002 DIRECTORS REPORT TO The Members of Elbee Services Limited Your Directors have pleasure in presenting the Twenty first Annual Report and Audited Accounts for the 18 months period ended on September 30, 2002. SALES AND OPERATIONS: During the period under review the Company has posted a total income of Rs 157.61 crores as against Rs. 153.72 crores of previous year. The Operating profits during the said period were at Rs. 9.51 crores as against Rs. 13.58 crores in the previous year. During the period the company has incurred net loss of Rs. 19.45 crores against profit of Rs. 7,43 crores of the previous year. The said loss during the period under review is mainly on account of non-capitalisation of interest expenses. The companys effort in launching several value added products in the past have started yielding rich dividend. By providing Integrated Logistics Solutions, the company has been able to cater to the diverse needs of a majority of the industry segments as diverse as Multi Level Marketing, Telecommunication, white goods and computer hardware etc. FUTURE OUTLOOK: Your company has been able to very successfully integrate its employees, vendors, franchisees and other business associates with the infrastructure of fleet and technology to provide best of class service to its customers. This has given the company the ideal platform for future business growth. The express industry is expected to grow at a steady pace around 20%. The economic downtrend is expected to force large corporations and multinationals to concentrate on core competencies and outsource their logistic requirements. This will open up new vistas of opportunities for your company in the coming years. With its strong brand equity, widespread reach through robust network, committed workforce and large customer base, the company should be able to grow at a pace much higher than the expected industry growth. This would translate into cascading increase in profitability given the high operating leverage of the business. The company plans to take a quantum leap in technology during the year to provide more powerful and customer friendly tracking systems. The company is in the process of developing specialised products for some of the emerging segments which is expected to give the company considerable competitive edge. The company will enhance its capabilities in providing value added services such as warehousing, payment gateways and telemarketing so as to be able to provide holistic solutions to customers. The company believes that ability to reach out to customers is going to be an important deliverable in future. The company plans to extend its existing franchisee network to capture the nascent markets. Elbee brand has a very high value in the minds of the customer today. This has been made possible through years of consistent service and quality performance. The company intends to build on the strength through a focussed brand building exercise during the course of the year. Your company today is poised for quantum growth. The management is aware that this would warrant a need for effecting and managing a change process. The management is fully prepared to handle the process successfully to take the company forward to new horizons. BUILDING PROJECT: Loans from ICICI. Bank Limited, IDBI, AFIC and Privately Placed Secured Redeemable Non Convertible Debentures placed with LITI are secured by way of first parri-passu charge on the Companys land and building situated at Nehru Road, Vile Parle, Mumbai. In order to reduce the financial liability and consequent huge interest burden thereon on the Company, the company jointly with its subsidiary M/s. Fiesta Estate Management Private Limited, who is also a joint owner, is negotiating for sale of said property, subject to necessary consents and approvals, if any, from the concerned authorities. Company, by way of its One Time Settlement (OTS) with above institutions expects to extinguish its debts from the proposed sale of the property. CORPORATE GOVERNANCE: In line with guidelines recommended by the Securities and Exchange Board of India (SEBI) Committee on Corporate Governance, adequate steps have been taken to ensure that all the mandatory provisions of clause 49 of the Listing Agreement are duly complied with. A separate report on Corporate Governance is included as part of the Annual Report. The Auditors Certificate confirming compliance of conditions of Corporate Governance is included in the said Corporate Governance Report. SUBSIDIARIES: The audited accounts of subsidiary companies, namely Elbee World Travels Limited and Fiesta Estate Management Private Limited together with the report of the directors and the auditors, as required under the provisions of the Companies Act, 1956 are attached herewith. HUMAN RESOURCE DEVELOPMENT: Your companys constant search for excellence has today given it a team of committed professionals rated as one of the best in the industry. The company had realised at an early stage that the industry is about people serving people. Accordingly, a lot of emphasis has been put on human resource development. During the year the company has further strengthened its team of professionals by adding specialists from other sectors of industry who have been able to add further value and have broadened the outlook of the organisation. Apart from training inputs towards specific skill development, the company has carried out a detailed role clarity exercise to remove duplicity of work and provide clearer direction to individual positions. Your company values the role played by the human capital in value creation, in business. The focus has been increasing this value chain by training & development of employees & making them highly productive. The HR strategies has been centered around "Elbees Employee Value Triangle" consisting of cost optimisation, employees productivity & Employees morale as its three equally important corners. DIRECTORS RESPONSIBILITY STATEMENT In accordance with the provisions of section 217 (2AA) of the Companies Act, 1956 your Directors Confirms that, read with explanations to the auditors qualifications given below in the Auditors Report: - (i) in the preparation of the annual accounts, the applicable accounting standards have been followed; (ii) the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as at the end of September 30, 2002 and of the loss of the Company for the 18 months period ended on that date; (iii) that the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for the safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; (iv) that the Directors have prepared the annual accounts on a going concern basis. AUDITORS REPORT The Observations of the Auditors referred to in the Auditors Report are appropriately dealt with in the respective notes to accounts and hence does not call for further explanations except for the following: - Regarding auditors observations at point No- 4 (f) (iv), (v) (vi) (vii) and (viii) your Directors wish to clarify as under 4 (f) (iv):- Cost of Capital work in progress :- As on September 30, 2002, capital work in progress amounted to Rs. 8362.50 lacs in respect of building under construction. The building is in an advanced stage of completion. The company jointly with it subsidiary viz. Fiesta Estate Management Pvt. Ltd (FEMPL). has entered into understanding with a party which may result into sale of the said building, subject to necessary consent and approvals, if any, from the concerned authorities. The company by way of its One Time Settlement (OTS) with the institutions expects to extinguish its debts from the sale of the said property and accordingly necessary adjustments would be made in the Books in the year of sale and settlement of OTS proposal. 4 (f) (v):- The company owns two aircrafts valued at Rs. 2672.54 lacs. The said aircrafts were leased to Elbee Airlines Limited, which had suspended its operations effective July 1, 1998 and terminated the lease agreements. The Company intends to overhaul the aircrafts and either to lease them out or sale them at reasonable amount which will not result into any significant loss to the company. 4(f) (vi):- The companys investment in the subsidiary company viz FEMPL is strategic and long term in nature considering the joint development of the office building project, FEMPL along with its holding company ESL has entered into understanding with a party for sale the said building, subject to necessary consent and approvals, if any from the concerned authorities. FEMPL by way of its One Time Settlement with the institution expects to extinguish all its debts from the sale of the said property. Accordingly the company considers the diminution in the value of investment in the said company as temporary and loans are classified as good for recovery. 4(f) (vii):- The companys subsidiary viz. Elbee World Travel Ltd. was formed by spinning off the erstwhile Travel Division into a separate company in 2001. This was done mainly to concentrate on the travel and tourism. The said company is still in its infancy and expects to grow in terms of volume of business and profitability in the near future considering the scope of the travel and tourism business and accordingly such diminution is considered as temporary. 4(f) (viii):- As regards the Sundry debtors, loans and advances, your Directors are confident of recovery of the same and no provisions is considered necessary at this stage. 4(f) (ix):- Your Directors are in process of rectifying the inconsistencies in the system and the software package used by the Company by appointing the experts in the field. Your Directors are of the view that the said inconsistencies will not have any significant impact when accounted for and reconciled. FIXED DEPOSITS The Company has neither invited nor accepted/renewed deposits from the Public within the meaning of section 58A of the Companies Act, 1956, during the year under review. PARTICULARS OF EMPLOYEES In accordance with the provisions of section 217 (2A) of the Companies Act, 1956 read with the Companies ( Particulars of Employees Rules 1975, a statement of particulars of employees is required to be given in the Directors Report. In terms of the provisions of section 219 (1) (b) (iv) of the Companies Act, 1956, the Directors Report is being sent to all the members excluding the statement. Any member interested in obtaining a copy of the said statement may write to the Company or inspect the same at the Registered office of the company. PARTICULARS REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND EXPENDITURE The particulars pertaining to Foreign Exchange Earnings and Expenditure is as stated below. Earnings in Foreign Currency Earnings in foreign currency with respect to Export of goods on FOB basis, service charges, recovery of expenses and sale of tickets amounted to Rs. 261.41 Lacs (Previous year Rs. 1704.53 lacs). Expenditure in Foreign Currency Expenditure in foreign currency with respect to handling charges and other matters amounted to Rs. 72.47 lacs (Previous year Rs. 3345.37 Lacs). Your Company does not own any manufacturing facility, hence the other particulars relating to conservation of energy and technology adsorption as required to be provided as the Companies ( Disclosure of particulars in the Report of the Board of Directors ) Rules, 1988 are not applicable. DIRECTORS As per provisions of the Companies 1956, Mr. Nikhil Morsawala and Mr. Asheesh Mohta are appointed as additional Directors at the Board Meeting held on 18th February, 2003. They hold the office till the ensuing Annual General Meeting and their appointment is proposed to be regularised as given in the Notice convening the Annual General Meeting of the Company. Mr. Avinash L. Kelkar was nominated by ICICI Limited as its nominee on the Board of the Company with effect from 30th January, 2002. Mr. Vivek Talwar has resigned from the Directorship of the company and the Board has accepted his resignation at their meeting held on 6th May, 2002. Mr. Mahendra Doshi and Mr. Sriram Chander have also resigned from the Directorship of your company and their resignation has been accepted at the meeting of Board of Directors held on 18th February, 2003. The Board has placed on record its sincere appreciation for the contribution made by them during their tenure as directors of the Company. AUDITORS M/s. C.C. Chokshi & Co., Chartered Accountants retire at the ensuing Annual General meeting and are eligible for re-appointment. Members are also requested to authorise the Board of Directors to ratify/ appoint Branch Auditors in consultation with the statutory auditors and fix their remuneration. ACKNOWLEDGMENTS Your Directors place on record their gratitude for the co-operation and support extended to the company by Financial Institutions, Banks, Customers and Business Associates of the company. Your Directors also take this opportunity to record their appreciation of the contribution made by the employees at all levels. By order of the Board of Directors for ELBEE SERVICES LIMITED SANDIP SHAH Chairman & Managing Director Place: Mumbai Date : 27th February, 2003 MANAGEMENT DISCUSSION AND ANALYSIS REPORT Industry Structure and developments The Company is mainly engaged in the Express and logistic business. The company has over 125 branches spread all over the country and extended reach to more than 11600 locations in domestic Network. Operating through a hubs and spoke system, the Company has five major Hubs at Mumbai, Delhi, Salem, Bangalore and Calcutta. The Registered Office and Corporate Office of the company are located at Mumbai. The effects of global recession are experienced in all the industries and courier and logistic business is no exception to it. The period under review especially post 11th September, 2001 incident has been difficult for airlines and consequently for logistic and courier business. The steep competition from the global as well as the domestic operators has adversely effected overall operations of the company. Under such circumstances the company was forced to curtail its operation by reducing the international business operations. b. Opportunities and Threats In view of the anticipated growth in the demand for the services of the Company in the years to come opportunities for the Company to improve its performance is bright. Company has also decided to further improve its services by use of State of the Art Technology and efficient packing material and also by placing emphasis on efficient and professional management of available resources of the Company. The current year begins on a positive note with signals of economic recovery. The huge opportunity to integrate its franchisees and other business associates with infrastructure of fleets and technology provides great opportunity for improved services to customers. Company continues to focus on the more profitable domestic sector. The express industry is expected to continue to grow at a steady pace of 25%. The economic downtrend is expected to force large corporations and multinationals t o concentrate on core competencies and outsource their logistic requirements. This will open up new vistas of opportunities for your company in the coming years. With its strong brand equity, widespread reach through robust network, committed workforce and large customer base, the company should be able to grow at a pace much higher than the expected industry growth. This would translate into cascading increase in profitability given the high operating leverage of the business. With the increase in the telecommunication network and big operators like Reliance entering in telecom sector has opened up tremendous opportunities. Major threat the company could encounter is further reduction in the billing rate resulting from added competition, availability of adequate working capital at a right time and war threat. The important factor that could make a difference to the Companys operations include global and domestic conditions, change in government regulations and tax structure, economic developments within India and Countries in which the company has or may have business contacts or opportunities and other factors such as litigation or Industrial Relations. C. Segment - wise or product - wise performance The Company is engaged in the business of integrated logistic solutions and package distribution which is being treated as single segment for the purpose of compliance of Accounting Standard (AS 17) on "Segment Reporting". d. Future Outlook The express industry is expected to grow at a steady pace about 20%. The economic downtrend is expected to force large corporations and multinationals to concentrate on core competencies and outsource their logistic requirements. This will open up new vistas of opportunities for your company in the coming years. With its strong brand equity, widespread reach through robust network, committed workforce and large customer base, the company should be able to grow at a pace much higher than the expected industry growth. This would translate into cascading increase in profitability given the high operating leverage of the business. Even though the company is passing through a lean period, the future appears to be bright on account of the various measures initiated and adopted by the company to improve its performance and margin. e. Risks and concerns As a part of our business review the company periodically assess its risk at core management team meetings held once in a month. It also reviews the corractive steps to be taken to overcome the business risk. The September 11 disaster and its aftermath and some of the internal security conditions in the country has necessitated a review of the companys priorities and related risk. Shift in the business mix from international to domestic to achieve better top line and greater yields. f. Internal control system and their adequacy The Company is having a Internal Audit department which examines divisional and departmental operations at appropriate intervals, ensuring adequacy and effectiveness of internal and management controls. This is being done by maintaining an independent status of internal auditors for the activities that are being covered under audit. The Internal Audit department also examines systems, reviews procedures and records, for their adequacy to accomplish indented objectives and appraising policies and plans relating to each activity or function in the Company. In addition the company has appointed branch auditors to carry out internal audit of large branches. However, the Company is taking necessary steps to strengthen the Internal Audit Department so as to be commensurate with nature and size of the Companyies business. g. Discussion on financial performance with respect to operational performance. At the end of the September, 2002 the companys equity share capital was Rs. 13.43 crores as against Rs. 13.08 crores as at 31.03.2001. Reserves and Surplus of the company as at 30.09.2002 stood at Rs. 55.02 crores as against Rs. 72.81 crores as at 31.03.2001 our comments on operational performance has been covered in Directors Report.. h. Material developments in Human Resources/Industrial Relations front, including number of people employed. The Industrial Relation aspect of the Company has been very cordial at all locations/branches/offices of the company. The Company believes that the manpower is the most valuable primary resource for the growth of services oriented organisation in which, company is engaged. Over the years the company has built up excellent human resources with variety of skill sets appropriate to its business requirement. The industrial relations have been co-ordial and employees moral has been high. Management has implemented manpower cost optimisation plan and employee re-organisation process. Training was imparted to upgrade the skill levels in operations. The company has work force of around 1800 employees. The company has always emphasised continuos training and upgradation of technical and management skills of its staff. Deployment of these human resources have contributed revenues totalling to Rs. 157.59 crores with average contribution per employee working to Rs. 9 lacs. CAUTIONARY STATEMENT: Statements in this report on Management Discussion and Analysis describing the companys objectives, projections, opportunities, estimates, expectations or predictions may be forward looking statements. The statements are based on certain assumptions and expectations. Actual results may defer from those expressed or implied. The Company assumes no responsibility in respect of forward looking statements which may be amended or modified in future on the basis on subsequent developments, information or events. On behalf of the Board Sandip Shah Chairman & Managing Director Place: Mumbai Date : 27th February, 2003.