Mazagon Dock Shipbuilders Ltd Management Discussions.

MAZAGON DOCK LIMITED ANNUAL REPORT 2005-2006 MANAGEMENT DISCUSSION AND ANALYSIS PRODUCTION ACHIEVEMENTS: The significant achievements of the company on the production front during the year 2005-06 were: * Launch of the third Stealth Frigate on 27th May, 2005. * Keel laying of the second follow on Destroyer on 25th October, 2005. * Commencing production of third follow on Destroyer on 21st February, 2006. * Launch of first follow on Destroyer on 30th March, 2006. * Successful completion of Medium Refit-cum-modernization of one SSK class Submarine and special repairs of another. FINANCIAL HIGHLIGHTS: * During the year 2005-06, the Company registered a Value of Production of Rs.51828 lakhs as against the VOP of Rs.54063 lakhs for the year 2004-05. * The Profit (before tax) posted by the Company for the year 2005-06 is Rs.10969 lakhs as against the Profit (before tax) of Rs.13376 lakhs in the previous year. CAPITAL STRUCTURE: The Authorised Equity Share Capital and 7% Redeemable Cumulative Preference Share Capital (7% RCPS) of the Company as on 31st March 2006 stood at Rs.200 crores and Rs.123.72 crores respectively. The Paid-Up Equity Share Capital as on 31st March 2006 remained at Rs.199.20 crores and that the Preference Share capital stood at Rs.98.98 crores. During the year there was no increase in the Authorised or Paid up Share Capital. As stated in the report on the Accounts for the year ended 31.03.2005, the Company could not redeem and pay four instalments of RCPS each of Rs.24.745 crores due on 31.3.2001, 31.3.2002, 31.3.2003 and on 31.03.2004 for want of required profit and free reserves. The difficulty in timely redemption of the balance 7% RCPS was conveyed to the Ministry of Defence, Department of Defence Production. The Government of India has since approved (i) for redemption of outstanding 7% RCPS Capital of Rs.98.98 crores in four equal annual instalments commencing from the financial year 2007-08 onwards and (ii) for payment of arrears of dividend accumulated till the year 2005-06 in two equal annual instalments from the financial year 2006-07on the outstanding balance of 7% RCPS Capital. Accordingly one instalment of accumulated dividend upto the year 2005-06 on 7% RCPS capital of Rs.2354 lakhs will be paid as approved by the Govt. of India. During the year, the company has neither invited nor accepted any Fixed Deposits from the Public. OPERATIONS FOR THE YEAR 2005-06 VIS-A-VIS THE PREVIOUS TWO YEARS: Rs. in lakhs 2005-06 2004-05 2003-04 Sales 16,429 9,954 79,700 Value of Production 51,837 54,063 49,577 Profit/(Loss) before Tax* 70,970 13,376 963 Net Profit/(Loss)* 6,010 6,974 792 Capital Employed 36,774 33,368 27,804 Gross Block 22,937 22,820 22,675 Net Block 7,156 6,554 7,048 Working Capital 28,958 26,814 20,756 Net Worth* 37,347 34,870 27,896 Value Added 28,950 28,974 29,779 Interest 797 606 2,033 Ratios: Profit/Loss(-) before Interest and Tax: Capital Employed 0.309 0.479 0.708 Profit/Loss(-) after Interest and Tax: Capital Employed 0.766 0.207 0.029 Production : Capital Employed 1.435 7.620 1.783 Value Added : Production 0.558 0.536 0.587 CONTRIBUTION TO CENTRAL EXCHEQUER: Your Companys contribution is Rs.8792 lakhs during 2005-06 to the Central Exchequer through Income Tax. INCOME DISTRIBUTION: 2005-06 2004-05 % % Raw Material 28.18 33.59 Sub-contract 6.47 2.94 Power & Fuel 0.97 0.96 Salaries & Wages 36.82 33.64 Interest 0.31 0.91 Other Expenses 4.26 3.52 Deferred Expenses Written-off 0.00 0.00 Depreciation 1.06 7.11 Expenses Directly Charged to Project 0.57 7.32 Other Provisions 7.30 1.94 Previous Years Adjustment (-) 2.89 0.09 Transfer to Fixed Assets (-) 0.04 (-) 0.01 Income Tax 7.71 9.66 Profit/Loss(-) Retention 9.34 10.33 Total 100.00 100.00 DIVISIONWISE PERFORMANCE: A) SHIP BUILDING: The Ship building Division of your Company achieved a Value of Production of Rs.45487 lakhs during the year 2005-06 as against Rs.51545 lakhs of the previous year. B) SHIP REPAIR: During the year 2005-06 refits of one Naval Vessel and two Coast Guard vessels were completed. South Yard dry dock was given on hire for short duration for dry docking of 2 Nos. Offshore Supply Vessels of ONGC. The Value of Production on account of ship repair was Rs.651 lakhs as against previous year of Rs.1720 lakhs. Due to pre-occupation of wet basin with new construction vessels of Naval projects and availability of only one dry dock at South Yard, the ship repair activities have been pruned down to the repairs of MDLs own crafts and other similar commercial crafts. C) SUBMARINE & HEAVY ENGINEERING: The Value of Production on account of Submarine repairs was Rs.2836 Lakhs as against Rs.1045 Lakhs of the previous year. In addition, Hull fabrication jobs for follow on Destroyer Project and Stealth Frigate Project were also carried out in the East Yard and Alcock Yard. During the year, Medium Refit cum Modernisation of one. Submarine and special repairs to another have been completed. FUTURE OUTLOOK: The Shipbuilding Division of your Company has orders for three Stealth Frigates followon and three followon Destroyers. The progress of construction of various ships is at satisfactory level. Order for design, constriction and supply of one dumb cutter suction 2000 Cu. Mtr. Dredger was received against a global tender from Dredging Corporation of India. The Contract was signed on 24th Oct. 2005 with DCIL. The dredger is to be delivered by December 2007. MDL has received a prestigious order for construction of 6 Nos. Scorpene Class Submarines of French Design. Separate contracts with the Government and collaborators were signed in October 2005. An order to the value of Rs.911 crores has been received for Refit cum Modernisation of the remaining 2 Nos. SSK Submarines. EXPORT PROMOTION: In the field of exports, the Companys focus is on a few selected types of Offshore Patrol Vessels, Offshore Supply Vessels and Dredgers. Company participates in select International exhibitions and export efforts are made by circulating product literature, advertising in leading journals on shipbuilding, participating in global tenders etc. The Company has a good brand image and a few enquiries from foreign customers are under evaluation. ISO 9001: 2000 QUALITY MANAGEMENT SYSTEM: MDL has been assessed and approved in accordance with the requirements of ISO 9001:2000 Quality Management System and has been awarded ISO 9001:2000 certificate by IRQS. The certification was revalidated in April 2006 and it is valid upto February, 2009. QUALITY CIRCLES: The Company is committed to implementation of Quality Circle Philosophy. Accordingly in the 1st Phase 10 Quality Circles have been formed. These Quality Circles have been solving day-today problems in their respective working areas as per the QC methodology taught to them. One of the 10 Quality Circles was selected for giving presentation at NCQC 05 (National Convention of Quality Circle, 2005) in December 2005 at Kerala. This Quality Circle was awarded the Distinguished Case Study Trophy at the National Level convention. ENVIRONMENTAL ASPECTS: Your Company continues to be environmental friendly, and has fulfilled all the statutory requirements of Central & State Pollution Control Boards. The Company is committed to meet all the stipulated standards for maintaining and protecting the environment by development of greeneries and plantation. ECONOMY MEASURES: As a measure of enhancing financial value to stake holders, Eight Cost Reduction Groups comprising of officers, from different streams have been formed. Also a number of Quality Circles, comprising of various categories of employees, have been formed which in turn help to achieve economy measures. MODERNISATION: Your Company has undertaken Mazdock Modernization Project (MMP) as a part of modernization. This includes creation of facilities viz. Wet Basin, Modular Workshop, Heavy-duty Goliath Crane, Cradle Shop and Stores. These facilities are being created as Customer Financed Assets with funds from Naval Projects. The infrastructure that will be created through these Projects, will facilitate reduction in construction period and enable quick delivery of ships. EXPENDITURE ON FOREIGN TOURS: Expenditure incurred on foreign travel for securing business orders / marketing / participation in exhibition / training / delegation etc. was Rs.22.21 lakhs during the year as against Rs.19.94 lakhs for the previous year. HUMAN RESOURCE DEVELOPMENT: Human Resource Development activities continued during the year for both employees as well as apprentices, with an objective to continually improve the quality of workmanship. Management Development Centre (MDC) conducted 112 In-house programmes covering 1855 employees of MDL. Employees were also deputed for training to various Training Institutions in and outside Mumbai, covering technical and non-technical areas. A total of 54 external programmes were arranged and 134 employees attended. In-plant training and project work facilities were also extended to students of various Engineering Colleges and Management Institutions. The training department successfully completed certification audit and was awarded ISO 9001:2000 Certificate. Training is imparted to Trade Apprentices in the designated trades under the Apprentices Act, 1961. The Apprentice/Trainee Marine Engineers are being imparted training at Marine Engineering Training Centre under the revised training schedules in the light of STCW 95 code. INDUSTRIAL RELATIONS: The industrial relations situation in the Company during the year was cordial and harmonious. In the absence of a Recognised Union, efforts were made to resolve the day-to-day IR issues through deliberations through the Bargaining Council and other Unions. WAGE REVISION AGREEMENT: A memorandum of Settlement (MOS) for revision of wages, allowances and other benefits including the provisions of Multitrade, Production Norms- Linked Incentive Scheme and the New Promotion Policy was entered into between the Company and the Registered Unions. The Settlement is valid for a period of 5 years till 30.09.2008. WELFARE ACTIVITIES: Your Companys concern for the health and safety of the employees continues and various welfare and safety measures have been implemented. The Mazagon Dock Sports Club assisted by the Company looks after the recreational facilities for the employees. Eligible children of female employees were looked after in the Creche under the supervision of two lady Doctors and one female attendant. During the year under review, 18 spouses of employees had undergone family planning operation in recognition of which Cash Incentives, plus Special Casual Leave was granted to them. Safety of the employees is accorded utmost importance. All employees are provided with safety gears every year and their use on the job is monitored. Safety Week 2006 was observed from 3rd March 2006 to 10th March 2006. An exhibition on promotion of Safety was held and a safety pledge was taken by the employees during the occasion. Productivity Day was observed on 13th February, 2006 and National Productivity Week was observed from 13th to 17th February 2006. Knowledge Management for Productivity was adopted as main theme for the year 2006. AF ire Safety Exhibition was inaugurated on 15th April 2005 and the display continued till 21st April 2005. The death anniversary of Late Prime Minister, Shri Rajiv Gandhi on 20th May 2005 was observed as Anti Terrorism Day by administering a Pledge to all employees. 19th to 25th November 2005 was observed as Quami Ekta Week. All the employees and their families are covered under the Medical Reimbursement Scheme and are reimbursed the expenses incurred towards hospitalisation for self and families. During the period 2978 employees submitted claims amounting to Rs.4,11,43,710/- against this scheme. GRIEVANCE REDRESSAL COMMITTEE FOR SCs/STs: Weaker Sections of the Society are given adequate protection in the form of just and equitable treatment at the hands of the employer. To ensure this, a separate Grievance Redressal Cell has been constituted as suggested by the National Commission for SC/ST employees. OFFICIAL LANGUAGE: IMPLEMENTATION: The Company has been following the directives issued by the Government of India in regard to progressive use of Hindi for official purpose. In order to intensify the progressive use of Hindi, quarterly meetings were held under the Chairmanship of CMD. In addition Subcommittees for Hindi implementation under the Chairmanship of respective Directors / Group General Managers / General Managers were constituted in each Division. This has accelerated the effective implementation of Hindi. The Company gave cash awards to those Officers and Clerical Staff who made maximum use of Hindi in correspondence. All the English Stenographers of MDL have been imparted training in Hindi Stenography. In-house training has been given to English Typists in Hindi Typing. All officers and employees of AADL have acquired working knowledge of Hindi. On the occasion of Hindi Day during Hindi fortnight, competitions on Hindi Typing, Translation, Essay Writing, Debate, Singing etc. were organised. Official Language Implementation has been satisfactory in the Company. RESERVATION OF POSTS FOR SCs/STs/OBCs: Your Company has been observing the directives of the Government with regard to reservation of posts for SCs/STs/OBCs. Detailed statistics regarding the total number of employees, number of women employees, recruitment made during the calendar year 2006 and the representation of SC/ST/Ex-Servicemen as on 01.01.2006 are given at Appendices A, B & C respectively. ACTIVITIES OF VIGILANCE DEPARTMENT: During the year under review MDL observed Vigilance Awareness Week from 7th November to 11th November 2005 and HODs administered pledge to all officers and staff under them on the opening day. A Vigilance Exhibition, Slogan Competition on Vigilance Awareness in Hindi, Marathi and English and also an Essay Competition on Corruption - Reasons and Remedies were organised. Cash awards were distributed to the winners of the Slogan and Essay Competitions by the Chairman and Managing Director. The Vigilance Department had received twelve complaints out. of which four were anonymous and pseudonymous while the remaining eight were signed complaints. The anonymous / pseudonymous complaints were filed without having been acted upon as per the extant guidelines of the CVC. Out of the eight signed complaints, one complaint was closed and filed after preliminary investigation and the other seven were taken up for further vigilance investigation which are in progress. In four cases investigated by the Vigilance Department, Regular Departmental Action for Major Penalty has been initiated against four officers. An interactive session was organized on 28th November 2005 in which officers of senior level participated. Both the Chief Technical Examiners of CVC were invited for the interactive session at which the participants were apprised of common irregularities that were observed by the CVC during their inspection amongst various PSUs and Government Organizations in respect of Public Procurement systems, and the Remedial Methods. In-house training programme was conducted by the officers of Vigilance Department for employees of the Company. To strengthen the system of checks and to improve organisational ethics, Vigilance Department laid emphasis on Preventive Vigilance. PUBLIC GRIEVANCE COMMITTEE: The Public Grievance Committee in MDL has been headed by an officer of a rank of Group General Manager. During the year, the Committee looked into nine grievances, which were examined, based on their merits.