Saturday, August 30, 2008
OIL AND NATURAL GAS CORPORATION LIMITED
ANNUAL REPORT 2007-2008
On behalf of the Board of Directors of your Company, it is my privilege to present the 15th Annual Report and Audited Statement of Accounts for the year ended 31st March, 2008, together with the Auditors' Report and Comments on the Accounts by the Comptroller and Auditor General (C&AG) of India.
At the outset, I must congratulate you as your Company has been the first and only Indian company to be enlisted in Fortune's 'Most Admired Companies 2007'. The 'Fortune Global 500', 2008 list has ranked your Company at 335,34 notches higher than the previous year.
The fiscal 2007-08 was yet another year of growth and success for your Company, which along with other group companies, excelled in all its endeavours; particularly in the core activity of Exploration and Production (E&P) of Crude Oil and Natural Gas. Your Company maintained a Reserve Replacement Ratio (RRR) of more than one, for the fourth consecutive year. During the year, your Company registered RRR at 1.32, with Ultimate reserve accretion (3P reserves) of 63.82 Million Metric Tonnes (MMT) against production of 48.28 MMT of Oil & Oil Equivalent Gas (O+OEG).
Your Company accreted 182.23 MMT of Initial In-place reserves, the highest in last decade and 7% more than the last years accretion of 169.52 MMT, with 33 discoveries (Oil: 13, Gas: 20) spread across Indian sedimentary basins against 22 discoveries during 2006-07. Exploratory performance during ensuing fiscal 2008-09 also started on a high note with 11 discoveries in the first quarter of current fiscal.
During the year, O+OEG production of your Company, including the production from domestic joint ventures and overseas assets, was the highest-ever at 61.85 MMT, 1.84% more than the previous year. ONGC maintained the O+OEG production level at 48.28 MMT, marginally (0.4%) lower than last year, against the natural decline of mature fields. However, the oil and gas production from overseas assets increased by 10.7% and O+OEG production from domestic joint ventures also increased by 11.2%.
The augmenting and enhancing efforts taken up by your Company, through Improved Oil Recovery and Enhanced Oil Recovery (IOR/EOR) schemes, implemented since 2001, have helped to arrest production decline in the mature fields. Twelve IOR/ FOR schemes have been completed and six projects are under
implementation with an investment of Rs. 85,630 million. Out of the 165 marginal fields, 143 are either monetized or under delineation or under monetization on service contract. Remaining 22 fields will be put on production by offer under new marginal field policy. The new field Vasai East discovered in Western Offshore has commenced production from 7th July, 2008.
Your Company launched the second phase of Mumbai High South redevelopment on 1st April, 2008, with an investment of Rs. 63,392 million (USD 1,584 million).
Last year, your Company had opened up ultradeepwater province in the country by making first discovery at a water-depth of 2,841 metres in NELP block KG-DWN-98/2. So far, your Company has made 10 discoveries in the NELP Block KG-DWN-98/2 and 3 (Fig.3) discoveries in the adjoining PEL acreage KGOS-DW4. Appraisal plan for development of these blocks, which was submitted in October, 2007, has now been approved by Director General of Hydrocarbons (DGH). Your Company will develop these fields with an approximate investment of over Rs. 200,000 million (USD 5 billion); production is expected to commence from 2013.
Your Company is also participating with M/s Cairn Energy India Pty. Ltd. (CEIL) for development of Mangala, Aishwariya, Raageshwari and Saraswati fields in Barmer Basin of Rajasthan, in which your Company has 30% share, with estimated investment of USD 450 million (Rs.18,000 million). Your Company has also launched Assam Renewal Project (ARP) for revamping of aged surface facilities of brown fields in the north-eastern state of Assam.
Your Company is setting up a 3,000 bopd 'Mini Refinery' at Gandhar in Gujarat with an estimated investment of Rs. 640 million (USD 16 million) which is expected to be commissioned by August 2009.
The foundation stone for 'Rajiv Gandhi Urja Bhavan' which will house 'ONGC Energy Centre', a state-of-the-art REM centre for holistic research in alternate energy sources beyond hydrocarbons, was laid by Hon'ble Prime Minister Dr. Manmohan Singh on 20th August, 2007 at New Delhi.
Your Company appointed DeGolyer and MacNaughton (DEW) Canada Ltd. during May 2007 for Post Drill Analysis of 579 exploratory wells drilled during) ('Five Year Plan period (2002-07). DEW has submitted its interim report for first 350 wells drilled during 2002-05. Out of these 350 wells, 348 wells have been validated as having satisfactory exploration process.
Government Launched the VII round of the NELP on 1st December, 2007, offering 57 blocks (19 Deep-water, 9 Shallow-water and 29 On-land blocks). As per early indications your Company may get 20 blocks out of 27 blocks for which it submitted bids.
Your Company is setting up a 50 MW Wind Farm in Gujarat consisting of 34 wheeling units with an investment of Rs. 3,070 million. Power will be utilized in nearby ONGC installations. All 34 units have been erected, 10 have started wheeling power.
The first CBM development well for CBM was spudded in Parbatpur pilot area on 1st December, 2007 near Bokaro Steel City of Jharkhand; production is likely to commence from April 2009.
Under UCG exploration, data from fifteen different sites were sent to Skochinsky Institute of Mining, Russia for comprehensive study. Based on that study, Vastan Mine in Gujarat has been selected as pilot project. 18 bore holes were drilled to know the extension of lignite which helped in preparing detailed geological maps and Hydro geological studies. Finalization of agency for engineering and construction of UCG pilot is in process.
National Gas Hydrate Core Repository has been established at ONGC's Institute of Engineering and Ocean Technology (IEOT) near Mumbai for long-term preservation of both hydrate and non-hydrate bearing cores under cryogenic and refrigerated conditions.
Your Company, in association with Saha Institute of Nuclear Physics and Department of Science and Technology, has installed India's first pilot plant for Helium recovery from natural gas at Kuthalam, Tamil Nadu.
1. Financial Results:
Your Company scaled a new milestone to record a Net Profit of Rs. 167,016 million (up 6.77% from 85.156,429 million in 2006-07).
During the year under review, your Company registered a gross revenue of Rs. 615,426 million, (up 4.21% from Rs. 590,575 million in year 2006-07) despite sharing under recoveries of Rs. 220,009 million (Rs. 170,239 million in 2006-07) of the Public Sector Oil Marketing Companies by way of discounts in the price of Crude Oil, Domestic LPG and PDS Kerosene (SKO), on administrative instructions of the Government of India.
Summary (Rs. in million) 2007-08 2006-07
Grass Revenue 615,426 590,575Gross Profit 351,912 335,431LessInterest 590 215Exchange variation (1,070) 177Depreciation, Depletion& Amortisation 98,416 93265Impairment (437) 1,730Provision /write offs 2,067 3,342Provision for Taxation(including deferred tax(liability of Rs.8,481 million) 85,330 184,896 80,273 179,002Profit after tax 167,016 156,429AppropriationsInterim Dividend 38,500 38,500Proposed Final Dividend 29,944 27,805Tax on Dividend 11,632 10,125Transfer to General Reserve 86,940 79,999Total 167,016 156,429
Your Company declared an interim dividend of Rs. 18 per share (180%) in December, 2007. The Board of Directors have now recommended the final dividend of Rs. 14 per share (140%), making the aggregate dividend at Rs.32 per share (320%), against previous year's Rs. 31 per share (310%). The total dividend will absorb Rs. 68,444 million besides Rs. 11,632 million as tax on dividend.
3. Production & Sales
Highlights of production and sales of Crude Oil, Natural Gas and Value-added Products:
Unit Production Sales Value (Rs. in million) 2007-08 2006-07 2007-08 2006-07 2007-08 2006-07
DirectCrude Oil MMT 27.93* 27.94* 24.08 24.42 386,803 372,212Natural Gas BCM 25.12** 24.88** 20.43 20.30 71,780 72,078C2-C3 '000 MT 520 549 520 548 9,291 9,095LPG '000 MT 1035 1023 1037 1033 20,169 14,866Naphtha/ARN '000 MT 1469 1450 1442 1442 43,848 37,907SKO '000 MT 167 155 168 156 3,374 2,827Others 937 654Sub-total 536,202 509,639TradingMotorSpirit '000 KL 232 121 9,159 4,530SKO '000 KL 308 563 7,401 12,926HSD '000 KL 1539 1394 48,608 42,017Sub-total 65,168 59,473Total 601,370 569,112
* includes 1.99 MMT (Previous year 1.89 MMT) from Joint ventures.
** includes of 2.79 BCM (Previous year 2.44 BCM) from Joint ventures
4. Oil & Gas Reserves
ONGC has made voluntary disclosures in respect of Oil & Gas Reserves, conforming to SPE classification 1994 and US Financial Accounting Standards Board (FASB-69). ONGC has added 110.21 Million Metric Tonnes (MMT) of ultimate reserves of oil and oil-equivalent gas (O+OEG) during the year under review from its domestic and overseas assets (OIL).
Ultimate Reserve Accretion O+OEG (in MWT)
Year Domestic Domestic Total Foreign Total Assets JVs Domestic Assets (ONGC's Share) Reserve (OVL's Share) (1) (2) (3)=(1)+(2) (4) (5)=(3)+(4)
2005-06 51,53 0.12 51.65 16.72 68.372006-07 65.56 4.77 70.33 9.96 80.292007-08 63.82 -0.34 63.48 46.73 110.21
5. Statement of Reserve Recognition Accounting:
1. The Concept of Reserve Recognition Accounting attempts to recognize income at the point of discovery of reserves, and seeks to demonstrate the intrinsic strength of an organization with reference to its future earning capacity in terms of current prices for income as well as expenditure. This information is based on the estimated net proved reserves (developed and undeveloped) as determined by the Reserves Estimates Committee.
2. As per FASB-69 on disclosure about Oil and Gas producing activities, publicly traded enterprises that have significant Oil and Gas producing activities are to disclose with complete set of annual financial statements, the following information, considered to be supplemental information:
a) Proved Oil and Gas reserve quantities
b) Capitalized costs relating to Oil and Gas producing activities
c) Cost incurred for property acquisition, exploration and development activities
d) Results of operations for Oil and Gas producing activities
e) A standardized measure of discounted future net cash flows relating to proved Oil and Gas reserve quantities.
3. Your Company has disclosed information in respect of (a) and (d) above in the Annual Financial Statements.
In respect of item (e) above, your Company has made voluntary disclosure on standardized measure of discounted future net cash flows relating to proved Oil and Gas reserves at annexure-b
6. Financial Accounting
The Financial Statements have been prepared in accordance with the Generally Accepted Accounting Principles (GAAP) and in compliance with all applicable Accounting Standards (AS-1 to AS-29) and Successful Efforts Method as per the Guidance Note on Accounting for Oil It Gas Producing Activities issued by The Institute of Chartered Accountants of India (ICAI) and provisions of the Companies Act, 1956.
7. Internal Control System
The Company has well established and efficient internal control system and procedures. Your Company has already implemented SAP R/3 system for integration of various business processes across the organization. The Company also has well defined financial powers of various executives in its Book of Delegated Powers. The Company has in-house Internal Audit Department commensurate with its size. Audit observations are periodically reviewed by the Audit & Ethics Committee of the Board and necessary directions are issued wherever required.
(i) ONGC Videsh Limited (OVL)
ONGC Videsh Limited (OVL), the wholly-owned subsidiary of your Company engaged in overseas E&P activities, continued to maintain robust growth during 2007-08. It acquired 11 E&P projects in 6 countries during the year.
ONGC Videsh Ltd. (OVL) signed a joint venture agreement with Petroleous de Venezuela SA (PdVSA) on 8th April, 2008 at Caracus to take 40% stake in the San Cristobal oilfield located in Orinoco Heavy Oil belt of Venezuela; PdVSA will hold the remaining 60% stake. The agreement was signed by Mr. R.S.Butola, MD, OVL and Mr. Eleogao Del Pino, MD, PdVSA during the visit of Mr. Murli Deora, Hon'ble Minister of P&NG, G01. Under the agreement OVL and PdVSA will develop the field from its current production level of 20,000 bbl/d to 40,000 bbl/d.
The company now has participation in 38 projects in 18 countries. Of the projects acquired, NEMED Block in Egypt offshore is under appraisal phase; Blocks AD-2, AD-3 and AD-9 in Myanmar offshore; Blocks RC-8, RC-9 and RC-10 in Colombia offshore; Block ES-M-470 and Block SM-1413 in Brazil offshore; MTPN Block in Congo offshore and Block 11-12 in Turkmenistan offshore are under exploration phase. The Turkmenistan Block is held through ONGC Mittal Energy Limited (OMEL), a joint venture of OVL and Mittal Investment Sari.
Out of 38 projects, OVL is operator in 18 projects and joint operator in 2 projects in 11 countries. OVL is currently producing oil and gas from Greater Nile Oil Project and Block 5A in Sudan, Block 6.1 in Vietnam, Al Furat Project in Syria, Sakhalin-I Project in Russia and Mansarovar Energy Project in Colombia. Block BC-10 in Brazil is currently under development with production expected to begin in 2009-10. Block A-1 and A-3 in Myanmar, North Ramadan Block and NEMED in Egypt and Farsi Offshore Block in Iran have discoveries and appraisal work is being carried out. The remaining projects are in exploration phase.
OVL's share in production of oil and oil-equivalent gas (O+OEG), together with its wholly-owned subsidiaries ONGC Nile Ganga B.V. and ONGC Amazon Alaknanda Limited, increased from 7.95 MMTOE to 8.80 MMTOE, up 10.7%. Consolidated gross revenue of OVL increased from Rs. 118,610 million to Rs.169,540 million, up 42.93% and consolidated net profit from Rs. 16,633 million to Rs. 23,971 million, up 44.12%.
Direct Subsidiaries of OVL:
a) ONGC Nile Ganga B.V. (ONGBV):
ONGC Nile Ganga B.V (ONGBV) is engaged in E&P activities in Sudan, Syria and Brazil. ONGBV holds 25% Participating Interest (PI) in Greater Nile Oil Project (GNOP), Sudan; the other partners in this project are National Oil Company (NOC) of China (with 40% PI), a Malaysian NOC (with 30% PI) and a NOC of Sudan (with 5% PI). ONGBV's share in oil production from GNOP was 2.969 MMT during 2007-08. Besides, ONGBV also holds PI in AFPC Syrian producing asset and deepwater discovered Block BC-10 and exploratory Blocks ES-M-470 and Block SM-1413 in Brazil.
b) ONGC Narmada Limited (ONL):
ONGC Narmada Limited (ONL), a wholly-owned subsidiary of OVL is engaged in E&P activities in Nigeria. ONL holds 13.5% PI in deep I'i1x water exploration Block-2 in Nigeria-Sao Tome Et Principe, Joint Development Zone (JDZ). The Chinese NOC, Sinopec is operator with 28.67% PI.
c) ONGC Amazon Alaknanda Limited (OAAL):
ONGC Amazon Alaknanda Limited (ORAL), a wholly-owned subsidiary of OVL incorporated in Bermuda, is engaged in E&P activities and holds stake in E&P projects in Colombia, through Mansarovar Energy Colombia Limited (MECL), a 50:50 JV company with Sinopec of China. MECL is currently producing oil at 24,000 bbls/d. During 2007-08, OVL's share of production was about 0.349 MMT of oil.
Joint Venture of OVL
d) ONGC Mittal Energy Limited (OMEL)
OVL along with Mittal Investments Sari (MIS) promoted ISMEL ONGC Mittal Energy Limited (OMEL), a joint venture company incorporated in Cyprus. OVL and MIS holds 98% shares of OMEL in the ratio of 51(OVL): 49(MIS) with 2% shares held by SBI Capital. OMEL holds PI in the AFPC Syrian Assets through ONGBV, exploration Blocks OPL279 and OPL285 in Nigeria and Block 11-12 in Turkmenistan.
(ii) Mangalore (Refinery & Petrochemicals Limited (MRPL)
Your Company continues to hold 71.62% equity stake in MRPL, which has achieved new heights in excellence in both financial and operational performance during the year.
In view of the improved performance MRPL Board has recommended the dividend of 12%.
MRPL's launched its brand 'HiQ through its first retail outlet at Maddur, Karanataka.
MRPL Refinery was awarded prestigious Jawaharlal Nehru Centenary Award, for Energy conservation in refinery for the year 2006-07, instituted by the Ministry of Petroleum and Natural Gas, for the fourth consecutive year.
MRPL continues to be a major exporter of petroleum products with exports valuing Rs. 111,410 million during 2007-08 which is 41% of total dispatches. MRPL has been granted status of a PremierTrading House by DGFT, Govt. of India.
MRPL and Shell Gas B.V, Netherland entered into an agreement on 5th February, 2008 to forma joint venture company 'Shell MRPL Aviation Fuel and Services Private Limited' for marketing of Aviation Turbine Fuel to both Domestic and International airlines at Indian Airports.
Product supply agreement with STC, Mauritius for export of Petrol, Diesel, Aviation Turbine Fuel and Fuel Oil valuing US$ 2,000 million (approx.) has been renewed for a further period of three years starting from August 2007.
MRPL's Phase III Refinery Project is progressing as per schedule.
MRPL has acquired the Nitrogen manufacturing facilities from Essel Mining Industries Limited (formerly, Hindustan Gas Industries Ltd.), located in the close proximity of refinery at Mangalore, so as to ensure self sufficiency for this critical input.
Joint Ventures of MRPL
Kakinada SEZ Pvt. Ltd. (KSEZ) and Kakinada Refinery and Petrochemicals Pvt. Ltd (KRPL) Considering all circumstances and factors affecting the steering of these two projects, ONGC and MRPL have decided not to continue as equity partners in these two Joint Ventures and have accordingly withdrawn with effect from 23rd June, 2008. ONGC's proposed equity participation, through MRPL, was 46% in KRPL and 26% in KSEZ.
9. Exemption in respect of Annual Report of Subsidiaries and Consolidated Financial Statement:
In terms of approval granted by the Central Government under Section 212(8) of the Companies Act, 1956 copy of the Balance Sheets, Profit and Loss Accounts, Reports of the Board of the Directors and Reports of the Auditors of the Subsidiary Companies have not been attached to the Accounts of the Company. The Company will make these documents/details available upon request by any member of the Company interested in obtaining the same. Annual Reports of MRPL and OVL are available on website www.mrpl.co. in and www.ongcvidesh.com respectively.
In accordance with the Accounting Standard AS-21 on Consolidated Financial Statements read with Accounting Standard AS-23 on Accounting for Investments in Associates and with Accounting Standard AS-27 on Financial Reporting of Interests in Joint Ventures, Audited Consolidated Financial Statements for the year ended 31st March, 2008 of the Company and its subsidiaries form part of the Annual Report and Accounts.
10. Joint Ventures/ Associates
(I) Petronet LNG Ltd. (PLL)
ONGC has 12.5% equity stake in PLL. PLL has started expansion of Dahej LNG terminal to 10.0 MMTPA capacity and also setting up LNG Receiving and Re- gasification Terminal of 5.0 MMTPA at Kochi. The turnover of PLL during 2007-08 is Rs. 65,553 million (previous year Rs. 55,089 million) and net profit is Rs. 4,747 million (previous year Rs. 3,133 million) PLL has declared a dividend of 15% (previous year 12.5%).
(iii) ONGC Tripura Power Company Pvt. Ltd. (GTPC)
Your Company has promoted 'ONGC Tripura Power OTPC Company Pvt. Ltd. '(OTPC) which is setting up a 726.6 MW (363.3x2) Combined Cycle Gas Turbine based Power Generation project . This would facilitate monetization of the idle gas reserves of ONGC in Tripura. ONGC has 50% share in OTPC along with Government of Tripura (0.5%), IL&FS (26%) and balance 23.5% by Financial Institutions (FI) and other investors. Your Company placed Notice of Award on 23rd June, 2008 to M/s BHEL for generation project.
(iii) Pawan Maps HetIcapters Ltd. (PHHL)
Your Company, ONGC, has 21.5% equity stake in PHHL, which provides helicopter support for its offshore operations. PHHL has an operational fleet of 36 helicopters. The PHHL was successful in providing all the 12 Dauphin N Et N3 helicopters fully compliant with AS-4 as per the new contract with ONGC by December 2007. PHHL earned a net profit of Rs.95.2 million in the year 2006-07 (previous year Rs. 473.9 million).
(iv) Petronet MHB Ltd. (PMHBL)
ONGC has equity stake of 28.76% in PMHBL, which owns and operates a pipeline between Mangalore Hassan - Bangalore and provides direct evacuation facility of MRPL products. The company has achieved a throughput of 2.141 MMT which is 50% higher than that in 2006-07. The total revenue of Rs 57,640 million is 48.91% higher as compared to 2006-07. As per audited results for the year 2007-08, the company has made a net profit of Rs. 3.841 million, for the first time since inception.
(v) Dahez SEZ Ltd. (DSL)
Your Company with 23% equity stake along with GIDC (26%) is promoting a Special Economic Zone (SEZ) at Dahej in the coastal Gujarat. SEZ has been formally approved by Ministry of Commerce and Industry and Gazette notification issued. Master Plan for the SEZ has also been finalized. ONGC, as the anchor tenant, is implementing its C2+ extraction plant, the product of which will be utilized as feedstock to OPaL.
(A) ONGC Petro-additions Ltd. (OPaL)
OPaL, an SPV promoted by ONGC, with 26% stake and management control, and GSPC with 5% holding, is implementing a mega petrochemical complex as an anchor industry in Dahej SEZ. The project has been reconfigured according to current market demand-supply dynamics with estimated investment of Rs.124,400 million. Contract for site infrastructure development has already been awarded. Tenders for Dual Feed Cracker unit and Project Management Consultancy are under finalization. Project office has been established at Vadodara on 28th June, 2008.
(vii) Mangalore SEL Ltd. (MSEZ)
MSEZ was incorporated to develop the Special Economic Zone at Mangalore through a SPV As per the proposed equity structure ONGC will hold 26%, KIADB 23% and IL&FS + KCCI 51%. Formal approval for Sector Specific SEZ (Petro-Chemical) has been received from Ministry of Commerce and Industry on 6th November, 2007. Nearly 2,262 acres of land is under acquisition
(viii) ONGC Managalore Petrochemicals Ltd. (OMPL)
An aromatic petrochemical complex is being set up for 0.92 MMTPA Para-xylene and 0.14 MMTPA Benzene manufacturing facilities based on MRPUs aromatic rich Naphtha. The project is being implemented through a SPV - ONGC Mangalore Petrochemicals Ltd. (OMPL) with following equity participation: ONGC 46%, MRPL 3% and balance from Banks, Financial institutions #c strategic partners. 454 acres of land has been allotted by Mangalore Special Economic Zone. Site grading job is in progress.
(ix) ONGC TERI Biotech Ltd. (OTBL)
ONGC formed a Joint Venture in association with The Energy Research Institute (TERI) for addressing the requirement of Bioremediation, Microbial Enhanced Oil Recovery and prevention of wax deposition in tubular for its E&P operations. The JV has been incorporated on 26th March, 2007.
11. Other Business initiatives:
a. Memorandum of Understanding:
ONGC signed various MOUs during the year for cooperation and collaboration in various areas of activities as follows:
i. MoU with Institute for Energy Technology, (IFE) Norway on 11th March, 2008 To emphasizes Indo-Norwegian collaboration in areas of Trace Study Multiphase Flow and Corrosion Studies.
ii. MoU with HPCL on 18th July, 2007
Forsale of products and for sharing of HPCL's marketing infrastructure predominantly for MRPL products.
iii. MoU with GAIL on 24th July, 2007
For co-operation in purchase of gas from new sources to be developed by ONGC in KG & Mahanadi Basins and its transportation, distribution It marketing.
iv. MoU with Ashok Leyland Project Services Ltd (ALPS) on 4th November, 2008 For sourcing of LNG on long term basis at a competitive price and pursuing integrated E&P & downstream opportunities.
v. MoU with Shell on 23rd January, 2008
For co-operation in various areas of exploration &t production hydrocarbon, coal gasification, oil products, HSE, technology and business consulting services.
b. C2-C3-C4 Extracti an Plant
ONGC is setting up a C2-C3-C4 (Ethane, Propane and Butane) Extraction Plant at Dahej using LNG from PLL as feed stock. Overall progress of the project is 89.07% as on 31st March, 2008. The project is expected to be commissioned in 2009.
12. Information Technology:
Entire 3D seismic data and original logs of more than 9,000 wells were computerized under Project EPINET. Supervisory Control and Data Acquisition (SCADA) is being implemented covering entire production and drilling facilities.
The e-procurement process along with reverse auctioning has gone live and centralised electronic processing of vendors payment has been started for payment through National Electronic Fund Transfer (NEFT). All Welfare Trusts of your Company went on-line.
For Providing Urban amenities in Rural Areas (PURA), ONGC has plans to set up a PURA in each of the states where it operates. The picture shows a village in north-eastern state of Tripura, where the first PURA is being set up by ONGC
13. Health, Safety and Environment (HSE)
HSE occupies an elevated position in the business agenda of your Company hile all work centres are certified with ISO 9001, OHSAS 18001 and ISO 14001, extensive training is provided to the work force for ensuring the maintenance of HSE practices
Your Company has undertaken Mangrove plantation at Gulf of Khambat and implemented Bioremediation of oily sludge at various onshore installations.
Your Company has renewed 'Participant Agreement' with OSRL (Oil Spill Response and East Asia Response Limited) to combat major oil spills.
14. Clean Development Mechanism (CDM)
Your Company has formalized its corporate policy on Climate Change and Sustainability, thereby becoming, once again the first PSU to have this policy. It has got registered four CDM projects with United Nations Framework Convention on Climate Change (UNFCCC), with expected annual Certified Emission Reductions (CERs) of 119,865.19 more CDM projects are identified for development.
Your Company has signed an MoU with the United States Environment Protection Agency (US EPA) for identifying and capturing fugitive methane emission from various operations. It has also entered into an MoU with Statoil Hydro, Norway to develop Carbon Dioxide Capture and Sequestration (CCS), CDM and Carbon Management projects. Your Company has joined the global initiative on Carbon Disclosure Project (CDP) giving it access to the technologies adapted by different signatory companies in achieving sustainable development.
15. Human Resource
Your Company believes that its human resource is its greatest wealth. Therefore, it is the endeavour of your Company to nurture and develop this wealth.
Your Company continues to extend several welfare benefits to its employees and their dependants by way of comprehensive medical care, education, housing, and social security. During the year 2007-08 your Company implemented 84 new and revised welfare polices for its employees.
During the year, 60 employees were released under the Voluntary Retirement Scheme.
16. Human Resource Accounting
The organisational knowledge in your Company is the sum total of information and experience in the minds of our people, well as the cumulative knowledge in the organisational systems. This is a priceless asset, and therefore, beyond the mechanics of accounting.
There are, however, methods to measure the potential ability of all employees across the ranks, to produce value out of their knowledge and skills. The standard 'lev and Schwarte' model equates the anticipated future earnings as the surrogate of the 'Walue' of an employee. This model has been used as per the details given in annexure-d.
Based on these assumptions, your Company's Human Resource has been valued at Rs. 290,528.9 million as on 31st March, 2008.
These are unaudited figures.
17. Welfare Trusts
Employees Contributory Provident Fund (ECPF) Trust, managing Provident Fund accounts of employees of your Company, has settled 1,639 cases of final withdrawal and 2,029 cases for non-refundable withdrawals during the year.
The Post Retirement Benefit Scheme (PRBS) Trust of your Company, set up to provide financial security to superannuating employees separating on or after 01.04.2007, is to enhance the pension amount by almost 45%.
The Composite Social Security Scheme (CSSS) formulated by your Company provides an assured ex-gratia payment in the event of unfortunate death or permanent disability of an employee in service. Families of deceased employees get a financial assistance under the scheme ranging between Rs.1.5 million to Rs. 2.0 million. During the year, 61 bereaved families were supported through this Scheme.
ONGC Sahayog Trust has been created for welfare of secondary workforce or their heirs, who are in financial distress. Approximately Rs. one million was disbursed during 2007-08 amongst 23 such beneficiaries.
Your Company implemented the Employees Pension Scheme (EPS-1995) retrospectively w.e.f. 16th November, 1995 and remitted Rs. 215.09 million as employer's contribution.
Your Company complies with the Government guidelines on reservation for SC and ST The percentage of SC and ST employees, as on 1st April, 2008 was 15.9% and 8.4% respectively. During the year 2007-08, Rs. 12.50 million was spent for welfare of the SC and ST communities.
18. Industrial Relations
During the year, harmonious industrial relations were maintained in your Company and no man days were lost due to internal factors.
19. Grievance Management System
Your Company provides an easily accessible machinery to the employees for redressal of their grievances, either through informal channel (open hearing day) or through formal channel. All Key Executives of your Company have designated a publicized time slot thrice a week to meet public representatives for speedy redressal of their grievances.
20. Medical Services
Your Company has a comprehensive health care scheme for all serving employees and their dependants. Retired employees and their spouse are availing Company's medical facilities. In addition serving employees of CISF and KV (along with their dependents), posted at he Company's work centres are eligible for the Company's medical facilities.
21. Human Resource Development (HRD)
Many HRD initiatives were taken like; comprehensive rew of the performance incentive scheme, skill mapping for various disciplines. Assessment and Development Centre workshops for Surface Managers, Block Managers and Sub-surface Managers.
During the year, ONGC Academy organised 242 training programmes for 7,427 executives (86,840 training days). The Regional Training Institutes conducted 243 training programmes for 4,496 non-executives. Two unique qualification upgradation programs, one for Diploma holders (Unnati Prayas) and the other for Degree holders (Super Unnati Prayas) have been continuing.
An intense Leadership Development Programme for senior level (E7) Executives was launched from 17th January, 2008 at ISB Hyderabad.
The details of awards and recognitions to your Company are placed at Annexure-e.
Around 150 sportspersons including 95 international level performers are on the rolls of ONGC representing your Company in 15 different games.
Your Company's basketball team won the National Federation Cup.
Your Company hosted the ONGC Near Nehru Cup International Invitational Tournament during the year.
Chess Queen Koneru Humpy was conferred with Padmashri and Badminton ace Chetan Anand received the Arjuna Award. Reigning World Billiards Champion Pankaj Advani retained his title after an 'all ONGC Final' in which Dhruv Sietwala was the Runner-up.
Arjuna Awardee Virender Sehwag became the first Indian and third cricketer to score two triple Test centuries.
Your Company won the Petroleum Minister's PSPB Trophy for Overall Best Performance in 2007-08 for the fifth year in succession.
23. Corporate Social Responsibility (CSR)
ONGC is spearheading the United Nations Global Compact - World's biggest corporate citizenship initiative to bring Industry, UN bodies, NGOs, Civil societies and corporates on the same platform.
During the year, your Company has undertaken various CSR projects at its work centres and Corporate level.
24. Official Language
During the year, a series of initiatives were undertaken for promotion and propagation of Rajbhasha. Literary works in official language continued to be financially supported by your Company. In addition, all inductees at the executive level were exposed to the Official Language Policy of the Govt. of India.
25. Right to Information Act, 2405 (RTI Act)
An appropriate mechanism has been set up across the company in line with the RTI Act. During the year, 318 applications were received under RTI Act, out of which information has been supplied to 283 applicants, 3 cases have been transferred to other public authorities and 32 requests have been rejected. In addition, 90 first appeals were filed and 17 appeals were filed before Central Information Commission.
26. Women Empowerment
Women employees constituted about 5% of ONGC's workforce. Various programmes for empowerment and development, including programme on gender sensitization were organized.
27. Directors' Responsibility Statement:
Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors' Responsibility Statement, it is hereby confirmed that:
(i) In the preparation of the Annual Accounts, the applicable accounting standards have been followed and there are no material departures from the same;
(ii) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fairview of the state of affairs of the Company as at 31st March, 2008 and of the profit of the Company for the year ended on that date; (iii) The Directors have taken proper and sufficient care 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
(iv) The Directors have prepared the annual accounts of the Company on a 'going concern' basis.
28. Corporate Governance
A report on Corporate Governance as stipulated as per Clause 49 of the Listing Agreement, together with Management Discussion and Analysis Report supported by a certificate from the Company's Auditors confirming compliance of conditions, form part of this Report.
Your Company, acknowledging its corporate responsibility, has voluntarily obtained a 'Secretarial Compliance Report' for the financial year ended 31st March, 2008 from M/s A.N. Kukreja & Co., Company Secretaries in whole-time practice, which is annexed to this Report.
In line with global practices, your Company has made all information, required by investors, available on the Company's corporate website www.ongcindia.com.
29. Statutory Disclosures
Section 274(1)(g) of the Companies Act, 1956 is not applicable to the Government Companies. Your Directors have made necessary disclosures, as required under various provisions of the Act and Clause 49 of the Listing Agreement. The information required under section 217(1)(e) of the Act read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, as amended is annexed as annexure-a.
None of the employees of your Company is drawing remuneration exceeding the limits laid down under provisions of section 217(2A) of the Act read with Companies (Particulars of Employees) Rules, 1975 as amended.
The Statutory Auditors of your Company are appointed by the Comptroller & Auditor General of India (CRAG). M/s K K Soni & Co., M/s S C Ajmera & Co., M/s PSD & Associates, M/s. Padmanabhan Ramani & Ramanujam and M/s Singhi & Co. Chartered Accountants were appointed as joint Statutory Auditors for the financial year 2007-08. There is no qualification in the Statutory Auditors' Report.
The review by CRAG forms part of this report as annexure-c.
Notes on Accounts referred to in the Auditors' Report are self-explanatory and therefore do not call for any further comments.
Pursuant to the direction of the Central Government for Audit of Cost Accounts, your Company appointed Cost Accountants, for auditing the cost accounts of your Company for the year ended 31st March, 2008.
Pursuant to the provisions of Section 260 of the Companies Act, 1956 and Clause 104(1) of Articles of Association of the Company, Dr. R.K.Pachauri, Shri V R Singh, Shri R K. Choudhury and Dr. Bakul H. Dholakia, retire by rotation at this AGM and being eligible offer themselves for reappointment.
Shri D. K. Sarraf was appointed as an Additional Director and designated as Director (Finance) effective from 27th December, 2007 and holds office up to the 15th Annual General Meeting and in respect of whom, the Company has received a notice in writing from a member pursuant to the provisions of Section 257 of the Companies Act, 1956, proposing his name for appointment as a Director of the Company, subject to retirement by rotation under the Articles of Association of the Company.
Brief resume of the Directors seeking re-appointment, together with the nature of their expertise in specific functional areas and names of the companies in which they hold the directorship, number of shares held and the membership/ chairmanship of committees of the Board, as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges are given in notice convening the 15th Annual General Meeting of the Company, and form part of the Annual Report.
Your Directors acknowledge the involvement of the Government of India in the Ministry of Petroleum and Natural Gas and the support from the Ministry of Finance, the Reserve Bank of India and other agencies in Central and State Governments.
Your Directors recognise all shareholders, business partners, and members of the ONGC Family for their sustained support.
Your Directors wish to place on record their sincere appreciation for the dedicated contribution by the ONGCians in the remarkable performance and impressive results of your Company.
On behalf of the Board of Directors
New Delhi (R.S. Sharma)22nd July, 2008 Chairman & Managing Director
A. Energy Conservation
1. Energy Conservation Measures taken
Your Company always gives emphasis to energy conservation measures and efficient use of energy in its entire venture of operation. Executive Committee in its 307th meeting had approved the training of ONGC Executives on Energy conservation techniques by PCRA.
Your Company has replaced old type filament lamps with CFL in most of its work centres and institutes. Old fixtures have also been replaced with modern energy efficient fittings. It has installed fuel efficient K-50 emergency generator engines, soft starter at E-1400-19 rig for motors above 30 HP, auto transformer starter for 100 HP motor at CW#1, bi-fuel (CBM gas & diesel) kit in 200 KVA Gen set in Bokaro, energy efficient top drive system on all offshore rigs.
Your Company has also installed solar water heaters at many work centres, solar panels at well heads at Bokar- Jharkhand and has started installing the 50 MW Wind power project at Gujarat
2. Energy Conservation measures taken earlier which are contributing to Energy savings
Your Company's proactive steps in energy conservation measures are paying off. Waste heat recovery systems, turbo-expanders, natural gas geysers are successfully running at various installations. Reduced loss of thermal energy through sustained maintenance of steam traps and inter-fuel substitutions are paying off.
3. Impact of Measures on reduction of energy consumption and consequent impact on the cost of production of the goods.
Above measures taken by your Company have resulted in reduction of significant quantity of fuel consumption (HSD, Natural gas and electricity) valuing about Rs.1, 570 million during the financial year 2007-08.
B. Research and Development
Specific areas in which R & D was carried out
Your Company has always focussed on technology-driven growth. Its eleven institutes spread over the country incessantly explore the latest technologies and alternative means to the ever surfacing challenges of E&P industry.
In Geology and Geophysics front, hybrid inversion of the pre-stack seismic reflection data with optimized source wavelet, reservoir modeling for enhanced oil recovery using fractals and 4D-4C Seismic, study of microbial, palynological and geochemical proxies for biogenic gas exploration, shale gas desorption studies on Cambay Basin and South Karanpura sub-Basin and study for prediction of oil production rate using the low frequency behaviour of the reflection coefficient from seismic data are among the prominent areas of R&D activities.
In microbial front, ONGC has undertaken studying paraffin control using indigenously developed PDS-10 bacterial consortium, improving flow efficiency in flow lines using FIB-19 bacterial system, enhancing oil recovery through microbial system for high temperature reservoirs (900C), implementing MEOR technique using S2 bacterial consortium for improving production from stripper wells. ONGC Energy Centre has outsourced projects to Indian biotechnical institutions (TERI Delhi, BHU Varanasi, ARI Pune, MCRC Chennai) for research and developing selective microbes.
You Company, ONGC, has also undertaken development of Visco-elastic surfactant based self-diverting acid (VSDA), a polymer free surfactant based acid system, for stimulation of heterogeneous / multilayered carbonate reservoirs, fracturing fluid for high temperature (1490C) reservoirs, venturi type surface chokes for stabilized flow in gas wells, water shut-off technique for gravel packed wells using cross linking polymer and using sodium thio-sulphate instead of thin-urea for water shut-off formulation (for PDO, Oman).
ONGC has also undertaken research on formulating polyamines enhanced High Performance Water based Mud (HPWBM) systems, evaluating the suitability of ordinary Portland Non API Cements for use in oil well cementation and formulating a new Low Toxic Mineral Oil (LTMO) package as a substitute for Synthetic Oil base mud.
In the new energy source front, ONGC Energy Centre has established a research project with leading research institutions like IIT, Delhi, UICT, Mumbai and CECRI, Karaikudi for conducting research on thermochemical processes for water decomposition. It has also undertaken a project to examine the archived well logs to identify potential uranium rich zones and generate geological models to predict uranium occurrence. Designing of leaching agents for in-situ leaching of uranium from sedimentary rocks is also planned.
7. Benefits derived as a result of the R & D projects:
Critical evaluation of all the geoscientific data coupled with over pressure modeling in Kavitam and surrounding area of Krishna-Godavari basin clearly indicate ample scope for exploration and exploitation of two major unconventional gas systems. Bacterial activity zonation - Aerobic, Sulfate reductive and Anaerobic zones have been established in KG on land and offshore area. The results of shale gas desoprtion study has led to evolving a methodology for deliberate search for hydrocarbons within basement rocks. Stochastic Inversion approach has demonstrated the efficacy of the technique in delineating thin pay sands. Various works on microbial front is helping in better flow management and environment friendly sludge disposal.
R&D in the area of drilling by your Company has come out with ceramic microspheres based high performance light weight cement slurry, cross linked stiff rubbery gel and synthetic fiber cement slurry for loss control solutions.
Application of selective dispersant and solvent that has been implemented in four wells of Heera field and one well of MH resulting in an additional oil gain of about 201 BOPD. Residue free Visco-elastic surfactant based self-diverting acid (VSDA) implemented in six wells of Heera field gaining about 714 BOPD. Formulation Et technique developed for Multistage Acid Frac job has been implemented in seven wells of Heera Field gaining about 701 BOPD. Thio-sulfate based water shut-off formulation was applied in three wells of PDO, Oman.
Application of cross linked biopolymer gel system for limiting water production in gravel packed well of Mehsana field to avoid deployment of work over rig resulted in good savings.
3. Future Plan of Action
You Company has plan to induct Low Frequency Acoustic Passive Seismic DHI (IPDS) technology for direct detection of hydrocarbons using low frequency acoustic waves, passive seismic tomography in Frontier Basin for providing a detailed 3-D seismic velocity and Poisson ratio model of upper few km of the crust. Plans are there for developing software for Seismic Imaging of Oil Production rates.
ONGC has developed polymer gel formulations for Nandasan, North Kadi fields of Mehsana and L-II and L -III reservoirs of Mumbai High Asset. The process for field implementation of findings is planned to be undertaken soon. Plan is also afoot for identifying suitable chemical additive for the flow assurance of problematic crude oil belonging to Gopavaram field, Rahjamundary and Sobhasan field, Mehsana.
Two REED projects on microbial front are being taken up; microbial conversion of heavy oil to methane gas and investigations on biogenic gas source and entrapment styles in Krishna-Godavari Basin.
In drilling front, ONGC has plan to undertake study of managed pressure drilling and its application, development and evaluation of suitable enzymatic breaker and a non acidic precursor formulation for effective clean up of filter cake, optimization of chemical composition of PHPA mud system with respect to Potassium chloride and amine based high performance water base mud system to stabilize troublesome BCS and Kopili shale.
Field trials HGS based drilling fluid at Mumbai High, high temperature polymeric drilling fluid for HTHP wells of KG Asset, mud loss pill in Mumbai Western offshore and amine based high performance water based mud system are also planned.
In production front, application of high temperature frac-fluid formulation in hydro- frac jobs in high temperature reservoir of GS-3A sand of Gandhar field to enhance the productivity is planned. It is also planned to develop suitable fracturing fluid for high temperature (165 degree Cendigrade) reservoirs, implement multistage acid fracturing in low permeable wells for improvement in productivity and undertake study on gas exploitation from isolated gas pools.
Your Company has also plan for undertaking study on application of composite materials for various useful purposes at offshore installations, gas hydrate induced corrosion, analysis and design of Deep-water foundation and riser systems, developing Electro-less Nickel Phosphorous (ENP) coating and many other projects related to deep-water, gas hydrates and offshore structural engineering.
4. Technology Absorption and Adaptation
ONGC has absorbed and adapted quite a number of new technologies. Structural Geology Software by M/S Midland Valley Exploration (MVE), 3D Basin Modelling technology - the PetroMod Software System and Petrobank Master Data Store (MDS) have helped in better data interpretation and storage. A new state-ofthe-art data acquisition system with 24 bit delta sigma technology and Multi-component seismic survey, 3D-3C technology, inducted in A&AA Basin area are adding value in data acquisition. SAR technology for imaging surface oil seeps that originate by slow leakage from oil and gas-filled traps has also been adapted for faster information gathering on prospective areas.
A Rapid Solvent Extraction Unit (Soxtherm System) for quick and efficient extraction of bitumen and removal of polyglycol contamination from sedimentary rock samples for detailed geochemical evaluation has been inducted.
In the area of Drilling, in addition to already existing hi-technologies, two new technologies, Twister technology and Extended Reach Technology (ERT), have been added.
5. Cailaborative projects with Foreign Institutes / Domain Expertsl MoU
Following collaborations and collaborative projects are noteworthy during the preceding year:
* Heads of Agreement signed with Petrobras for swapping of interests in deepwater blocks in India and Brazil on 4th May, 2007.
* Board accorded approval for assignment of 30% PI in block KG-DWN-98/4 and 25% in MN-DWN-2002/2 to BG subject to G01 approval.
* Engaged Dr. Ben & Law Consultant, USA, for Basin Center Gas and Shale gas.
* Dr. C. D. Johnston seismic interpreter hired for integrated study of Mahanadi Offshore basin.
* Engagement of Dr. G. Keller for study of subsurface samples for KT boundary sediments of KG basin.
* Participation of ONGC as sponsor in developing Action Learning Plans (ALPS) on Exploration topics with IHRDC, Boston, USA.
* Membership of Fold Fault Research Project (FRP) consortium, University of Calgary, with the objective of availing expertise in seismic imaging in structurally complex areas.
* A Geophysics SIG being formed under Energistics to promote collaborative development and improvement of industry geophysical standards.
* A research agreement has been signed between Royal Holloway and Bedford New College, University of London and ONGC for their collaborative program between the Fault Dynamics Research Group at Royal Holloway University of London and ten other sponsoring E&P companies like BP, Shell, Statoil, PDVSA etc. The outcome of the project will enhance the interpretation skills, strengthen the research capability and wider access to the international talent pools.
* Collaborative research projects undertaken with UPG Romania for outer Himalayan belt.
* Collaborative research project with University of California, Utah on Ganga basin.
* Collaboration with University of New South Wales, Australia - for establishment of micro CT scan centre.
* Long term collaboration with University of Calgary, Canada for participation, maintenance and service of High Pressure Air Injection set-up for studying FOR processes in heavy, medium and light oil reservoirs.
Collaboration with TERI, New Delhi for isolation, identification and development of methanogens for in-situ generation of methane from coal seams and for Microbial system for improving flow efficiency of oil in surface flow lines.
A collaborative job was taken up with MIS IKON Sciences, UK to determine a method to delineate thin pay sands in Tapti-Daman area which otherwise could not be mapped through conventional seismic techniques.
An MOU was signed for the collaborative project with C-DAC, Pune on 'Hybrid Inversion of the Prestack Seismic Reflection Data with Optimized Source Wavelet.
Strategic alliance was entered into M/s Canoro Resources Ltd for carrying out exploration and development activities in the northeast.
A long term technical consultancy for Structural Geology Modelling is being taken up with Midland Valley Exploration for 3 years at the cost of 42.7 million.
Pilot project for 4C-4D study in Vasai East for using fractal theory under MOU signed between NGRI, NTNU (Norwegian University of Science & Technology), Norway and ONGC.
MOU with MIS Fugro Geoscience India Private Limited (FGIPL) was signed for alliances in the areas of airborne geophysical surveys, seismic API, reservoir characterization, data solution and setting of Joint study centre (HUB).
MOU with M/s Petroleum Geo-Services ASA (PGS), Oslo, Norway for gaining access to a whole range of seismic solutions and services which are unique and represent the cutting edge of the technology, management processes and unique services like HD3D., Multi-Transient EM, PGS Megasurveys, Ramform offshore Seismic survey Vessel Design and Building, Fiber Optic Technology and setting up of Joint study centre.
MOU was signed with global oil major British Petroleum (Alpha) Limited to collaborate in Exploration 8t Production (E&P) business in India and abroad, which includes sharing of knowledge in Coal Bed Methane (CBM) and Deepwater exploration.
ONGC signed MOU with Norsk Hydro in the area of offshore exploration, development of Vasai field and KG-98/2 block.
ONGC has entered into an MOU with M/s Rocksource ASA, of Norway on for cooperation in E&P sector on Indian and international projects which include the use of Rocksource EM technology for exploration prospect evaluation.
MOU was signed with M/s MOL Hungarian Oil and Gas for alliance in hydrocarbon sector has been signed. Also approved assignment of 35% PI in HF-ONN-2001 / 1 block.
The ONGC Energy Centre has entered into a MOU with BARC to research thermochemical processes for water decomposition.
ONGC has signed an Agreement of Collaboration (AOC) with Skochinsky Institute of Mining (SIMNMRC), on 25th November, 2004 for Underground Coal Gasification.
a. Information Regarding Imported Technology:
Information Regarding Imported Technology (Imported during the last five years from the beginning of the Financial Year)
Technology Imported Year of Import
(i) 3D Integrated Quantitative Inversion & Modelling 2003-04(My Bench software from M/S Jason Geosystems)
* Network Enhancement Gigabit
* Two suits of Additional Licenses for G & G application of M/s Landmark.
* 18 TB RAID 5 Storage system, N/W & RAM Upgradation of Origin 2000server, Hard disk for octane workstations for processing and & 5 TB
* RAID 1 Disk for INTEG.
* RCCFA (Reservoir Condition Core Flow Apparatus).
* Fully automated capillary pressure and resistivity system.
* Mercury free PVT package.
* SEM with EDX system, model 6460 LV
* SGI Origin 300 - 4 CPU Machine + Octane 2.
* Network Access System (NAS).
* Automated LTO Backup System.
* New Layer 3 Switch for Network Upgradation.
* Forgas Software.
* PAL/ RAVE/ FZAP/ RFB/ Openvision and EMERGE - Softwarefor Enhancing 2D/ 3D Interpretation and Reservoir Characterisation.
* 3 Additional Licenses for Open Works of M/s Landmark Graphics.
* 1 Additional License for ZMAP (Mapping) of Landmark Graphics.
(ii) 8 CPU based P690 server and 3590E tape drive with Robotic 2004-05tape library - up-gradation of Petrobank server.
* SUN Fire 15K Unified interpretation Data server,
* 30 SUN Blade150 X Terminals, one SUN Blade 2000 & one SUN Blade 2500,
* GEOPROBE software from M/s LANDMARK Graphics.
* 4 Suites of Licenses from M/s Landmark Graphics.
* SGI-350 server and SGI TEZERO workstation OS-IRIX 6.5with LANDMARK application software (Openworks,
* Seisworks 2D & 3D and Earth Cube)
* Stand Alone System (96 CPU) Regetta with time and depth domain processing software 'GEOPDEPTH'.
* Stand Alone System (32 CPU) Regetta with time and depth domainprocessing software 'GEODEPTH'.
* 64CPU cluster system having 4TB disk space and time anddepth processing software for MV Sagar Sandhani.
* 10 Nos of 408-UL seismic data acquisition systems.
* 17 Field processing units for 3D field crew to monitor online data quality.
* DGPS-RTK Differential Global Positioning System for accurate positioning in topographic surveys.
(iii) * 'StrataBug' software for Bio-stratigraphy. 2005-06 * Log data processing software - GEOFRAME containing ELAN PLUS,dip-meter, image processing and interpretation package along with hardware.
* State of Art digital micro gravitymeter, Proton Precessionmagnetometer together with DGPS, Total station and Auto levelfor topographical survey to meet the requirements of precision GM survey.
* ISO Prime GC-IRMS
* Sun servers and work-stations for EPINET(Exploration Et Production Information Network)
* Suit of 2D/3D Move Software of Mid land valley
* Three Numbers PC based software from Geographix.
* Geosec2D Paradigm software installed in F15K server
* Configured five sun blade 150 systems with PCI cards andinstalled windows XP so as to work both as workstation and PC.
* IBM P690 (8CPU) Petrobank server upgraded to 32 CPUfor supplementing seismic data processing
* 3 No's of Mobile Processing Units (MPU) for reducing API cycle time.
PC based Seismic Interpretation system with matching hardware and software.
* High temperature anaerobic bio-reactor.
* Microscope with image analyser.
* Refrigerated centrifuge.
* Incubated shaker.
* High temperature incubator.
* High precision metering pump.
* End Face grinder.
(iv) Data Station (DASTA - 720) 2006-07
* GV Isoprime Continuous Flow Isotope Ratio Mass Spectrometry (CF-IRMS)
* Varian CP3800 Natural Gas Analyzer
* Latest releases of Landmark / Hampson Russell / Jason /
* GeoQuest Interpretation Software installed as part of regular M&S.
* Geo-Vision Centre (Virtual Reality Centre) with SGI Onyx 3900 Server
* (16 CPU, 64 GB RAM) installed for 3 Pipe, Curved screen, immersive volume visualization using the software from M/s Paradigm.
* Petrel Suite of Software along with Interactive Petrophysics from M/s GeoQuest Systems Installed.
* Latest release of Solaris Operating System version 10 installed and configured for future migration of Landmark Application Software.
* Netvault Backup Software for Lanfree / SAN backup installed.
* ZFS (Zeta Byte file system) was created on one SUN machine with Solaris 10 for performance evaluation with respect to existing UFS file system.
* Biglron Foundry Gigabit Ethernet switch upgraded to 120 gigabit fiber ports along with redundant power module to provide seamless gigabit network connectivity to all servers and clients throughout GEOPIC.
* EPOS3SE upgraded to RFC (Rock & Fluid Canvas)
* Q - Marine. Sea bed logging.
* GX Technology.
* Digital Multilevel Vertical seismic profiling (VSP).
* Air borne Electromagnetic Survey.
* Multi Transient Electro Magnetic (MTEM) technique.
* Virtual Drilling Technology.
(v) Rapid Solvent Extraction Unit (Soxtherm System). 2007-08
* Petrobank Master Data Store (MDS), from M/S HaRiburton
* Offshore Services Inc. - a multi-client solution for the management of E&P technical data.
* 64 CPUs SGI ALTIX machine.
* 48 node IBM PC Cluster system with dual CPU per node equipped with Geocluster 4.1 application software of M/S CGG.
* 272 node IBM PC Cluster system with dual CPU per node equipped with OMEGA application software of M/S Western Geco
* Corporate Licensing of Interpretation software from
* M/s Hampson Russet, M/s Landmark, M/s Geoquest and M/s Paradigm.
* CGG Geocluster application software for processing.
* WGC Omega: application software for processing.
* StatMod MC and EarthMod FT modules added to Fugro-Jason's
* MyBench software suite.
* WD / Geosteering with Laterolog tool.
* Compact combo LWD tool.
* FPWD- Formation Pressure While Drilling tool.
* 'Air Injection Laboratory' for identifying candidate reservoirs for air injection as a part of FOR efforts.
* Cluster Computing capabilities have been established,which will reduce significant run-time of various G&G applications and reservoir simulation processes.
* Four licenses for G&G modules (Open Works-2,SeisWorks-1 and StratWorks-1 of M/s Landmark Graphic Corporation).
* Three licenses for Reservoir Simulation (Model Builder-3 ofM/s Computer Modeling Group Limited). * PC Cluster technology, both Hardware and Software,for seismic data processing.
* 3D - 3C Multi-Component Seismic Survey.
* Four numbers of State-of-the-art multi component digital VSP equipment.
* 14 new state-of-art data acquisition system with 24 bit delta sigma technology.
B. Has the technology been fully absorbed? Yes
C. If not fully absorbed, areas where this has not taken place, reasons thereof, and future plans of action Not applicable
7. Expenditure on Research & Development
(Rs. in million)Sr. Heads 2007-08 2006-07 No.
1 Capital 93.42 482.712 Recurring 1,753.32 863.563 Total REM Expenditure 1,846.74 1,346.274 Total R&D Expenditure as a percentage of Total Turnover, 0.30% 0.23%
8. Information on Foreign Exchange Earnings and Outgo:
(Rs. in million)Sr. Heads 2007-08 2006-07No.
1 Foreign Exchange Earnings 37,947.22 29,906.562 Foreign Exchange Outgo 74,009.98 87,761.69
Statement of reserve recognition accounting:
Standardised measure of Discounted Future Net Cash Flows relating to Proved Oil and Gas Reserve quantities as on 31st March, 2008.
(Rs. in million)
Particulars Gross Value as at Present value (Discounted at 10%) as at
31st March 31st March 31st March 31st March 2008 2007 2008 2007Revenuesoil 6,596,884.02 6,104,400.92 3,060,469.75 3,039,324.43Gas 1,122,791.68 1,089,576.71 490,299.24 521,645.01Total Revenues 7,719,675.70 7,193,977.63 3,550,768.99 3,560,969.44CostsOperating, Selling & General 3,096,451.55 3,035,075.19 1,422,352.50 1,501,831.31Corporate Tax 1,030,614.89 1,025,459.00 474,884.82 488,610.98Sub-total 4,127 066.44 4,060,534.19 1,897,237.32 1,990,442.29Evaluated Cost of Acquisition of Assets, Developmentand Abandonmenta) Assets 755,244.21 369,623.75 406,247.75 276,278.43b) Development 261,147.88 179,031.55 167,629.32 131,176.02c) Abandonment 149,457.70 169,632.50 1,936.71 2,113.12Sub-total 1,165,849.79 718,287.80 575,813.78 409,567.57Total Cost 5,292,916.23 4,778,821.99 2,473,051.10 2,400,009.86Net future earnings fromProved Reserves 2,426,759.47 2,415,155.64 1,077,717.89 1,160,959.58
1) The Revenues on account of crude oil and gas have been worked out on the basis of average price for the year 2007-08. The average price for crude oil is net of Subsidy Discount.
2) Expenditure on Development, Acquisition of capital assets, Abandonment costs and Operating Expenditure have been considered at current costs i.e as on on 31st March, 2008. Taxes and Levies have been considered at prevailing rates as on 31st March, 2008.
3) The reserves have been estimated by ONGC's Reserve Estimates Committee following the standard international reservoir engineering practices.
4) Only Proved reserves have been considered. Probable or Possible reserves have not been considered. These reserves exclude ONGC's share of foreign JV Assets.
5) Both revenues and costs have been discounted to present value using 10% discounting factor. The Net future earnings, therefore, represent the net expected future cash inflows from production of recoverable reserves of crude oil and gas.
6) However, neither the estimated net reserves nor the related present value should betaken as a forecast of future cash flows or value of these reserves because (a) future estimated production schedules used in the valuation process are subject to change, (b) up-gradation of Probable and Possible reserves would significantly affects the gross and net present value of the expected future cash inflows, (c) future crude oil and natural gas prices are subject to change and (d) future expenditure on production (operating), development, acquisition cost of capital assets, abandonment costs and rates of taxes and levies, which may be at variance from those assumed herein.
Comments of the Comptroller and Auditor General of India under section 619(4) of the Companies Act, 1956 on the accounts of Oil and Natural Gas Corporation Limited for tile year ended 31st March, 2008
The preparation of financial statements of Oil and Natural Gas Corporation Limited for the year ended 31st March 2008 in accordance with the financial reporting framework prescribed under the Companies Act, 1956 is the responsibility of the Management of the Company. The Statutory Auditors appointed by the Comptroller and Auditor General of India under section 619(2) of the Companies Act, 1956 are responsible for expressing opinion on these financial statements under section 227 of the Companies Act, 1956 based on independent audit in accordance with the auditing and assurance standards prescribed by their professional body the Institute of Chartered Accountants of India. This is stated to have been done vide their Audit Report dated 25th June, 2008.
I, on the behalf of the Comptroller and Auditor General of India have conducted a supplementary audit under section 619(3)(b) of the Companies Act, 1956 of the financial statements of Oil and Natural Gas Corporation Limited for the year ended 31st March, 2008. On the basis of my audit nothing significant has come to my knowledge which would give rise to any comment upon or supplement to Statutory Auditors' report under section 619(4) of the Companies Act, 1956.
For and behalf of the Comptroller and Auditor General of India
Sd/- K.P. Sasidharan Principal Director of Commercial Audit & ex-officio Member, Audit Board II Mumbai
Place: MumbaiDate : 11th July 2008.
Human resource value
Employees as on 31st March, 2008:
Employee Group Age Distribution Total
Upto 31 31-40 41-50 51-60 2007-08 2006-07(A) TechnicalExecutive 564 1494 9703 6618 18379 18305Non-Executive 42 762 2571 622 3997 5072Total (A) 606 2256 12274 7240 22376 23377(B) Non-TechnicalExecutive 154 435 1912 2137 4638 4365Non-Executive 86 876 2945 2075 5982 6068Total (B) 240 1311 4857 4212 10620 10433Grand Total (A+B) 846 3567 17131 11452 32996 33810
Note: Whole time Directors excluded.
Valuation as on 31st March, 2008: (Rs. in million)Employee Group Age Distribution Total Upto 31 31-40 41-50 51-60(A) Technical
Executive 10,091.9 23,745.9 107,673.4 36,973.8 178,485.1Non-Executive 455.7 7,669.7 22,484.0 2,781.0 33,390.4Total (A) 10,547.5 31,415.6 130,157.4 39,754.8 211,875.4
Executive 2,670.1 6,689.8 19,720.1 11,344.5 40,424.5Non-Executive 894.5 8,104.8 21,742.4 7,487.2 38,228.9Total (B) 3,564.6 14,794.6 41,462.5 18,831.7 78,653.5Grand Total (A+B) 14,112.2 46,210.3 171,619.9 58,586.6 290,528.9
(Rs. in million)Employee Group Value per employee 2007-08 2006-07(A) Technical
Executive 9.7 9.4Non-Executive 8.4 7.7Total (A) 9.5 9.0
(B) Non-Technical Executive 8.7 8.3Non-Executive 6.4 6.2Total (B) 7.4 7.1Grand Total (A+B) 8.8 8.4
* Valuation based on most widely used ' Lev & Schwartz' model.
* Aggregate future earnings during remaining employment period of employees, discounted @8% p.a., provides present valuation
* Future earnings based on current emoluments with normal incremental profile.
Recognitions, awards and accreditians
1. Global Rankings/ Recognitions:
* The Numero Uno E&P Company in Asia, as per the ranking of the top 'Platts 250 Global Energy Companies list for the year 2007' based on Assets, revenues, profits and Return on Invested Capital (ROIC) (September 2007)
* Ranked 20th among the Global publicly-listed Energy companies as per 'PFC Energy 50' (Jan 2008).
* Occupies 198th rank in 'Forbes Global 2000' 2008 list (up 42 notches than last year) of the elite companies across the World; based on sales, profits, assets and market valuation during the last fiscal. In terms of Profits, ONGC maintains its top rank from India.
* Ranked 335th position as per Fortune Global 500 2008 list; up from 369th rank last year, based on Revenues, Profits, Assets and Shareholder's equity. ONGC maintains top rank in terms of profits among seven companies from India in the list.
* The first and only Indian Company to be enlisted in Fortune's 'Most admired Companies 2007'.
2. Indian Rankings/ Recognitions
* Ranked as the most respected Public Enterprises in India in 2007 'Business World Survey,' with 19th position in the league of the most-respected Indian Corporates.
* Rated 'Excellent' in MOU Performance Rating for 2006-07 by the Department of Public Enterprises, Ministry of Heavy Industries in Public Enterprises, GOI.
* Oil Industry Safety Directorate (OISD) has selected Ahmedabad Asset and MRPL for the year 2006-07 (as number one in Group-4 category (Oil & Gas Assets) and second in Group-1 Refinery category respectively).
Topped the visibility metrics in Indian Oil and Gas Sector; the only PSU in the top 10 of the list of Indian Corporate Newsmakers.
3. Awards & Accreditations
* 'Golden Peacock Global Award 2007 for Excellence in Corporate Governance 2007', for the 3rd consecutive time, conferred by World Council for Corporate Governance.
* Bagged the coveted winner's trophy of the maiden 'Earth Care Award for excellence in climate change mitigation and adaptation' under the category of GHG mitigation in the small/medium and large enterprises.
* Secured the 'Jury's Special Appreciation Award' under 'Employer Branding Awards 2007', for being considered by the jury as the only organization in PSU that is considered an Employer Brand.
* ONGC was awarded 'Petroleum Minister's Trophy for 2006-07' in recognition of its best overall performance in 15 sports disciplines under the Petroleum Sports Promotion Board (PSPB), for the fourth consecutive year in a row. ONGC also received the overall 'Excellence Trophy' for corporate contribution towards promoting sports in the country
* Conferred with 'Partners in Progress' Award', instituted by the 'Legends of India', an independent endeavour to promote Indian Art and Cultural within the country and abroad, for its support and contribution in the field of Art and Cultural.
* Conferred with 'Infraline Energy Excellence Award' for its services to the Nation in Oil Ft Gas Exploration and Production category.
* Bestowed with 'AmityAward for Excellence' in Cost Management.
4. Awards to ONGC's Business Units
* Golden Peacock Environment Management Award - 2007 - instituted by World Environment Foundation.
* Safety Innovation Award - 2007 from Safety and quality Forum - instituted by the Institution of Engineers India.
* Oil Industry Safety Award - 2006 - instituted by Ministry of Petroleum Et Natural Gas, Govt. of India.
* Safety Innovation Award for the year 2006-07.
* Green Tech 'Silver Award -2008'.
* Longest Accident Free Period to Tripura Asset from Director General of Mines, Dhanbad.
* Green Tech Environment Excellence Silver Award-2006 for Mandapeta GCS.
* Certificate of Appreciation for Ponnamanda Gas Compression Station for outstanding achievement for 'Environment Management' during the year 2006 from the Greentech Foundation.
* Greentech Safety Silver Excellence Award-2007 to the Drilling Rig E-1400-16
* Greentech Safety Gold Excellence Award-2007 to the Lingala Group Gathering Station
* Certificate of Appreciation for Excellent performance in Safety for the year 2007 from Greentech Foundation to Mori Gas Compression Station.
* Greentech Award for Environment Excellence for the year 2006 in Petroleum Sector to Narimanam Group Gather Station.
* Best Technical Audit Performance Award for the year 2007 to Kuthalam Group Gathering Station.
* Greentech Safety Award 2008 in petroleum sector to Cauvery Asset, Tripura Asset, Rajahmundry Asset, Ahmedabad Asset, Offshore Engineering Services and to Hazira Plant for the sixth time.
* Golden Peacock Awards instituted by Institute of Director (IOD) under the categories of 'Training and Innovation'. Institute of Drilling Technology (IDT) received the award for Excellence in Training and Cauvery Asset for Excellence in Innovation.
5. Awards to CMO & Directors:
* Mr. R S Sharma, CMD, ONGC has been conferred the 'CNBC-TV18 Award 2007' for excellence in the Oil and Allied Services category.
* Mr. R S Sharma, CMD, ONGC has been conferred with the 'CNBC-2007 CFO Award' for Excellence in Financial Management in the category of Best performing CFO in the Oil, Gas and Chemicals sector, for the third time in a row.
* Mr. R S Sharma, CMD, ONGC has been coffered 'Distinguished Fellowship' of the Institute of Directors (IOD) in recognition for dedicated public service i.e. commendable performance in management.
* Dr. A K Balyan, Director (HR) has been conferred the award of 'Best HR-Head' by Amity International Business school.
* Dr. A K Balyan, Director (HR) was conferred with 'Lifetime Achievement Award in Human Resource' during the 9t' Convention on Leadership in Mumbai on 28th September, 2007. The award was presented to Dr. Balyan for his remarkable achievements in the area of managing Human Resource of the best PSU in the country.
* Dr. A K Balyan, Director (HR) was conferred the 'Exemplary Leader Award' under 'Employer Branding Awards 2007'.
* Dr. A K Balyan, Director (HR), conferred with fellowship of World Academy of Productivity Science.
The Nobel Peace Prize 2007 has been conferred jointly to Intergovernmental Panel on Climate Changeheaded by Padma Bhushan Dr. R K Pachauri who is on the Board of ONGC and to Mr. Al Gore, former Vice-President, USA for efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change.
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
India's progressive emergence as one of the world's more stable and dynamic economies has fuelled widespread confidence in the BRIC thesis, which forecasts that along with Brazil, Russia and China, India is on its way to the top four slots in global economic hierarchy.
One milestone to the coveted journey was crossed on 25th April 2007, when India moved into the Trillion Dollar Economy Club of the ten economies (The Times of India, New Delhi edition, 26th April 2007). However, the caveats on the path of onward journey became loud and clear on 1st July 2008, when the same daily reported 'With the dollar breaching the Rs. 43 mark, the economy is down to $995 billion. High oil prices have triggered a domino effect that has ultimately robbed India of the trillion-dollar tag'.
The concern is neither specific to India, nor Asian economies. The issue of high crude oil prices snowballing into wider economic slowdown is a global one. Though non-fundamental factors like speculation and weak dollar may also have played a role in crude price increase, it is largely the traditional fundamentals of demand and supply which are the major reasons. Demand for petroleum has been growing globally, whereas supply of this finite resource remained under pressure.
Industry Structure and Developments:
Crude Oil Price:
The average spot price of the WTI crude was just $66.051barrel in 2006. The crude oil price touched a ceiling of $77/barrel (Source: EIA) in last fiscal while pitching tent in the 60s for a major part of the year and even going down to 50s for sometime.
Arrival of fiscal 2008 showed no indication of the coming storm till August 2007; the prices remained within 70s, but thereafter the climbing started and finallyzoomed past the psychological barrierof $100/barrel soon. Since then it has not looked back, and crossing new milestones almost every day, even crossing $147/barrel for a day before cooling down to about $ 125 / barrel in July 2008.
Skewed demand supply axis:
According to the World Economic Outlook, April 2008, the global GDP rate, at constant prices, has grown by an average 4.59% annually in the last five years. The growth is led by developing economies with an average annual growth of 7.28% in the last five years. China and India lead with a five-year average annual growth rate of 10.6% and 8.57%, respectively.
This growth has translated into growing demand for oil. On the contrary, the supply had lagged behind this rising demand. For long, the FSU (Former Soviet Union) countries and OPEC bailed out such crisis despite dwindling supplies from other major oil producers. But now, according to the BP Statistical Review of World Energy 2008, even OPEC has registered a fall in oil production by 1.2% in 2007 as compared to last year. The global oil
production too has declined marginally by 0.2% and every other producer, namely the European Union (EU), OECD, OPEC and non-OPEC, except Former Soviet Union (FSU) countries, have registered adecline.
Opportunities & Threats:
The Scientific American, in an article published in April2008, has described the last decade as The Lost Decade'. It points out that when the oil price collapsed from $25 to $12 per barrel at the end of 1990s, E&P companies slashed their technical and scientific staff. Secondly, in spite of the booming markets of the early to mid 2000, E&P industry failed to invest in infrastructure and equipment to sustain profitability. The situation orchestrated the biggest failure in sharpening the E&P edge to locate new oil and gas sources.
However, high oil price regime has now encouraged the industry to invest in developing oil and gas capacity and monetizing them. There is unprecedented level of E&P activities the world over. The EV companies are now stretching themselves beyond conventional resource centres, exploring frontier areas including deepwater and ultra-deepwater provinces. Finally, there is a genuine effort to recover The Lost Decade'.
According to Cambridge Energy Research Associates (CERA) and United States Geological Survey (USGS), a large pool of hydrocarbon still lies undiscovered. The three big oil field finds in Brazil, namely Carioca, Tupi and Jupiter, fuelled these theories. Your Company's discoveries in Indian East coast in well UD-1, opening up the ultra-deep regime in India and finds by few other companies have given us cause for optimism.
However, the increased E$P activities have a flip side, the steep rise in the cost of hiring services and equipment. According to IHS Energy, costs have more than doubled in last four years worldwide. An ultra-deepwater drill ship which your Company hired at a day rate of US$ 192,000 in 2003 is available in 2008 for US$ 525,000 per day for mobilization end-2010. Nonetheless, the industry believes that these costs are viable going by the hopes from yet-to-be-discovered assets.
Locating new oil & gas assets and bringing them to stream remains the immediate and top priority. Simultaneously, the industry will have to be more accurate and cost effective to ensure adequate supplies of oil and natural gas at an affordable price. Developing technologies for tomorrow becomes imperative.
Gas is gaining prominence as the bridge fuel and efforts are on to exploit India s natural endowment in gas in all its dimensions; like Coal Bed Methane (CBM), Underground Coal Gasification (UCG) and Gas Hydrates. These require technology and capital infusion.
Demand management through conservation and by enhancing efficiency of automobiles, electrical and household appliances, through Green buildings and introducing Mass Rapid Transport Systems are also priorities for which industry will have to extend a helping hand to synchronize these efforts. At the same time, the industry needs to collaborate in efforts looking for supplements beyond hydrocarbons.
Your Company's long-term strategy focuses on strengthening the core Exploration and Production (E&P) activities in oil & gas. Improving Reserve Replacement Ratio by intensifying exploration is your Company's first priority. Increasing production, arresting decline in matured fields and expeditious development of discovered fields are the other priorities. The desired level of investment to create new infrastructure, to maintain the old ones to support enhanced levels of E&P activities are also on our strategic agenda. Your Company has taken structured initiatives in these priorities as detailed in the Directors' Report.
Deepwater oil & gas provinces hold lot of promise. Your Company made significant discoveries in deepwater and ultra-deepwater provinces in Krishna-Godavari (KG) and Mahanadi basins. These prospects have been assigned priority for expeditious development. Technologically, ONGC has achieved a number of milestones in deepwater exploration, which have been adopted as standard by many global operators.
Besides its focus on Oil & Gas E&P, your Company, mandated to secure Energy Independence of India by diversifying sourcing of energy, is also investing to leverage the natural endowment of the country of having one of the largest Coal Reserves in the world. Pilots on Clean Coal Technologies Like Coal Bed Methane (CBM), Underground Coal Gasification (UCG) are being run. It has also brought up ONGC Energy Centre Trust for holistic research on alternate energy sources.
ONGC is committed to sourcing equity Oil & Gas through its wholly-owned subsidiary ONGC Videsh Ltd. (OVL), which is being seen as the growth vehicle of the ONGC Group. Currently OVL has 38 Oil it Gas projects in 18 countries and is one of the biggest Indian multinationals with an overseas investment of around 5 billion dollars.
Capacity expansion of Mangalore Refinery Petrochemicals Ltd.(MRPL), a subsidiary of ONGC from 9.69 to 15 MMTPA (Million Tonne Per Annum) is under implementation and this expansion will further strengthen your Company's efforts towards value-chain integration.
Value-multiplier projects in sectors like, Refining, Petrochemicals, LNG, SEZs, Power, have huge potential towards inclusive and integrated growth for your Company. All these projects are in time and will be on stream soon, bringing additional revenue. Your Company, after detailed feasibility studies, has decided to come out of the earlier proposed refinery and SEZ projects at Kakinada, Andhra Pradesh.
Your Company had struck 35 new discoveries (13 new prospects and 22 pools) in the concluding fiscal of 2007-08. Initial In-place (1113) hydrocarbon accretion in 2007-08 was 182.23 Million Tonne Oil Equivalent (MMTOE), which is highest in last ten years, against IIP accretion of 169.52 MMTOE last year. The Ultimate reserve (UR) was 63.82 MMTOE as against 65.56 MMTOE in last year.
This year your Company acquired 8,158 Km of 2D seismic survey and 19,360 Sq. Km of 3D data.
Out of the 322 wells, that your Company drilled in 2007-08, 98 were Exploratory Wells (against 87 in 2006-07) and 224 Development Wells (against 178 in 2006-07). This year 90 wells were drilled in offshore, which is highest since Last fourteen years.
Your Company is always focused on quality and new technology. This year, all the development wells in Offshore (57 nos.) were hi-tech wells with a record cycle speed of 1,407 Mtrsl RM (highest since last fourteen years). At the same time, 30 hi-tech wells were drilled in onshore during the year as against 17 in the last fiscal.
Production (Excluding JVs)
Crude oil production during the year (2007-08) was 25.945 Million Tonne (MMT) as against 26.051 MMT in the previous fiscal.
Natural Gas production was 22.334 Billion Cubic Meter (BCM) as against 22.442 BCM in the previous fiscal.
Marginal shortfall in oil (0.4%) and gas (0.48%) production is primarily due to the gas Leakage incident at Balol area of Mehsana and deferment in G1 ft GS-15 project completion.
Gas sales in 2007-08 was 17.822 BCM as compared to 17.989 BCM during 2006-07.
VAP production during the year was 3.257 MMT as against 3.238 MMT in the previous year.
Your Company has set an ambitious outlook for the XI five year plan (2007-12). It has envisaged 3% higher production from its existing mature fields producing for over thirty years. To achieve this target, your company has enhanced its E&P outlay by about 52% for XI plan period compared to X plan period actual expenditure. In the first fiscal of XI five year plan period the result is encouraging as far as drilling, reserve accretion and production are concerned.
Your Company's structured initiatives and planned investment in the area of IOR (Improved Oil Recovery) and FOR (Enhanced Oil Recovery) schemes have already yielded more than 40 MMT of oil and envisages to produce cumulatively 110 MMT by 2030. 12 projects are already complete and 7 are under implementation. The Mumbai High-North Phase-II Redevelopment plan has also been launched.
Your Company is determined to bring new and Marginal fields to production on fast track. Out of 109 marginal fields, 87 fields are already monetized and balance 22 fields are prioritized for development as per the new marginal field policy of the Government.
Human Resources/in industrial Relations:
Within the given mandate, your Company crafted ample welfare measures for its employees. These measures, aimed at retaining talent, helped in restricting attrition that had assumed alarming proportion. In 2007-08, 261 resignation cases were accepted against 361 during 2006-07.
Your Company focuses on maintaining competitive competence of its employees and invests extensively to augment human resource capacity and quality through tailored training and development programmes.
The pay-roll strength as on 31st March, 2008 was 32,996.
Health, Safety & Environment (HSE)
Your Company has adopted integrated QHSE (Quality, Health, Safety & Environment) management systems at its installations and facilities. As on 31st March, 2008 total 471 installations (including operational facilities, offices & colonies) have been certified conforming to international standard requirements. All these installations & facilities have successfully sustained the re-certifications during annual surveillance audits.
Corporate Social Responsibility:
Corporate Social Responsibility (CSR) initiatives of your Company aim to strengthen the societal fabric by promoting education, healthcare, infrastructure development, entrepreneurship in the community, water management etc. 'Project Saraswati' and ONGC-Pura are the landmark initiatives by your Company. It extends its helping hand during Disaster Relief measures, as and when required. Your Company earmarks 0.75% of its Profit After Tax of previous year for its CSR projects.
These discussions are 'forward looking' within the meaning of the applicable laws and regulations. Actual performance may deviate from the explicit or implicit expectations.
MOSER BAER INDIA LIMITED
ANNUAL REPORT 2007-2008
Your Directors are pleased to present the 25th Annual Report and Audited Accounts for the financial year ended March 31, 2008. This is a milestone year for Moser Baer being the 25th year since the founding of the Company in 1983.
Financial Results (Rupees in Million)
Particulars Year ended March 31, 2008 2007
Gross sales and other income 20,873.1 21,533.7
Profit before depreciation, 5,339.8 6,022.1interest and tax but after priorperiod items
Depreciation 4,315.9 3,578.7
Interest and finance charges 1,793.6 1,244.9
Profit/(Loss) before tax (769.6) 1,198.5
Tax expenses 19.4 100.6
Profit/(Loss) after tax (789.1) 1,097.9
Profit/(Loss) carried forwardfrom last year 1,246.3 399.6
Profit/(Loss) available forappropriation 457.2 1,497.5
Transfer to profit and loss account 260.1 1,301.6
Dividend (proposed)% 10 15
Revenues for FY'08 stood at 20,873.1 million, Profit before depreciation, interest and tax stood at Rs. 5,339.8 million, and Loss after tax was Rs.789.1 million. Turnover was impacted during the year by the strengthing of rupee and difficult business environment. Aggressive pricing and flat sales volumes were the two major contributory factors affecting the bottom line. However, net operating cash flow continues to be strong at Rs.3,062.8 million on the back of judicious capex spends and working capital control.
Industry consolidation and increasing demand traction in Blu-Ray are the positive hues to an otherwise sedate industry environment in near to medium term. Long term variables still remain healthy as need for storage and consumer demand continues to grow.
Your Company continues its strategy to straddle the value chain, using innovation and product development to develop new markets. The success of this strategy has been reflected in the increase in market share with retail private labels and other select distribution channels. This has been accompanied by development of new products and product variants as'specials' and value-added products.
During the year, your Company introduced a number of new Products, including BDR 1X-6X, DVDR 8X Dual Layer, Double sided recordable discs, 'Diamond' CDR and Archival Media. The Company's in-house product development team successfully created new products for specialized customers. The Company launched 'Professional Select' Media, developed for the professional duplication market and CPRM Media with content protection for the Japanese Market.
Last year's acquisition of OM&T (an erstwhile subsidiary of Philips) has added significant value to your Company's position. It has enabled us to emerge as a frontrunner in the next generation BDR formats, given OM&T's pioneering R&D work in the Blu-ray disc technology.
Photo Voltaic Project
Moser Baer Photo Voltaic Limited (MBPV) is moving towards technological leadership and sustainable competitive edge in this industry by investing in disruptive technologies. The Company has placed itself in a vantage position by spreading itself across the value chain and by developing expertise across multiple existing and future technologies. The global photovoltaic market is on a high growth curve and experts expect it to be worth US$ 40 billion by 2010.
MBPV achieved revenues of US$ 42.2 million in FY'08. The 40 MW crystalline silicon line is being expanded to 80 MW, as planned, by the end of 2008. The production capacity of solar modules has been expanded to 40 MW.
MBPV has tied up significant customer orders and MoUs, including two solar farms in Rajasthan and Punjab. The Company is aggressively pursuing tie-ups in several states to drive grid-connected solar farms to demonstrate their techno-economic viability and attractive returns as a source of green peaking power. The company is on track to ramp up the crystalline silicon cell line capacity to 180 MW in FY'09 and is tying up equipment for the 600 MW expansion of thin film capacity. The thin film project facility is nearing completion with commencement of mechanical trials expected in early May 2008.
During the financial year, the Company's entertainment business achieved break-even and has registered revenues of US$ 38.5 million for FY07. Your Company released Shaurya, its first Hindi feature film, and Veftharai, its first Tamil film, in theatres across India. Emphasis on acquiring new title releases should give further impetus to the growth of the business, which remains on track to achieve revenues in excess of US$ 200 million by 2010.
The Company is entering high growth areas in consumer electronics and launching multiple products. Your Company offers the best quality products, which are available at all major retail counters and major large format retail chains like Croma, Reliance, Jumbo, etc. Your Company has got a very god response for DVD Players and digital photo frames.
Your Company has launched the following products under its own brand name:
* Four models of DVD players* A model of home theatre system* A model of Digital Photo Frame (DPF).
Further, your company is in the process of launching the following products:
* Eight models of LCD TVs* MP3 and MP4 players* More DPF models* More DVD players.
Under the provisions of Section 212(8) of the Companies Act, 1956, the Ministry of Corporate Affairs vide its letters dated 13/03/2008 and 27/05/2008 granted the exemption under Section 212(8) of the Companies Act, 1956 from attaching the documents required under Section 212 of the Companies Act, 1956. The information required to be published in terms of the provisions of Section 212(1) of the Companies Act, 1956 is available for inspection by the investors of the holding Company and the subsidiary Companies at the registered office of the Company located at 43B, Okhla Industrial Estate, Phase III, New Delhi - 110 020.
Your Directors are pleased to recommend a dividend @ 10% on the paid-up Equity Share Capital of the Company for the financial year 2007-08. The total payout will be Rs.19.7 crore, inclusive of dividend tax and surcharge thereon.
In terms of the provisions of Sections 255 and 256 of the Companies Act, 1956 and the Articles of Association of the Company, Mr. Arun Bharat Ram (Director) and Mr. Bernard Gallus (Director), retire at the ensuing Annual General Meeting and being eligible, have offered themselves for re-appointment.
Price Waterhouse, Chartered Accountants, hold office until the conclusion of forthcoming Annual General Meeting and, being eligible, offer themselves for reappointment. The Company has received intimation to the effect that their reappointment, if done, will be within the limits laid down under Section 224(1 B) of the Companies Act, 1956.
During the Financial Year 2007-08, your Company announced an issue of Bonus Equity Shares in the ratio of 1:2 (one share for every two shares held) by capitalizing the reserves. As a result 56,077,035 Bonus Equity Shares were issued to the shareholders who were members or beneficial shareholders at the close of business hours on the record date i.e. July 18, 2007.
Stock Options Plans
The shareholders of the Company at the Annual General Meeting held on June 15, 2007, gave their approval to amend the Directors' Stock Option Plan (DSOP-2005) to increase the number of Equity Shares to be issued under DSOP-2005 from 450,000 to 1,000,000 and each Non-Executive Director is now entitled to receive a maximum of 100,000 stock options. Thus, 300,000 additional stock options were granted to the Non-Executive Directors of the Company. Further, pursuant to the declaration of the Bonus Equity Shares, the Compensation Committee of the Board of Directors decided to extend the benefit of the bonus issue to the employees and Non-Executive Directors who have the outstanding stock options under Employees Stock Option Plan (ESOP-2004) and Directors' Stock Option Plan (DSOP-2005). Thus, each employee and Non-Executive Directors holding outstanding stock options on the record date of bonus issue were granted bonus stock option in the ratio of 1:2, i.e. one bonus stock
option for every two stock options held.
Foreign Currency Convertible Bonds (FCCB)
Pursuant to approval of the shareholders in the Annual General Meeting held on June 15, 2007, your Company raised US$ 150 million through issue of Foreign Currency Convertible Bonds (FCCBs) with tenure of five years from their allotment. The issue received overwhelming response from the investor community and was oversubscribed by 2.25 times the issue size. The FCCB was issued in two tranches, with Tranche A being US$ 75 million and having a yield to maturity of 6.10% and a conversion premium of 25% over the closing price of Rs. 436.75 on the Bombay Stock Exchange (BSE) on June 4, 2007 and Tranche B being US$ 75 million with a yield to maturity of 6.75% and a conversion premium of 40% over the BSE closing price of Rs. 436.75 on June 4, 2007. The bonds are listed on the Singapore Exchange Securities Trading Limited.
Particulars of Employees
Particulars of employees, as required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, form part of this report. However, in pursuance of Section 219(1)(b)(iv) of the Companies Act, 1956, this report is being sent to all shareholders of the Company, excluding the aforesaid information and the said particulars are made available at the Registered Office of the Company. The members interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.
Conservation of energy, research and development, technology absorption, foreign exchange earnings and outgo
The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo, as required under 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 is given as per Annexure 'B' and forms part of the Directors' Report.
During the year under review, your Company has not accepted any deposit under Section 58A of the Companies Act, 1956, read with Companies (Acceptance of Deposits) Rules, 1975.
A report on Corporate Governance, along with a certificate from the Statutory Auditors and a certificate from the Managing Director and Group CFO, have been included in the Annual Report, detailing the compliances of Corporate Governance norms as enumerated in Clause 49 of the Listing Agreements with the stock exchanges.
Management Discussion and Analysis
The Management Discussion and Analysis Report is attached and forms part of the Directors' Report.
Directors' Responsibility Statement
Your Directors state:
I. That in the preparation of the annual accounts, the applicable accounting standards have been followed;
II. That we have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year 2007-2008 and of the profit of the Company for that year;
III. That we have taken proper and sufficient care 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
IV. That we have prepared the annual accounts on a going concern basis.
Your Company has outperformed the industry in a challenging year and continues to maintain its leadership position. It has also been surpassing all international quality and cost benchmarks and continues to build shareholder value. Your Directors look to the future with confidence. Your Directors place on record their appreciation for the overwhelming cooperation and assistance received from investors, customers, business associates, bankers, vendors, as well as regulatory and government authorities. Your Directors also thank the employees at all levels, who, through their dedication, cooperation, support and smart work, have enabled the Company to achieve rapid growth.
For and on behalf of the Board of Directors
Sd/Place: New Delhi Deepak PuriDate : 22.05.2008 Chairman & Managing Director
INFORMATION REGARDING EMPLOYEES STOCK OPTION PLAN, 2004 (ESOP) AND DIRECTORS' STOCK OPTION PLAN, 2005 (DSOP) (AS ON 31ST MARCH, 2008)'
1. Number of Stock : 4,776.300 Options granted
2. Pricing Formula : (i) Normal allocation: -Rs.125 per Option or prevailing Market Price, whichever is higher (ii) Special allocation: - 50 % of the Options at IRS. 125 per Option or prevailing Market Price, whichever is higher and the balance 5090 of the Options at Rs.170 per Option or prevailing Market Price, whichever is higher.
3. Number of : 954,075 Options vested
4. Number of : 616,125 Options exercised
5. Number of shares : 616,125 arising as a result of exercise of option
6. Number of : 1,056.800 options cancelled/lapsed
7. Variation of : Nil terms of options
8. Money realized : RS. 135,403,076 by exercise of options
9. Number of : 3,103,375options in force
10. Employee-wise : details of Options granted to:(a) Senior : a. Ms. Minni Katanya - 6,000 managerial b. Mr. Deepak Kukreja- 15,000 personnel; and c. Mr. V. C. Agerwal - 40.000 (b) Any other d. Mr. V,bhas Josn - 40.000 employee who e. Mr. Ratya Ghei - 20,000 receives a grant in f. Mr. R. Sampath - 24,000 any one year of g. Mr. Girimj Nyati - 20,000 options amounting to h. Mr Rajiv Arya - 24,0005% or more of options granted during that year.
11. Identified : Nilemployees who were granted Options during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrantand Conversions) of the Company at the time of grant;
12. Diluted : (Rs. 4.70) Earnings Per Share (EPS) pursuant toissue of shares on exercise of option, calculated in accordance with AS 20
13. Method of : The Company has used intrinsic value method for calculation of calculating the employee compensation cost with employee respect to the stock options. compensation cost
14. Difference : Rs. 103.042.130 between the employee compensation cost so computed at serial number 13 above and theemployee compensation cost that shall have been recognized if it had used the fair value of options
15. The impact of : Impact on Profit Rs. 103.042,130 Impact on this difference on EPS-Basic-(Rs. 5.31), Diluted-(Rs. 5.31) profits 8 on EPS of the Company
16. Weighted-average a. Weighted average exercise price - RS. 370.23 exercise prices and b. Weighted average fair value of the Options- weighted average fair RS. 123.52 values of options granted during the year
1. Number of Stock : 700,000 Options granted
2. Pricing Formula : Rs.170 per Option or prevailing Market Price, whichever is higher
3. Number of : 150,000 Options vested
4. Number of : 25,000 Options exercised
5. Number of shares : 25,000 arising as a result of exercise of option
6. Number of : 50,000 options cancelled/lapsed
7. Variation of : Nil terms of options
8. Money realized : Rs. 5,707,500by exercise of options
9. Number of : 625,000options in force
10. Employee-wise : N.Adetails of Options granted to:
(a) Senior managerial personnel; and(b) Any other employee who receives a grant in any one year of options amounting to 5% or more of options granted during that year.
11. Identified : Nilemployees who were granted Options during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrantand Conversions) of the Company at the time of grant;
12. Diluted : (Rs. 4.70) Earnings Per Share (EPS) pursuant toissue of shares on exercise of option, calculated in accordance with AS 20
13. Method of : The Company has used intrinsic value method for calculation of calculating the employee compensation cost with employee respect to the stock options. compensation cost
14. Difference : Rs. 103.042.130 between the employee compensation cost so computed at serial number 13 above and theemployee compensation cost that shall have been recognized if it had used the fair value of options
15. The impact of : Impact on Profit Rs. 103.042,130 Impact on this difference on EPS-Basic-(Rs. 5.31), Diluted-(Rs. 5.31) profits 8 on EPS of the Company
16. Weighted-average a. Weighted average exercise Price - Rs. 425.25 exercise prices and b. Weighted average fair value of the weighted average fair Options-Rs155.values of options granted during the year
The Weighted Average of Vesting Period in respect of the Options granted to the Directors under DSOP-2005 were as follows:-
Grants Weighted Average of the Vesting Period
1st Grant on 11th August, 2005 2.5 years
2nd Grant on 12th December, 2006 2.5 years
3rd Grant on 25th January, 2007 2.5 years
4th Grant on 19th June. 2007 2.5 years
The Weighted Average of Vesting Period in respect of the Options granted to the employees under ESOP-2004 were as follows:
Grants Weighted Average of Vesting Period
11th Grant on 9th January, 2004 3 years
2nd Grant on 29th November, 2004 2.5 years
3rd Grant on 2nd January. 2005 2.5 years
4th Grant on 24th June. 2005 2.5 years
5th Grant on 17th August, 2005 2.5 years
6th Grant on 27th October, 2005 2.5 years
7th Grant on 24th January. 2006 2.5 years
8th Grant on 26th April, 2006 2.5 years
9th Grant on 7th June, 2006 2.5 years
10th Grant on 27th October, 2006 2.5 years
11th Grant on 24th January, 2007 2.5 years
12th Grant on 30th April, 2007 2.5 years
13th Grant on 11th July, 2007 2.5 years
14th Grant on 25th October, 2007 2.5 years
15th Grant on 30th January, 2008 2.5 years
Fair value of options based on Black-Scholes' Enhanced Model i.e. Enhanced FASB 123 Model for DSOP-2005
Assumptions : Grant Date-11/08/05
Risk-free interest : 6.56% (for 5 years, source-NSF/Reuters as on rate 11th Aug 2005)
Expected life : 7 yrs
Expected Multiple : 1.25x
Expected : 61.46% (based on 5 years stock data from NSE) volatility
Expected : 0.58% (Weighted average dividend yield for last dividends 3 financial years)
Price of the : 228.30 underlying share in market at the time of option grant(in Rs.)
Assumptions : Grant Date -12172106 Risk-free interest : 7.56% (for 4.58 years, source-NSF/Reuters as on rate 12th December 2006) Expected life : 7 yrs Expected Multiple : 1.25x Expected : 54.73% (based on 5 years stock data from NSE) volatility Expected : 0.46% (Weighted average dividend yield for last dividends 3 financial years) Price of the : 242.60 underlying share in market at the time of option grant(in Rs.)
Assumptions : Grant Date-25/01/07 Risk-free interest : 7.68% (for 4.58 years, source-NSF/Reuters as on rate 25th Jan 2007) Expected life : 7 yrs Expected Multiple : 1.25x Expected : 55.03% (based on 5 years stock data from NSE) volatility Expected : 0.46% (Weighted average dividend yield for last dividends 3 financial years) Price of the : 319.25 underlying share in market at the time of option grant(in Rs.)
Assumptions : Grant Date-19/06/07 Risk-free interest : 7.87% (for 4.32 years, source-NSF/Reuters as on rate 19th Jun 2007) Expected life : 7 yrs Expected Multiple : 1.25x Expected : 56.20% (based on 5 years stock data from NSE) volatility Expected : 0.54% (Weighted average dividend yield for last dividends 3 financial years) Price of the : 425.25 underlying share in market at the time of option grant(in Rs.)
* Two Options granted before the record date i.e. 18 July, 2007, under the above plans, entitles the holder to three Equity Shares of the Company.
Information as per 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 and forming part of the Directors' Report for the year ended 31 st March, 2008.
A. Conservation of energy
Your Company's energy requirements continued to increase significantly as it commissioned new manufacturing facilities and increased production at existing facilities. As an ongoing process, the Company undertakes various measures to save energy and reduce its consumption. During the financial year 2007-08, some of the measures undertaken by the Company include:-
1) Saving of 80 KW of energy resulting in saving of Rs. 42 Lacs by removal of HEPA filters by incurring an expenditure of Rs. 0.11 Lacs for this purpose.
2) Saving of 572.2 KW of energy by increasing the hall temperature, stopping the Air Handling Units (AHU) in JB Area by reducing the exhaust quantity from productions machines. This resulted in saving of Rs. 300.7 Lacs.
3) Saving of 104.2 KW of energy and Rs. 54.8 Lacs by reducing the Air Pressure and by incurring Rs. 82 Lacs.
4) Saving of 864 KW of energy and Rs. 454.1 Lacs by installing VFDs system in AHUs.
5) Saving of 185.7 KW of energy and Rs. 97.6 Lacs by decreasing / shutting off lights of non critical areas & modification in light fittings locations for energy reduction.
6) Saving of 76.68 KW of energy and Rs. 40.3 Lacs by reducing the Air Consumption.
B. Technology absorption, adaptation and innovation, research & development
Technology absorption, adaptation and innovation
Technology plays a big role in our ability to offer a complete basket of products to our customers. Our company thus has entered agreement to acquire technology and the right to use technology belonging to other third party companies. During the year, a number of agreements were completed to acquire technology belonging to companies whose R&D efforts have been complementary to our technology development program.This technology has been successfully incorporated into some of the Company's products and an ongoing effort is being made to improve the utilization of this technology and produce newer innovative products based on this technology.
At the same time our Company is a part of many International Forums and R&D initiatives that are dedicated to the development of future formats like light scribe technology, HD-DVD and Blue-ray. Such participative activities have significantly enhanced the image of our Company as an individual entity and our country as a whole in the mind of the International community. Differential Scanning Calorimeter (DSC), Universal Testing Machine (UTM), Microinjector and Extruder have been installed at IIT BHU where our collaborative R&D work is under progress. Similarly, the co-sputtering unit has been installed at IIT Delhi which is smoothly working there.
Your Company bagged the first prize awarded by ELCINA for its R&D efforts made in the field of electronic sector. Further, your Company has been identified by some R&D institutes for collaboration and also in the process of approaching Govt. funding agencies through our own philosophical R&D projects. One R&D proposal has already been submitted to Nano Science Initiative Programme in Department of Science and Technology.
Research and Development
Research and Development efforts have been implemented in the following areas in order to support existing businesses as well as new futuristic formats and technologies beyond the optical media.
Innovative R&D efforts under progress:-
1. Co-sputtering has been achieved for the development of promising materials composition, having potential characteristics for next generation optical formats.
2. Chemical blends of polymers with sufficiently higher mechanical strength have been successfully made. Physical term is under exploration in order to obtain substitute for the substrate material for a CD and DVD.
3. Nano-structured materials for the development of alternate memory device.
4. Nano synthesis of blends for filter application.
5. Basic R&D and its application towards technology/device development are under extensive investigations in collaboration with our academia partners IIT Delhi and IIT BHU.
6. Holography- Hardcore technical feasibility is established through characterization of different kind of photopolymers for three dimensional recording.
Future plan of action is to set up holography manufacturing facility and explore digital holographic recording.
7. Uniform L*a*b Disc- is invented to uniform the color across the data area and the hub area of compact discs. This invention covers the complete idea of a CDR printable disc(possibly on DVDR), up to the hub area, which can esthetically look better after the printability exercise and the end user can print their image uniformly up to 95% of the disc area (conventional disc's uniform coverage area is - 80%).
8. Stamper Print- A stamper is made with a printing image in Stamper Print process and embossed dummy discs are replicated (L1 through this stamper). These discs are bonded with the active parts (LO) as usual. The media comes out of replication process with active layer as data and dummy layer with the customized image, as complete product.
Benefits derived as a result of the above R & D
1. As a result of the above R&D Activities, your Company is gearing-up for future storage media in the industry and gained experience in handling photopolymer from the point of view of data storage & further ready to cope with the market requirements in the next generation data storage.
2. Stamper Print has given the insight of cost saving through innovative method. The turn around time to the customer will improve with respect to the processing time. A fully automatic process without any intervention at line during production with a single stop solution.
3. Uniform L*a*b Disc- New product which has the aesthetic uniformity across the disc and we are first in the market with such a product. This product would be a value added product for the company.
Capital expenditure of Rs. 104.9 million and recurring expenses of Rs. 16.5 million were incurred during the year towards R&D expenses, which is 0.6% of the total turnover of the Company.
These expenses are part of expenses incurred under various revenue or capital heads.
C. Foreign exchange earnings and outgo
Total foreign exchange earned comprising of FOB value of exports, interest, insurance claim and dividend received was Rs. 13,442.1 million, whereas total foreign exchange used (comprising of CIF value of imports, dividend and other outgoings) was Rs. 9,551.7 million.
For and on behalf of the Board of Directors
Sd/-Place: New Delhi Deepak PuriDate : 22.05.2008 Chairman & Managing Director
MANAGEMENT DISCUSSION AND ANALYSIS
2008 marks Moser Baer's twenty fifth year. It was in 1983, in New Delhi, that Moser Baer India was founded to manufacture time devices in technical collaboration with Maruzen Corporation, Japan, and Moser Baer Sumiswald, Switzerland.
Today Moser Baer ranks among the world's leading technology companies operating in distinct business verticals: optical storage media; solar energy; entertainment; IT peripherals and consumer electronics. Moser Baer's products are sold in over 80 countries and it employs more than 7,500 people.
Through these 25 years it has been Moser Baer's endeavour to achieve technological leadership and operate in all its business at on internationally competitive global scale. This has been possible through a carefully-planned and sustainable business model: low costs, high margins, high profits, reinvestment and capacity growth.
FY 2007-08 has been a year of growth for Moser Baer. The Company strengthened its position as a well diversified organization with presence in high-growth, technologydriven global scale businesses providing superior returns on investment (ROI). The year has seen contribution from the new businesses of Moser Baer growing significantly.
Improving operational efficiencies and optimal use of assets (fixed and working capital) helped the Company maintain a positive trend in the face of difficult industry environment in the optical media.
During the year, the Company maintained its leadership position in the global optical media industry. The Company further strengthened its unique technology and IP position in the Blu-ray format through its own pioneering work, coupled with strong in-house R&D in development of high definition formats, giving the Company a strong position as a technology developer.
OPTICAL STORAGE MEDIA
Driven by a combination of factors, the global blank optical media Industry went through a difficult period during the financial year. End consumer demand for CDR continued to remain flat with early signs of decline in developed markets. DVDR maintaines a positive growth trend during the year with robust demand from developed as well as emerging markets. Flash memory devices had a marginal impact on the re-writable market in PC Segment (for data interchange application). The industry witnessed a short term overcapacity situation with excess inventory in the supply chain due to patent licensing issues with some of the other players. This resulted in a downward pressure on prices. Strategic Marketing & Decisions (SMD) estimates global demand for blank optical media products to be over 22 billion units in 2008, representing a strong demand growth over 2007.
A notable development during the year was the emergence of Blu-ray disc (BDR) as the future High Definition media format, with Toshiba announcing the discontinuation of HD DVD investments in mid-February, 2008. This settlement will accelerate the adoption of the format by different stakeholders, including retail, studios, components, hardware, drive makers, software vendors, line integrators and media manufacturers. The industry expects exponential growth for the BDR format in the coming years. Moser Baer is the first non-Japanese supplier of BDR and this development will give the Company a significant advantage in the anticipated growth of the BDR market.
Moser Baer Developments FY 2007-08 (Optical Storage Media)
During the year, the Company evolved into a technology driven, multiple business transnational by adding high growth technology driven businesses to its portfolio. These businesses have the potential to significantly increase combined revenues and overall returns on invested capital.
FY 2007-08 was a difficult year for the global blank optical media industry, which has been significantly challenged by the overall demand-supply situation. Alternative technologies for data storage also impacted growth in the optical media sector. The steep appreciation in the rupee also resulted in margin erosion. At the same time, energy costs faced a huge escalation driven by steep increase in crude prices, in turn impacting furnace oil costs. Consequently the Company's operating and financial parameters were under severe pressure and clearly below the sustainable levels for medium to long term.
Margin erosion in the year under review notwithstanding, the base optical media business remains significantly cash accretive, driven by higher asset turnover and sharp improvement in working capital cycles. In overall terms, growth and returns remain attractive from a long term perspective.
The High Definition formats are likely to give the Company a growth edge and with BDR winning the race against HD DVD, the industry should witness faster penetration compared to earlier projections, clearly giving the Company a significant edge.
With the Company's continued focus on improving manufacturing efficiencies, growing market share, proprietary technology and 'first to market' position in next generation Blue-ray laser-based formats, the Company is well poised to benefit from improved industry dynamics and high growth potential.
During the year, the Company retained its global position as one of the largest producer of optical storage media. It also continues to maintain its lead as a technology developer through its relentless efforts on R&D and various technology collaborations.
In FY-08, the Company maintained its status as one of the top rung suppliers of the next generation High Definition formats through its earlier acquisition of OM&T from Philips last year, which brought several technologies with it, giving it a head start over its rivals. The Company's pioneering work in Blu-ray phase change technology and a unique IP position should provide a significant competitive edge to the Company and enable it to change the cost dynamics for the format to the consumer. As per Strategic Marketing & Decisions (SMD) the demand for blue laser based formats is set to exceed over 122 million discs by 2009 from a few million units at present, and the Company is well positioned to capture a significant share of this emerging opportunity.
Moser Baer's acquisition of an 81% stake in OM&T B.V, a highly specialized technology Company, has started bearing fruit in terms of exploiting cutting edge technologies. This acquisition strongly complements the existing research being done in Moser Baer's R&D Centre in India and helps the Company to be at the forefront of technology in both the optical and solar photovoltaic (PV) segments.
OM&T provided significant contribution to the development of alternate Blu-ray technology and its commercialization to enhance the leadership position of Moser Baer in this format.
The Company's aggressive strategy over the past year has started to yield results with fringe players finding it hard to sustain themselves. Industry consolidation and increasing demand traction in Blu-ray are the positive cues to an otherwise sedate industry environment in the near to medium term. Long term variables still remain healthy as need for storage and consumer demand continues to grow. Moser Baer is investing judiciously in new generation technologies as the optical media business continues to generate substantial free cash in a difficult environment.
In blank optical media, production was disrupted in midyear due to problems in the power plant. The issue was fully resolved and capacity optimization will be achieved by mid-2008. Turnover was also impacted during the year by the strengthening of rupee and the difficult industry environment.
Overall, aggressive pricing and flat sales volume were the two major contributory factors affecting earnings; however, net operating cash flows continue to be strong on the back of judicious capex spends and working capital control.
The size of the blank optical media market in India is over one billion discs. The market has grown by 17 per cent yearon-year. CDR is a predominant format accounting for 80 per cent of the Indian market. DVDR has grown exponentially by almost 100 per cent over last year.
The overall Indian market is growing at 15 per cent with DVD growing at 50% year-on-year. For CDR the market is expected to be flat. ASP of imports has been very low leading to price erosion. Antidumping duty has been imposed from March 2008 for CDR imports from 10 countries, which has considerably reduced the imports of CDRs. Firming up of global prices will also help the Company to improve the realization from the domestic market.
* Leverage 'first to market' and IP position in next generation Blu-ray laser formats
* Leverage existing R&D and technology capabilities in expanding the product portfolio
* Enhance the contribution of value added products (Specials).
* Consolidate global leadership position
* Improve Return on Capital Employed (ROCE) and asset turnover
* Target 'first to market' in near field and holographic technologies.
Near-term Operational Objectives
* Further augment technological and cost leadership
* Scale up the contribution of value-added next generation products and penetrate markets with these products
* Continuously launch new innovative products for customers, in conjunction with new drive launches
* Drive working capital efficiencies and generate free cash flows
* Develop strategic alliances for efficient raw material supplies.
SOLAR PV BUSINESS
Global Industry Scenario
Despite the mid term outlook of high oil and natural gas prices, global energy demand continious to grow. The most rapid growth is expected from non OECD* (Organization for Economic Cooperation and Development members) member countries due to the strong economic growth in these countries.
Renewable energy sources like geothermal, solar and wind constitute approximately 2.2 per cent of the world energy generation. Solar energy contributes 0.1% of the world's total energy needs. Solar energy costs are declining while base load and retail costs are increasing; indicating that grid parity could be reached earlier than estimated. Price declines drive elasticity of demand. A current cost reduction rates, a bulk of the solar industry will reach grid parity within nearly 10 years. Solar generated electricity can be cost competitive with grid when costs fall to $2.5/watt.
Despite increased availability of polysilicon from new and existing players, demand from Europe (Spain, Italy, and Germany) has been very strong. A key trend in the solar energy sector is the diversification away from the top three markets-Germany, Japan, and the US-which together drove almost 85% of solar demand in 2006-07. Progress in Spain and other European countries form the key variables for demand in 2008. Progress in Italy and the US remain the key variables for demand in 2009.
Higher energy costs, declining fossil fuel supplies and a thrust on reducing carbon emissions have ensured that that the worldwide interest in the renewable energy space, and particularly PV, continues to grow. Driven by recent significant technological advancements, it is estimated that the solar market will have a 43% CAGR and is poised to achieve grid parity in the short to medium term. Current demand projections translate to a market value of US$5070 billion by 2010.
Matching these demand projections, incentives from government led subsidies, and better margins have ensured that there is global interest from large market participants.
The robust growth in last few years will be further accelerated by reducing the PV energy costs. Development of disruptive technologies within the PV space will also contribute to accelerated cost reduction.
Currently, PV generates less than one percent of the world's electricity needs, leaving a massive potential market. The International Energy Agency(IEA)estimatesthatgovernments and the private sector will invest around US$10 trillion to expand and upgrade global electricity infrastructure over the next 30 years.
Apart from the developed world, governments in the Asia Pacific region are continuing to strengthen their policies and support for the implementation of technologies that can produce power with lower emissions than traditional technologies, such as power plants using coal, gas, or oil as a fuel source. The Indian and Korean feed in tariff initiatives are a step in this direction.
Indian Government has recently announced subsidy plans ranging between US$750/kW (US$0.75/watt) for installed capacity for residential or commercial use and US$1,250/ kW ($1.25/watt) for community and institutional use. The Central Government also announced feed-in-tariffs of up to US$0.30 per kWh for grid connected solar PV capacity of 1 MW and above. Some of the Indian states have also announced independent programmes to support large size solar PV installations.
Moser Baer's Endeavours
The Company aims to distinguish itself as a significant player in the global photovoltaic market by leveraging its highvolume manufacturing expertise and planned investments of nearly US$ 3.2 billion in research, development and manufacturing of products dedicated to generating solar power.
The Company realizes that PV markets have different needs and emerging technologies have to be developed today to realize the world's future energy needs. It has already announced investments in a mix of currently available and emerging technologies as follows:
* A first of its kind 80 MW, state-of-the-art, fully automated in-line horizontal crystalline silicon cell manufacturing facility.
* A 80 MW module manufacturing facility.
* In excess of 600 MW amorphous silicon thin film module capacity, capable of producing the world's largest non-flexible thin film modules.
* A high concentrator photovoltaic (CPV) module manufacturing facility and multi-million dollar investments in : Solfocus Inc., a US-based Company and the developer of the CPV technology in partnership with the world renowned PaloAI to Research Centre(PARC),California. The technology is based on gallium arsenide cells, originally developed for extra-terrestrial solar applications and environments
* A significant equity stake in Solaria, a US-based technology Company that has developed a unique form of low-concentration solar PV technology. It is capable of producing power equivalent to two to three times the
power produced by conventional PV modules, using the same amount of silicon material
* A significant minority stake in Stion Corporation, a nano structures development Company based in the Silicon Valley, California, for producing extremely low-cost solar power generating surfaces
* Acquisition of 40% equity stake in Solar Value, Proizvodnja dal, a solar grade silicon production facility in Slovenia, to provide access and assurance of supply to low-cost solar grade silicon. The initial test results of the facility have been encouraging and the development of commercial scale facilities is underway
* An R&D centre dedicated for the improvement and rapid commercialization of solar technology products is coming up in Greater Noida.
In addition to the above, the Company has invested in strategic partnerships involving the entire value chain, particularly for strategic sources such as silicon ingots and wafers, glass, etc. through short-term and long-term supply agreements.
ENTERTAINMENT & MEDIA INDUSTRY
The Indian Entertainment and Media (E&M) industry report 2008, jointly issued by FICCI and Pricewater house Coopers, says: 'Home video rights is becoming a sizeable chunk of revenue for film producers with the rise in disposable incomes, increased affordability of DVD players and home theatre systems and shorter release windows. Further, the entry of players such as Moser Baer has changed the entire model prevalent for last several years from rental to a sell through.'
The Indian E&M industry has been growing at a healthy rate in the last few years and the trend is expected to continue for the next few years. In 2007, the E&M industry recorded a growth of 17% over the previous year, higher than the forecasted growth of 15% projected in the previous year. The industry reached an estimated size of Rs. 513 billion in 2007, up from Rs. 438 billion in 2006.
Home video market has also witnessed dynamic changes in the last four years, having achieved a growth rate of 30 per cent over the period 2004-2007. Its contribution stands at 8% of the overall film industry revenues in 2007, up from 6% in 2004. In 2007, the home video market is estimated at Rs. 7.5 billion, up from Rs. 6.5 billion in 2006, translating into a growth of 15% from the previous year. Year-wise growth of the Indian film industry in different segments:
Moser Baer Entertainment offers home video titles in various Indian languages at unmatched prices and is also engaged in media content creation.
Moser Baer is today India's largest home entertainment Company and the first to offer home videos in every popular language of India. It currently offers home video titles in Hindi, English, Tamil, Telugu, Malayalam, Kannada, Marathi, Gujarati, Bengali and non-film categories.
Moser Baer Entertainment has acquired the rights for close to 10,000 titles in all the popular languages and has released almost 4,000 of them in the market.
The Company has established a strong presence across the country in all major metros, as well as in smaller towns through an active and well-organized multi-tiered channel. The Company has released video content in DVD and Video CD formats using Moser Baer's proprietary and patented technology that ensures the highest quality standards and significantly reduces cost. The movie titles come with worldclass packaging.
Having established itself as a global leader in the high technology manufacturing space and the global blank optical storage media industry, Moser Baer is leveraging its existing synergies, established brand equity and large distribution network in the domestic market to enter the PC peripherals market. Moser Baer brand is recognized for high quality products which the Company extended during the year
In Rs billion 2005 2006 2007 CAGR 2004-07
Box office-Domestic 46.5 52.8 64.0 71.5% growth - 14% 21% 15%
Box office-Overseas 5.0 5.7 7.0 8.5% growth - 13% 24% 19%
Home Video 3.4 4.0 6.5 7.5% growth - 18% 63%* 30%
Ancillary revenues 5.0 5.7 7.0 8.5% growth - 13% 24% 19%
Total 59.9 68.1 84.5 96.0% growth - 14% 24% 17%
* Moser Baer entered the Home Video market in 2007
into the fast growing PC peripherals market in India. The Company has entered this market by launching products in five metros. The product segment launch complements existing optical media business and leverages Moser Baer's strong brand equity.
Currently the IT vertical industry (PCs and notebooks) is pegged at Rs. 20,000 crore and the PC peripherals industry is worth Rs. 12,000 crore.
Moser Baer has already established itself as a major player in the USB drives and memory cards market. Its foray into PC peripherals in the form of ODDS will further help in strengthening its position is the industry.
OPPORTUNITIES AND THREATS
Optical Storage Media
1. A first-to-market and unique IP position in the next generation Blu-ray based formats provides a significant competitive edge and growth opportunity as demand for these formats grows exponentially over the next two or three years. With a first mover advantage in this segment, the Company is likely to earn high margins on High Definition formats during the initial stages.
2. The Company has emerged as one of the largest players in the DVDR/RW formats in the world and continues to strengthen its position in the global market which is growing at a healthy clip of over 20% p.a.
3. Domestic market: India is one of the fastest growing markets for Optical Media. The Company has a strong Brand and presence in the channel and is well positioned to dominate this captive market.
1. Alternative technologies: Given Moser Baer's presence in high technology businesses, managing technology evolution and being at the forefront of the technology curve assumes prime importance. Threats of technology obsolescence exist at all times in the optical media space. However, over the years, the Company has evolved from a being a technology innovator to becoming a developer and to emerge as a technology driven Company, thereby mitigating this threat.
2. Prices of key inputs: Polycarbonate for optical media is a critical key raw material, and is influenced by a variety of factors, including crude prices, demand-supply balance, etc. Any sharp increase in prices or demand supply imbalances could adversely impact business. The Company works on strategic sourcing relationships and has long term agreements with key vendors for critical raw materials. This should ease the impact of any pricing volatility and improve production planning.
3. Anti-dumping and anti-subsidy / government policies: The Company derives a significant part of its revenues from international markets. These have seen a growing protectionist attitude and a tendency by some local governments to use antidumping and trade protection tools to provide protection to local businesses.
However, the Company continues to keep a close watch on this front and take necessary steps to minimize any fallout.
4. Fall in product prices: As products move into the mature phase in their life-cycle, they start to emulate commodity type characteristics. Also, optical media industry has relatively high capital intensity; hence a sharp fall in prices could severely impact overall returns. The Company has been consistently improving its asset turnover by installing more efficient lines, improving product mix towards higher value added products, etc. The leadership position in high value next generation formats should further improve these returns.
Opportunities and Threats-Industry Risks
In the short term, Government subsidies play a significant role in the development and promotion of solar power across the globe. The subsidies have to be promoted and encouraged for the next 4-6 years, until solar achieves grid parity and becomes cost competitive. Interest rates also play a key role to ensure good return for investors, thereby promoting its growth. Moser Baer has been championing the development of solar energy in India through several means. The recently announced feed-in-tariff scheme, which was a cumulative effort of several groups and organizations, has created on investor friendly regime and will rebuilt in a significant creation of solar power capacity.
Entertainment & Media Industry
The new emerging revenue streams like animation, gaming, merchandise, etc are creating new business opportunities for E&M Industry. Next-generation technologies will reinvigorate maturing segments and drive E&M growth. Digital television and IPTV are replacing analog, thus expanding the potential market for advertisers and subscribers. Digital distribution of content in terms of digital music and digital cinema holds huge opportunities for growth in the entertainment industry, making content available in even smaller towns where it cannot currently reach in its physical form. Digital platforms are also facilitating rollouts of PPV and Video on-demand services, thereby fueling overall growth. Additionally, DVDs have revitalized home video, with rapid growth in the sell through market. Also, there are enormous opportunities for the Indian E&M industry in the overseas market.
The major threat in E&M Industry is rising content price and piracy.
SEGMENT WISE AND PRODUCT WISE PERFORMANCE
Optical Storage Media
Consumer demand for the CDR/RW Format continues to grow in BRIC and Middle Eastern markets, somewhat compensating for the decline in the developed markets. There are however, certain niche applications and professional segments, which continue to witness growth in the CDR space.
Meanwhile global CDR/RW supply continues to consolidate through some of the capacities being converted to DVDR and also on account of closure of inefficient capacities around the world. This may help CDR/RW demand-supply balance return to equilibrium, thereby providing some stimulus to arrest the decline in CDR/RW pricing in the medium term.
Shifting consumer preferences, increasing drive penetration and improving price-value proposition of DVDR/RW media continues to lead the growth for the format. As per SMD global shipments of DVDR/RW Formats rose 20% y/y in 2008 to 7.5 billion units from the preceding year. SMD expects DVDR/RW shipments to touch almost nine billion units in 2008, representing a further 20% growth. The DVDR/RW media prices are expected to continue to follow the manufacturing cost curve, enabling reasonable margins for manufacturers. The DL format gives further opportunities in coming years, which although smaller in terms of absolute volumes, has been showing good growth rates.
Solar PV Business
Polysilicon supplies are likely to remain tight until 2010. Analyst reports and market sentiments suggest that companies that have secured the most polysilicon supplies for the next few years are best positioned in the market. As costs remain relatively stable, industry will continue to generate attractive returns on the employed capital.
At Moser Baer Photo Voltaic, we continue to secure polysilicon through long term supply contracts. We believe that our ongoing contracts with Deutsche Solar, REC, GSM and now LDK puts us in a comfortable and competitive position on the supply front.
At current price levels, wafer costs make up to 75% of total cell costs and hence access to reasonably priced silicon is essential to maintain healthy margins. Improved conversion efficiencies and using thinner wafers are key to reducing costs.
Solar module (panel) prices are more meticulously tracked than overall system costs. The market in 2008 has been erratic - an environment that is seeing rising prices for all products. This situation is mainly due to the rush to meet project deadlines in Spain before revision of feed-in-tariffs. However, the industry estimates suggest that over the long term, the Average Selling Prices (ASP) of the solar energy equipment is set to fall by 5-7% per annum driving the enormous demand growth.
The BoS includes all costs other than the module (including inverter, cabling and the structure; and installation/service) that go into a solar installation. Despite making up for 40% of total installation costs (and sometimes much more), the impact of the BoS costs on module ASPs is often overlooked and is a major opportunity in the future for cost reduction.
The Company stabilized its first 40 MW of production line in crystalline silicon cell manufacturing during the year. Currently, Moser Baer is in the process of scaling up the initial 40 MW capacity to 80 MW.
Various thin-film technologies are in development to reduce the amount of light absorbing material required to produce a solar cell. Thin-film PV modules are produced through the deposition of a light absorbing film on a substrate (eg, glass).
Some of the advantages of thin film include:
* Reduced dependence on polysilicon
* Lower overall cost as significantly lower active material less than 1 % vs. conventional)
* Higher energy generation throughout the day compared with silicon panels, given the ability to generate energy in low light
* High throughput manufacturing process and equipment.
Currently, there are three main technologies available in the thin films area:
* Amorphous Silicon (a-Si) Thin Films, (61 %)
* Cadmium Telluride (CdTe) Thin Films (34%)
* Copper Indium Gallium Selenide (CIS & CIGS) (5%)
(% in brackets indicates share of technology in current thin films market)
Rapid scalability, high potential for cost reduction and stable manufacturing processes made amorphous silicon as the thin film technology of choice for Moser Baer Photo Voltaic. MBPV has tied up with Applied Materials Inc. for setting up the initial 40MW line that is currently undergoing trials. A road map has been developed to enhance the thin film capacity to more than 600OMW by 2010.
Lower supply side constraints, higher efficiencies (through tandem junction technologies), and high product stability are key growth drivers for Thin Film PV which is estimated to be 20% of the global PV market by 2010. It is estimated that with low overall costs, the sub-dollar module cost through thin films technology may be a reality. MBPV has decided to participate in this competitive technology segment through significant investments and is positioned to be among the market leaders.
Concentrating Photo Voltaics (CPV)
CPV use mirrors and/or lenses to focus sunlight on a small piece of semiconductor material and use a fraction of the polysilicon to produce electricity.
Concentrator solar is ideally suited for regions receiving high levels of solar insolation (exposure to sunlight) including parts of North America and the tropics. CPV offers significant potential for rapidly lowering the Levelized Cost of Electricity (LCOE) to end customer while growth in this segment will be driven through demonstrated sustenance of CPV and lower costs. Several countries including Spain have been promoting CPV growth through specific MW sized demonstration initiatives.
MBPV through strategic participation in high concentration (Solfocus) and low concentration (Solaria) seeks to capture the opportunities offered in this technology space.
The Company started manufacturing High Concentration SoIFocus panels at its facility in Greater Noida during the year and shipped the panels to various SoIFocus installations.
The Company is working closely with SoIFocus Inc., USA to scale up the manufacturing operations and indigenization of majority of components to drive down the manufacturing costs of the panels.
PV penetration levels in India - either through off-grid (110MW aggregated capacity) or on-grid (2MW) have been low considering India receives good solar insolation for the majority of the year. In an attempt to boost the PV market in India, the Government recently announced subsidy driven tariffs and income tax exemptions. Consequent to this, it is estimated that the annual market potential in the short to medium term would be in the range of 150-500MW. The potential is offered through both off-grid (rural electrification) and state supported large grid connected projects
With an ability to deploy the appropriate PV technology for the right market, the MBPV Systems group seeks to build on the market potential and is working actively towards seeding the market. The group has recently signed MOU's with the Rajasthan and Punjab state governments and is working closely with financing institutions and other overseas agencies for cost effective offerings.
Optical Storage Media
Next generation formats
With the end of High Definition format war, BDR/RE technology is likely to grow faster than anticipated earlier and has the potential of significantly mitigating the impact of slow down in some of the earlier formats. During the year, commercial shipments of this next generation format continued from Moser Baer and other major Japanese manufacturers. The current pricing for these formats continues to be 20-25 times that of the DVD formats.
As per the US-based Strategic Marketing and Decisions, the demand for BDR formats is expected at grow sharply to over 1.7 billion discs over the next three years on account of increasing applications driven by high definition video content and improving price value proposition offered by these formats as their pricing curve approaches the inflection point required to expand market demand.
Given the complexity and manufacturing capabilities required to mass produce these formats, only a small select group of companies will emerge as key players in this high growth segment, thereby increasing the differentiation between the technology innovators and developers and the tier-II companies over the long term.
Solar PV Business
The market outlook for 2008 is very strong and we expect strong growth due to growth in select regions including US, Europe and Asia. However, the second half of 2008 will be carefully observed given the limited demand visibility due to changes in Spain, Germany and the United States and uncertainty around the ramp of new polysilicon entrants in China and elsewhere. The industry seems to be marching towards rapid growth (3X-4X in the near future) with scale reduction for the end consumer.
Moser Baer continues to look at the market aggressively with a mix of technology products capable of addressing different market needs within the PV applications.
Entertainment and Media Industry
The Indian film industry is projected to grow by 13% CAGR over the next five years, reaching a size of Rs. 176 billion in 2012 from Rs. 96 billion in 2007.
The home video market is expected to significantly shift in the next five years given the developments in 2007. Though an overall growth of 15% is projected over the next five years, in line with the previous years, the current rental market domination is projected to significantly reduce to 25% in 2012 from 95% in 2006 in favour of the sellthrough market.
The penetration of home video subscribers is expected to increase from 10% of the pay-TV homes in 2007 to 25% in 2012. This translates into an addition of 41 million subscribers over the next five years period. Though the home video subscribers are expected to increase in the next five years, the sell-through prices expected to decline over the forecast period from a current average of Rs. 90 in 2007 to Rs. 50 in 2012.The home video market is thus projected to double its size to Rs.15 billion in 2012 from the current Rs. 7.5 billion in 2007, translating into a cumulative growth of 15% over the five-year forecast period.
RISKS AND CONCERNS
Running a business in any environment has risks that are as varied as they are copious. Stringent and effective risk management throughout the organization is imperative to succeed in the fierce business environment. An effective risk management framework drives continued competitive sustainability of an organization as it enables alignment of operations and activities of the organization to its vision and values.
At Moser Baer the vision is to establish and maintain enterprise-wide risk management capabilities for active monitoring and mitigating the risks on continuous basis.
BUSINESS RISK MANAGEMENT
A strong risk management framework is in place at Moser Baer that enables active monitoring of the business environment and identification, assessment and mitigation of internal or external risks. Given the established processes and guidelines we already have in place, combined with strong oversight and monitoring system at the Board, we believe, we have a robust risk management strategy in place.
Our senior management team sets the overall tone and risk culture of the organization through defined and communicated corporate values, appropriate delegated authority and a set of processes and guidelines. We have a process to inform Board members about the risk assessment and risk minimization procedures. We promote strong ethical values and high levels of integrity in all our activities, which in itself is a significant risk litigator.
Moser Baerisaglobal leader inthedevelopment,manufacture and supply of technology products across the globe and is fast transforming into a multi-business technology group. All three businesses-optical media, photovoltaic and content distribution-have an inherent risk quotient. These risks may stem from technology obsolescence, high customer concentration, commodity cycles and geographical risks, among others. The Company is, however, well positioned to manage and mitigate these risks.
A solid entrenchment is observed with CDR, whereby huge global installed bases of readers and writers have served to provide the format with considerable staying power even in the face of existing new options. The versatility of the CD and DVD format families has served to establish them as a bridge between the information storage and entertainment segments, extending their utility and reach. The growth of DVDs not only maintains backward compatibility with CDs, but also opens up complementary new video, multi-media, and game application segments, further strengthening the global mass appeal of the 120 mm disc formats.
The Company expects these factors to result in stable/ marginal declining market for CDR media, while DVDR and the next generation Blu-ray laser based media will drive the growth in the medium to long term.
The Company's strategy is to transform Moser Baer from a technology recipient into a technology developer and innovator. Strong R&D will enable us develop high value products which will build the differentiation barriers in the long term. The world is moving towards High Definition content. This is a significant technology shift in the global optical media industry and will radically change the consumer's viewing experience. According to the US-based Strategic Marketing and Decisions (SDM), the demand for the next generation high definition formats is expected to be two billion discs over the next three years. A notable development during the year was the emergence of Blu-ray disc as the clear winner in format rivalry. The Company is in technology leadership position in the Blu-ray media.
This intensive R&D thrust will help us to further consolidate our global leadership position in the optical media space.
STEPS TAKEN TO MITIGATE TECHNOLOGY
The Company's technology-led optic media storage products being part of a very active market segment are prone to significant technological risks. These risks exist in a number of critical areas, all of which can have considerable commercial implications. As a prudent and forward-looking organization, Moser Baer has invested substantially in R&D and engineering to address and mitigate risks in all these areas, often with multiple degrees of redundancy:
* Strong in-house R&D capabilities enable the Company to rapidly commercialize new products
* Longstanding strategic partnerships with key technology providers, allows the Company to access new technologies
* Cooperative links with all major hardware suppliers facilitate drive/media compatibility
* Seamlessly future-proofing our capital investments assure evolutionary capabilities of manufacturing infrastructure
* Technology collaborations and tech sourcing arrangements with global technology companies in emerging areas
* Acquisitions of pioneering companies in optical media R&D, will enhance the leadership position of Moser Baer in the next generation optical format race.
OTHER RISKS AND KEY MANAGEMENT INITIATIVES
a) INDUSTRY RISK MANAGEMENT
The Company operates in an industry where technology trends are constantly changing and evolving which may jeopardize future growth. The Company, however, faces no immediate threat from the dynamic environment in which it operates. On the contrary, it stands to benefit from the current growth trends in the DVDR format. It also stands to benefit from the demand for the next generation High Definition formats, which is expected at two billion discs over the next three years.
In line with the long term strategy of creating multiple synergistic businesses, the Company entered into the entertainment industry through the Indian home video market last year. This business is identified as an important value-enhancing, forward integration initiative to the optical media business. It will de-commoditize the blank optical media business due to the higher value addition to its products. The entertainment business is significantly less capital intensive compared to optical media business and will contribute to improving the overall returns on invested capital. The Company has made a foray into film production.
Additionally, the Company entered into the exciting global photovoltaic industry, which is growing at a rapid pace. The PV industry is also significantly less capital intensive than optical media industry and it is expected to improve the overall returns on invested capital.
During the year Company further strengthened its position in IT peripherals market by launching new products. Further, the Company also entered into the consumer electronics market and intends launching various products next year.
Entry into these businesses mitigates the risk of exposure to a single industry.
b) CUSTOMER ATTRITION RISK CONTROL
Over-dependence on a few customers could impact revenues in the event of attrition. The Company with its combined value proposition of high quality standards, competitive prices, and excellent service will continue to expand its customer base. The Company believes the event of customer attrition and the chances of an adverse impact on the Company would be low.
c) GEOGRAPHIC RISK MANAGEMENT
Concentration of customers and revenue bases in a close geographic area may impact growth in case some of these regions are not performing up to expectations. A geographically concentrated revenue base may impact growth in the case of some of these regions not delivering as per expectations.
The consumer base is primarily addressed through global technology OEMs which sell products indifferent continents across the globe. As we supply to global customers, the geographical risk is mitigated. Additionally, we continue to focus on emerging and new markets.
d) PEOPLE RISK MANAGEMENT
Quality of our human resources charts the success and growth potential of our business.
The Company has managed to keep attrition rates well in control by imbibing a sense of ownership and pride and strong HR initiatives geared to nurturing latent talent and unlocking the power of intellectual capital. The Company continues to drive organization development and also build management resources for a multi-business enterprise.
e) COMPETITION DE-RISKING
As installed capacities in global data storage industry have risen, prices have declined. The Company has addressed thisthrough an unbeatable price-value proposition: superior quality, timely delivery, attractive price and introduction of new value added products.
f) FAILURE TO FORECAST ACCURATELY
Understanding and forecasting emerging trends in the technology space is critical. The Company has strengthened its forecasting and S&OP process for high level production planning and plans for key materials.
g) FAILURE TO ENTER INTO LONG TERM CONTRACTS FOR CRITICAL RAW MATERIALS AND CONSUMABLES
Sharp commodity cycles and demand-supply imbalances in critical raw material can severely impact operations. The Company has entered into long term contracts for procurement of critical raw material and continues to work on other long term strategic sourcing arrangements with key raw material suppliers, to significantly mitigate this risk.
h) CASH FLOW RISK
Moser Baer operates in a high growth and capital intensive industry. Hence, it is imperative to efficiently estimate and manage cash flows in this volatile environment. The Company's working capital arrangements are well in place to guard against any uneven or seasonal factors. We are set to emerge as a free cash Company aided by improving margins and better working capital management. The rising contribution of next generation formats and value added products to further aid revenue and margin expansion.
Additionally, the Company also entered the exciting global photovoltaic which is growing at a brisk pace. The foray into the home entertainment business with value propositions which will directly discourage the rampant piracy by facilitating much higher consumption of legal home video content and expand the markets.
This not only mitigates the risk of exposure to a single industry, but both these industries are significantly less capital intensivethan the optical media industry, it is expected to improve the overall returns on invested capital.
i) SECURITY/DISASTER RISK MANAGEMENT
Natural, political and economic disturbances could disrupt operations. To counter balance this, the Company has implemented an extensive IT disaster recovery plan across all its facilities. The Company has mapped out all the related risks on these accounts and put in place sufficient risk mitigations and control mechanisms which are regularly updated and monitored.
NEW BUSINESS RISKS
This is a new business for the Company and is thus prone to execution risk, associated with any new venture. Diversity of offering and the library size will be important business drivers in this segment. To achieve a leadership position, a strong presence across all genres is critical. Moser Baer has acquired copyright/exclusive license/marketing and distribution rights for around 10,000 titles across all languages in a short period of time.
The Company has successfully created an entry barrier in the Home Video industry by acquiring a huge number of titles, and establishing a strong nationwide distribution network. The Company's distribution platform, comprising of 100k outlets, is designed to target all segments of consumers, creating incremental spend on home entertainment from all pockets of disposable income. To augment supply of titles for its Home Video business, the Company has also entered into film production, by releasing Vellitherai (the Company's first Tamil production) and Shaurya (the first Hindi production).The Company currently has 3 Hindi and 6 regional movies under production.
The Company is offering its products at the lowest rate as compared to the prevailing price for the similar legitimate products. The Company's disruptive pricing strategy will boost home video demand by lowering market prices, and thus killing the price power of pirates.
The PV business which is also a part of the Company's new business initiatives; is prone to risks on account of being a new business, project delays, technology risk, shortage of raw material, availability of Capital for the business and shortage of manpower.
Project Execution Risk
Delay in execution of the Company's new projects can negatively impact the Company's profitability. Any delay in the Company's second phase 40 MW crystalline silicon or its Thin Film project will certainly impact the financial projections and return on investments of the Company. The Company is on track for its various projects and with a right team in place, it is confident of mitigating the risk of project delays.
Technology and commercialization risks
PV being a new business and being a high technology driven business faces the risk of commercialization. Success will be determined by the right human capital, right technology and being present at the right time. Moser Baer with its experience in high tech manufacturing, in achieving rapid scale and commercializing technology products is poised to emerge as a global leader in this rapidly growing market. The Company plans to straddle multiple future technologies and has made strategic investments in high technology startups and joint development plans and it believes that the risk is adequately mitigated. Additionally, the OM&T acquisition, which has brought in world class capabilities in thin film, wet chemical processing, optics and concentration and testing procedures, will further reduce the technology risk.
Raw material shortage risk
A global demand supply imbalance of silicon exists which can impact the PV industry. The Company has entered into medium and long term contracts for supply of silicon wafers. The Company has also made an investment in a Company as a backward integration measure. The industry is currently in the 'pass through' stage and the Company believes that any hike in raw material prices can be easily passed on to its customers.
The developmental plans of the PV business; envisages strategic tie ups and technology-intensive capex projects to be executed requiring the mobilisation of funds. The Company's inability to mobilize funds would impact the business prospects. The Company intends to fund these projects through debts and internal accruals as a measure of prudence.
Human capital risk
Human capital is a distinctive business driver as the PV business is in a nascent stage and is a technology driven segment requires specialized manpower. The PV space is an emerging and complex business and challenge is in getting the right people with a deep understanding, skills and ability to take the business to the next level. The Company has put in place key technical and managerial resources.
The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, and Accounting Standards in India. Our management accepts responsibility for the integrity and the objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner the form and substance of transactions and reasonably present our state of affairs and loss for the year.
The gross revenues in fiscal year 2007-08 declined by 5.6% over the previous year to INR 19,582 million, while declining margins in resulted in loss after tax of Rs.789.1 million. EBIDTA (including other income) at INR 5,339.8 million dropped by 11.3% to 25.1 %. Despite the current industry conditions and impact of appreciating rupee vis-a-vis US dollar, the Company was able to minimise decreases in its operating margin through production efficiencies and control on working capital.
Fully diluted earnings per share for FY 2007-08 were INR (4.7) against INR 6.5 in FY 07 after adjusting for Bonus issue. The Company generated gross cash flow of INR 3,526.8 million in FY 2007-08.
The authorized share capital increased to INR 2,075 million from 1,425 million and the paid up equity capital post bonus issue was INR 1,682.3 million as on March 31, 2008 against INR 1,116 million in the previous year.
The Company's reserves declined to INR 18,013.2 million in FY 08 against INR 19,852.2 million in FY 07. As on 31st March 2008, Securities premium account comprised 48% of the total reserves and General Reserves (including loss for the year) comprised the remaining 52%. There are no re-valuation reserves as on March 31, 2008.
Over the years the Company has part funded its ongoing expansions and investment programs through loans raised at aggressively at lower costs. We have also tried to build a prudent basket of currency to hedge against currency risks and minimize cost. Our currency wise total debt outstanding is as follows:-
Table on Currency-wise Total Debt Outstanding. in millionsCurrency Amount in Amount in % of Total Currency Indian Rupees Debt
USD 247.5 9,926.2 38Euro 14.1 894.8 3INR 15,352.6 15,352.3 59
During FY 08 there was a net addition of a debt of INR 8923.2 million mainly for ongoing expansion programmes of the Company and its investments into Photo Voltaic and Home Entertainment businesses. We believe that our current total debt to equity ratio of 1.3:1 and interest service cover ratio of 3.0 is still good.
FINANCIAL OBJECTIVES, INITIATIVES AND ACHIEVEMENTS
Your Company is taking proactive measures to ensure all financial costs are effectively reduced to have a positive impact on the bottomline. The Company continued to focus on efficient working capital management to release cash into the system. The Company generated INR 3,193.2 million of cash from operations as against INR 7,140.0 million in the previous year.
The ongoing foreign exchange risk management policy has been further strengthened that there is no adverse impact of volatile exchange rates beyond agreed-upon tolerance levels.
The outflow on account of interest and finance charges increased to INR 1,793.6 million in FY 08 from INR 1,244.9 million in FY 07, representing an increase of 44% primarily on account of rise in overall debt levels as well as interest costs. However, despite the hardening of interest rate, the interest cost as a percentage of the average debt for the Company was maintained at 8.3% in FY 08.
Gross block of the Company increased by INR 6,090.4 million during FY 08 to reach INR 45 billion. Majority of this increment in assets was towards creation of capacities for next generation formats and new businesses of the Company. We intend to make further investments in our Entertainment and Photovoltaic businesses. The incremental capital expenditure will be funded by a prudent mix of internal accrual and debt.
Depreciation increased by 20.6% in FY 08 (from INR 3,578.7 million to INR 4,315.9 million) on account of increase in gross fixed assets. Due to the flexible nature of the asset base and the relatively long life-cycle of products in the industry, we believe that the risk of the asset base becoming obsolete is low
Working capital management
The overall net working capital was 32.7% of gross revenues in FY 08 which was marginally higher from the levels of FY 07.
Working FY04 FY05 FY06 FY07 FY08Capital (INR)
Debtors 3030.2 3315.4 3798.9 3288.4 3,150.6
Days 70.1 89.5 80.1 57.9 58.7
Inventory 1985.0 3435.4 4469.9 5392.9 6.179.8
Days 45.9 92.7 94.2 94.9 115.2
Creditors 2795.4 2253.9 2151.8 3245.2 2,935.8
Days 64.7 60.8 75.5 110.1 99.9
The Company has been able to hold its receivable cycle to 58.7 days which is well below the industry levels of 90-120 days. Debt for more than six months reduced significantly and represents only 3.8% of overall receivables of INR 120 million in FY 08, down from 4.2% and 7.3% of receivables in FY 07 and FY 06 respectively.
Loans and advances
In FY 08 the loans and advances increased to INR 2,419.2 million against INR 1,186.2 million in FY 07
The capital employed at INR 45,960 million increased by 20% over FY 07. The increase in capital employed is on account of Photovoltaic and other new businesses of the Company.
Management of surplus funds
The short term surpluses were invested in low risk financial instruments that optimized return and protected the invested principal.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has adequate internal control systems commensurate with the size of the Company and nature of its business to provide reasonable assurance regarding adequacy of safeguard of all assets, effectiveness and efficiency of operations, reliability of financial controls and compliance with applicable statues, corporate policies and code of conduct. The internal controls are continuously reviewed for effectiveness and are augmented by written policies and guidelines.
Internal audit activity is carried out in different areas of Company's operations by internal audit team as well as by reputed firms of Chartered Accountants. Post audit reviews are carried out to ensure that audit recommendations are implemented. The scope of the internal audit activity is guided by the annual audit plan, which is approved by the Audit Committee.
The Audit Committee met four times during the year and reviewed the audit observations covering the operations on a quarterly basis and monitored the implementation of agreed action plan. The Statutory auditors were invited to attend all the Audit Committee meetings and shared their views on adequacy of internal controls.
Significant accounting policies
1. Revenue recognition
Revenue from sale of goods is recognized on transfer of significant risks and rewards of ownership to the customer and when no significant uncertainty exists regarding realization of the consideration. Sales are recorded net of sales returns, rebates and trade discounts and price differences and are inclusive of duties. Theatrical revenues from films are recognised as and when the films are exhibited. Revenues from other rights such as satellite rights, music rights, overseas assignment rights etc. is recognised on the date when the rights are available for exploitation. Service income from SEZ Division is recognised as and when services are rendered. Interest is accounted on time proportion basis taking into account the amount invested and the rate of interest. Dividend is recognised as and when the right of the Company to receive the payment is established.
2. Inventory valuation
Finished goods, work in progress, goods held for resale, raw materials and stores and spares; at lower of cost or net realizable value. Cost of raw materials, goods held for resale, packing materials and stores and spares, is determined on the basis of the weighted average method. Cost of work in progress and finished goods is determined by considering direct material, labor costs and appropriate portion of overheads. Liability for excise duty in respect of goods manufactured by the Company, other than for exports, is accounted upon completion of manufacture. Inventories under production films and films completed and not released are valued at cost. The cost of released films is amortized using the individual film forecast method. The said amortization pertaining to theatrical rights, satellite rights, music rights, home video rights and others is based on management estimates of revenues from each of these rights. The inventory, thus, comprises of unamortized cost of such movie rights. These estimates are reviewed periodically and losses, if any, based on revised estimates are provided in full. At the end of each accounting period, such unamortized cost is compared with net expected revenue. In case of net expected revenue being lower than actual unamortized costs, inventories are written down to net expected revenue. The purchase cost of the rights acquire in released films is apportioned between satellite rights and other rights (excluding home video rights) based on management's estimates of revenue potential.
3. Fixed assets
Tangible fixed assets are stated at cost less accumulated depreciation. Cost includes all expenses, direct and indirect, specifically attributable to its acquisition and bringing it to its working condition for its intended use. Expenditure pending allocation are allocated to productive fixed assets in the year of commencement of the related project. Intangible assets are stated at cost less accumulated amortization. The cost incurred to acquire 'right to use and exploit' home video titles, are capitalized as copyrights/marketing and distribution rights where the right allows the Company to obtain a future economic benefit from such titles. Impairment, if any, in the carrying value of fixed assets is assessed at the end of each financial year in accordance with the accounting policy on 'Impairment of Assets'.
4. Depreciation and amortization
Depreciation on tangible fixed assets is provided based on estimated usefull life on a pro-rata basis under the straight-line method. The depriciation rates are not below the minimum rate as specified in Schedule XIV to the Companies Act, 1956. In respect of assets whose useful life has been revised, unamortized depreciable amount is charged over the revised remaining useful life. Intangible assets otherthan copyrights/marketing & distribution rights are amortized on an equated basis over their estimated economic life not exceeding 1 Oyears. Copyrights/marketing and distribution rights are amortized from the date they are available for use, at the higher of the amount calculated on a straight line basis over the period the intangible asset is available, not exceeding 10 years, and the number of units sold during the period basis. Leasehold land and improvement to the leased premises are amortized over the period of the lease. The assets taken on finance lease are depreciated over the lease period.
a) Current Tax
Provision is made for current income tax liability based on the applicable provisions of the Income Tax Act, 1961, for the income chargeable under the said Act and as per the applicable overseas laws relating to the foreign branch.
b) Deferred Tax
Deferred tax assets (DTA) and liabilities are computed on the timing differences at the Balance Sheet date between the carrying amount of assets and liabilities and their respective tax bases. DTA is recognized based on management estimates of reasonable / virtual certainty that sufficient future taxable income will be available against which such DTA can be realized. The deferred tax change or credit is recognized using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date.
HUMAN RESOURCE/INDUSTRIAL RELATIONS
As we continue to grow into different businesses, we firmly believe our most important resource are our employees. It is Moser Baer's constant endeavour to keep our ready for the future by proactively looking at their development and growth. Our comprehensive HR model is aimed at fulfilling our HR vision of providing our employees a meaningful professional life and joy of association through work-life balance. In order to sustain our competitive advantage, we have given emphasis on employee-engagement across levels. Individual managers have been given the onus of enhancing engagement at their local-team level. In addition, corporate initiatives have been implemented to enhance employee engagement across the organization. For example: more than 12 Reward and Recognition schemes are implemented across the organization through which employees are appreciated for positive behaviour and/or exceptional performance. We have also deployed our values successfully in all the businesses. Besides this, development centres have been implemented to facilitate in competency-development of our employees. We have also initiated a 360 degree feedback for senior management. In addition, there has been focus on training and development. A comprehensive behavioural-training calendar is being implemented to help our employees develop various competencies. All these initiatives have helped to reach higher levels of employee-engagement across all levels, locations and businesses.
Like last year, we have also been successful in implementing the Balanced Scorecard methodology for all our businesses, and this is used as a base for cascading respective performance-targets to functions, departments and employees through our performance management system. We also have launched fast-track programmes that help deserving employees grow relatively faster in the organization.
We are proud that industrial relations have been cordial in all our manufacturing units, and we ensure that our
Communication and Benefit programmes span across all levels and locations. Our employee-friendly policies help to look at employee-involvement through various forums like Open Houses, Townhall meeting, family get-togethers family visits, coupled with a host of other communication forums. We have an open door policy and a structured grievance-redressal system to help our employees. Besides a healthy work-life balance and professional work culture, our employees work in an environment that encourages innovation and teamwork. We also have various employeecommittees so that there is shared ownership for various initiatives.
We have also been accredited SA 8000 for manufacturing locations at Greater Noida, Noida and the corporate office. As we continue to relentlessly march forward and grow our businesses while venturing into new areas, our employee strength has also increased over the last year. During the year 2007-08, the Company added 284 employees, taking the total strength to 6,138-up from 5,854 at the end of the previous financial year.