Hindalco Industries Directors Report, Hindalco Reports by Directors

Directors Report	Year End : Mar '12 � Mar 11

The Directors are pleased to present the 53rd Annual Report alongwith the audited annual Standalone and Consolidated accounts of your Company for the year ended 31st March, 2012. 1. Financial Performance Your Company''s Consolidated Revenue crossed Rs. 80,000 crore up 12% and Consolidated Net Income is at a record Rs. 3,397 crore reflecting a rise of 38% Financial Performance Summary (Rs. Crore) Standalone Consolidated Year Year Year Year ended ended ended ended Particulars 31/03/2012 31/03/2011 31/03/2012 31/03/2011 Revenue from Operations 26,597 23,859 80,821 72,202 Profit from Operations before Other Income and Finance Costs 2,415 2,467 5,320 5,169 Other Income 616 347 783 513 Profit before Finance Costs 3,031 2,815 6,103 5,683 Finance Costs 294 220 1,758 1,839 Profit before Tax 2,737 2,595 4,345 3,843 Tax Expenses 500 458 786 964 Profit before Minority Interest and Share in Associates 2,237 2,137 3,558 2,879 Share in Profit/ (Loss) of Associates (Net) - - 50 (57) Profit before Minority Interest 2,237 2,137 3,608 2,822 Minority Interest - - 211 366 Net Profit for the Period 2,237 2,137 3,397 2,456 2. Standalone Results Standalone Revenues for the year crossed the Rs. 25,000 crore mark and stood at Rs. 26,597 crore driven by higher volume and realisation. Profit before Interest and Depreciation was Rs. 3,721 crore, an increase of over 6% compared to FY11, driven by higher volumes in the Aluminium business and higher TcRc in the Copper Business, alongwith improved efficiencies and higher other income. In the Aluminium Business, there has been a significant increase in costs, especially in case of Coal (by 20%), Furnace oil (by 40%), Caustic Soda (by 25%) and Carbon (30%). The cost surge was partly offset by asset- sweating and improving operational efficiencies, coupled with better realisation. The Profit before Interest and Taxes was at Rs. 1,822 crore for FY12 compared to Rs. 2,004 crore in FY11. In the Copper Business, revenues stood at Rs. 17,560 crore compared to Rs. 15,897 crore in FY11, due to higher LME and by-product revenue. Profit before interest and taxes was higher by 33% to Rs. 802 crore, due to improved efficiencies, higher TcRc and by- product credit, notwithstanding higher energy costs and a planned shutdown in FY12. 3. Consolidated Results Hindalco''s consolidated Revenue at Rs. 80,821 crore has been the highest ever. Aided by better product mix and the depreciation of the Rupee Profit before depreciation, interest and taxes stood at Rs. 8,973 crore as against Rs. 8,441 crore in FY11. Net profit attributable to the shareholders increased to Rs. 3,397 crore, up by 38% over FY11, this is primarily attributable to the strong performance at Novelis and Copper Business in India. Despite economic headwinds, the balanced portfolio approach, low cost operation and strong value added downstream operations resulted in a commendable performance. With low cost advantage and strong downstream presence, Hindalco is well set for being the Last Man Standing and First Man Forward. Segment Performance Of the total annual revenue of Rs. 80,821 crore, Aluminium Business contributed to Rs. 62,059 crore, up 10% over the last year. Aluminium EBIT for FY12 remained flat at Rs. 4,495 crore vis-a-vis to Rs. 4,469 crore in FY11. The results were impacted by lower profits in Indian Aluminium operation due to macro-economic conditions. In the Copper Business, revenue is higher at Rs. 18,364 crore, a rise of 16% from Rs. 15,882 crore in FY11, mainly on account of higher volumes, higher copper LME and by-product credits. EBIT of Rs. 1,119 crore vs. Rs. 1,082 crore in FY11. 4. Changes in Accounting Policy Effective from the Financial Year 2011-12, the Company has changed its accounting policy for preparation of the consolidated financial statements relating to actuarial gains or losses arising out of actuarial valuation of long term employee benefits and post employment benefits with respect to one of its overseas subsidiaries (Novelis Inc.). Until the previous year, the amount of actuarial gains or losses was accounted through the Statement of Profit and Loss. Consequent to the change in accounting policy, actuarial gains or losses along with related deferred tax have been adjusted against Reserves and Surplus. This is a non-cash item. Had the Company not changed the accounting policy as above, the Employee Benefits Expenses would have been higher by Rs. 1,014.91 crore, Tax Expenses would have been lower by Rs. 299.88 crore, Net Profit for the year would have been lower by Rs. 715.03 crore and Foreign Currency Translation Reserve in Reserves and Surplus would have been lower by Rs. 44.39 crore. 5. Business Reconstruction Reserve Pursuant to a court approved scheme of financial restructuring under sections 391 to 394 of the Companies Act 1956, Business Reconstruction Reserve (BRR) was established during 2008-09 for adjustment of certain specified expenses. Accordingly, costs in connection with exiting certain business during the year have been adjusted against the BRR in the consolidated financial statements. Had this adjustment not been done, Other Expenses would have been higher by Rs. 536.33 crore, Tax Expenses would have been lower by Rs. 35.86 crore and Net Profit for the year would have been lower by Rs. 500.47 crore. A summary of adjustments made so far against BRR is given in the following table: (Rs. in Crore) Standalone 2008-09 2009-10 2010-11 2011-12 Opening Balance 8,580.39 8,580.39 8,580.39 Add: Transfer from Securities Premium Account as per the Scheme 8,647.37 Less: Adjustment made: (a) Impairment loss - - - - / (reversal of impairment loss) of goodwill arising on consolidation of Novelis Inc. while preparing consolidated accounts of the Group (b) Impairment of fixed assets 66.80 - - - (c) Interest and Finance Charges on loan taken by A V Minerals (Netherlands) B. V., a subsidiary of the Company, for acquisition of Novelis Inc. by the Company - - - - (d) Costs in connection with exiting business - - - - (e) Certain costs in connection with the Scheme 0.18 - - - Closing Balance 8,580.39 8,580.39 8,580.39 8,580.39 Consolidated 2008-09 2009-10 2010-11 2011-12 Opening Balance - 4,030.50 3,726.11 7,165.40 Add: Transfer from Securities Premium Account as per the Scheme 8,647.37 Less: Adjustment Mad: (a) Impairment loss/ (reversal of impairment loss) of goodwill arising on consolidation of Novelis Inc. while perparing consolidated accounts of the Group 3,597.30 - (3,597.30) - (b) Impairment of fixed assets 111.30 - - - (c) Interest and Finance Charges on long taken by A V Minerals (Netherlands) B V a subsidiary of the Company for acquistion of Novelis Inc, by the Company 544.47 304.39 158.01 - (d) Costs in connection with exiting business 363.62 - - 500.47 (e) Certain costs in connection with the scheme 0.18 - - - Closing Balance 4,030.50 3,726.11 7,165.0 6,664.93 6. Accounts of Idea Cellular Ltd. Due to certain exceptional circumstances, the accounts of Idea Cellular Limited (Idea), one of the associates of the Company, were not available and hence could not be consolidated in the accounts for the year ended 31st March, 2011. The Consolidated accounts for the year include Rs. 62.02 crore being the share of profit of the Company in Idea relating to the year ended 31st March, 2011 resulting in the net profit for the current year being higher by the said amount. 7. Dividend The Board of Directors of the Company have recommended a dividend of Rs. 1.55 per share aggregating to Rs. 344.89 crore (including dividend distribution tax of Rs. 48.14 crore) for the year ended 31st March, 2012. 8. Appropriations Allocations and Appropriations of Surplus in Statement of Profit and Loss are as under: Standalone: (Rs. crore) Surplus in the Statement of Profit and Loss 31/03/2012 31/3/2011 Balance as at the beginning of the year 350.00 300.00 Add: Profit for the year 2,237.20 2,136.92 Less: Dividend on Equity Shares (296.76) (287.17) Less: Dividend Distribution Tax (38.41) (46.59) Less: Transfer to General Reserve (1,852.03) (1,753.16) Balance as at the end of the year 400.00 350.00 9. Growth plans underway in Aluminium Your Company is aggressively pursuing various brownfield and greenfield growth opportunities in Aluminium as described below: India Project Location Capacity Power Plant Timelines Hirakud smelter expansion Hirakud 161 KTPA to 367 MW to 467 MW 2012 213 KTPA Hirakud Flat Rolled Hirakud 135 KTPA NA 2012 Products [FRP] project Utkal Alumina [UAIL] Rayagada, 1.5 mio- tonne 90 MW Captive 2012 Inter national Limited Odisha Alumina Refinery Co-generation Power with integrated Plant Bauxite Mines Mahan Aluminium Mahan, MP 359 KTPA 900 MW CPP 2012 Aluminium Smelter Aditya Aluminium Lapanga, 359 KTPA Odisha Aluminium Smelter 900 MW CPP 2013 Aditya Alumina Koraput; Odisha Alumina Refinery 2014 with integrated Bauxite Mines Jharkhand Aluminium Sonahatu, Aluminium Jharkhand Smelter 2015 These above smelters (Mahan, Aditya, and Jharkhand) have dedicated coal blocks. Both Utkal and Aditya Alumina have captive Bauxite mines. The Financial Closure has been already achieved for UAIL and Mahan Aluminium. The Financial Closure for debt portion of Aditya Aluminium is currently being pursued. Mahan Coal: The Group of Ministers constituted by the Government of India to consider environmental and developmental issues related to coal mining etc, has recommended the granting of forest clearance by the Ministry of Environment & Forest [MoEF] for the Mahan Coal block on certain conditions. In this regard, further communication from MoEF is awaited. Brazil: The previously announced expansion of the Pinda facility in Brazil is expected to be commissioned at the end of 2012. Additionally, plans to install a new coating line for beverage can end stock and to expand the recycling capacity in the Pindamonhangaba, Brazil facility are on the anvil. Asia: The expansion of rolling and recycling capacity in Yeongju, South Korea and Ulsan, South Korea is on schedule and are expected to become operational at the end of 2013. During the fourth quarter of FY12, an investment of 0 million into an aluminum automotive heat treatment plant in China has been announced, this will have annual capacity of approximately 120 Kt. Construction of the new facility should begin in the fall of 2012 and it is expected that the plant to be operational in late 2014. 10. Finance Preferential warrants - The Company has allotted 150,000,000 warrants on a preferential basis to the promoters on March 22, 2012, entitling them to apply for and obtain allotment of one equity share of Rs. 1 each at a price of Rs. 144.35 per share against each such warrant at any time on or before the expiry of 18 months from the date of allotment in one or more tranches. The Company has received an amount equal to 25 per cent of the price of each such warrant. Debenture issue - To further augment its financial resources, the Company has issued 10 year 9.55 per cent Secured Redeemable Non-Convertible Debentures for a total amount of Rs. 3,000 crore on private placement basis on April 25, 2012. These debentures are listed on the wholesale debt market segment of National Stock Exchange (NSE). Term Loans from Banks Rs. 5,142.99 crore : As per original loan agreement Rs. 2,146.66 crore, Rs. 2571.49 crore and Rs. 424.84 crore are repayable in FY14, FY15 and FY16, respectively. However, in exercise of its prepayment option without payment of any fees or penalty, the Company has served a notice on all lenders to prepay this loan on June 29, 2012. 11. Consolidated Financial Statements In accordance with the Accounting Standards AS-21 on Consolidated Financial Statements read with Accounting Standard (AS) - 23 on Accounting for investments in Associates and AS-27 on Financial Reporting of Interest in Joint Ventures, the audited Consolidated Financial Statements are provided in the Annual Report. 12. Management Discussion and Analysis Report The Management & Discussion Analysis Report forming part of Directors'' Report for the year under review, as stipulated under Clause 49 of the Listing Agreement with the Stock Exchange(s), forms part of Annual Report. The report provides a strategic direction and a more detailed analysis on the performance of individual businesses and their outlook. 13. Corporate Governance Your Directors reaffirm their commitment to the corporate governance standards as prescribed by The Securities and Exchange Board of India (SEBI). A separate section on Corporate Governance together with a certificate from the Auditors of the Company regarding full compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchange(s) forms part of Annual Report. 14. Directors'' Responsibility Statement Your Directors affirm that the financial statements for the year 2011-12 are in full conformity with the requirements of the Companies Act, 1956. They believe that the financial statements reflects fairly, the form and substance of transactions carried out during the year and reasonably present the Company''s financial condition and results of operations. These financial statements were audited by the statutory auditors of the Company, M/s. Singhi & Co., Chartered Accountants. Your Directors further confirm that: 1) In the presentation of the financial statements, applicable Accounting Standards have been followed. 2) That the accounting policies are consistently applied, except the changes in accounting policy indicated in paragraph 4 of this report. For preparation of the financial statements certain estimates are made based on reasonable and prudent judgment so as to give a true and fair view of the state of affairs of the Company at the end of the Financial Year. 3) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. 4) The Directors have prepared the Annual Accounts on a going concern basis. Your Company''s internal Auditors have conducted periodic audits to provide reasonable assurance that established policies and procedures have been followed. 15. Novelis Inc. (Wholly Owned Subsidiary) Novelis reported strong operating results in FY12 despite challenging market conditions globally. Its premium product portfolio, long- term customer base and focused business model enabled Novelis to produce solid results for the year. Net sales for FY12 were .1 billion, a 5% increase compared to the .6 billion reported for the same period a year ago, mainly the result of favourable conversion premiums across all regions and an increase in the average aluminum prices. Novelis''s robust business model, good cost management and focus on premium products resulted in a record EBITDA per tonne of 1 for the year and the second straight year of billion plus adjusted EBITDA. Shipments of aluminium rolled products totalled 2,838 Kt for FY12, compared to 2,969 Kt in FY11. The decrease in shipments was primarily a result of the overall economic slowdown and de-stocking by customers. The continued optimization of Novelis''s footprint will improve its competitive position; these include the divesture of three foil plants in Europe and closure of an aluminum sheet mill in Canada. During the year, Novelis invested in major recycling initiatives in all four operating regions, including advanced equipment and technology to process diversified scrap inputs, which will enable the Company to achieve recycled content of 50 percent in its products by 2015. During FY12, Novelis completed the acquisition of 31.3 percent of the outstanding shares of its Korean subsidiary for $ 344 million raising Novelis''s ownership of the Korean subsidiary to 99%. 16. Aditya Birla Minerals Ltd [51% subsidiary] The production of Copper remained flat at 59.7 Kt in FY12. Net profit for the year was AUD 27 million against AUD 57 million in FY11, impacted by lower production at Nifty on account of the decline in the mine grade (which was in line with the mining plan) and slower-than-expected ramp-up at Mt Gordon. The performance of your Company''s subsidiaries is covered elsewhere in this Annual Report. The Ministry of Corporate Affairs, Government of India vide its Circular No.5/12/2007-CL-lll dated 8th February, 2011 has granted general exemption under Section 212(8) of the Companies Act,1956, from attaching the balance sheet, profit and loss account and other documents of the subsidiary companies to the balance sheet of the Company provided certain conditions are fulfilled. The Company has satisfied the conditions stipulated in the Circular and hence is entitled to the exemption. However annual accounts of the subsidiary companies and the related detailed information will be made available to the holding and subsidiary companies investor''s seeking such information at any point of time. The annual accounts of the subsidiary companies are available for inspection by any shareholder''s at the Registered office of the Company. The annual accounts of the subsidiary company is also available for inspection at their respective registered office. Further, in line with the Listing Agreement and in accordance with the Accounting Standard 21 (AS-21), the Consolidated Financial Statements prepared by the Company include financial information of its subsidiaries. 17. Employee Stock Option Scheme The shareholders of the Company has approved on 23rd January, 2007 an Employee Stock Option Scheme (ESOS 2006), formulated by your Company, under which your Company may issue 3,475,000 options to its permanent employees in the management cadre, in one or more tranches, whether working in India or out of India, including its Whole Time Directors. The shareholders have also approved giving discount up to 30% of the average price of the equity shares of the Company in the immediate preceding seven day period on the stock exchange. The ESOS 2006 is administered by the Compensation Committee of the Board of Directors of the Company (the Committee). Each option when exercised would be converted into one fully paid-up equity share of Rs. 1/- each of the Company. The options will vest in 4 equal annual instalments after one year of the grant. The maximum period of exercise is 5 years from the date of vesting. Further, forfeited/ lapsed options are available to the Committee for grant. These options do not carry rights to dividends or voting rights till the date of exercise. Further, on 23rd September, 2011 the ESOS 2006 has been partially modified by which the Company may now issue 6,475,000 options. However, under the ESOS 2006, so far the Committee has granted 3,545,550 options to its eligible employees in three tranches out of which 706,901 options have been forfeited/ lapsed and are available to the Committee for grant as per term of the Scheme. The compensation cost of stock options granted to employees have been accounted by the Company using the intrinsic value method. Accordingly, Employee benefits expenses includes Rs. 1.29 crore (Previous Year Rs. 1.34 crore) being the amortization of intrinsic value for the year ending 31st March, 2012. Disclosure pursuant to the provisions of the Securities and Exchange Board of India (Employee Stock Option Scheme) Guidelines, 1999 is given in Annexure -A. 18. Particulars as per Section 217 of the Companies Act, 1956 The information relating to the conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo required under section 217 (1)(e) of The Companies Act, 1956, is set out in a separate statement attached to this report (Annexure B). In accordance with the provisions of Section 217 (2A), read with the Companies (Particulars of Employees) Rules, 1975, the names and other particulars of employees are to be set out in the directors'' report, as an addendum thereto. However, as per the provisions of Section 219 (1) (b)(iv) of the Companies Act, 1956, the report and accounts, as therein set out, are being sent to all members of the company excluding the aforesaid information about employees. Any member, who is interested in obtaining such particulars about employees, may write to the Company Secretary at the Registered Office of the company. 19. Fixed Deposits The Company has not accepted any public deposits and, as such, no amount on account of principal or interest on public deposits was outstanding as on the date of the Balance Sheet. 20. Directors In accordance with Article 146 of the Articles of Association of the Company, Mrs. Rajashree Birla, Mr. K. N. Bhandari and Mr. N. J. Jhaveri retire from office by rotation, and being eligible, offer themselves for reappointment. During the year Mr. M. Damodaran was appointed as an Additional Director of the Company w.e.f 16th April, 2012 pursuant to Section 260 of the Companies Act, 1956. 21. Awards & Recognitions Several accolades have been conferred upon your Company, in recognition of its contribution in diverse fields. A selective list: 1. Hindalco:CII-EXIM Bank Award 2011 (Commendation Certificate) for Business Excellence. 2. Birla Copper Dahej:IMC Ramakrishna Bajaj Quality Award 2011 (Commendation Certificate). 3. Renukoot: Non-Ferrous Best Performance Award 2010-11 by the Indian Institute of Metals, Non-Ferrous Division. 4. Birla Copper Dahej:Environment Protection Award 2011, for NP/NPK Complex Fertilizer Plants, including captive Acids, presented by the Fertilizer Association of India . 5. Renukoot: National Energy Conservation Award 2011, (2nd Prize), presented by the Ministry of Power, Government of India. 6. Renukoof.Greentech Environment Platinum Award 2011 for outstanding achievement in Environment Management, presented by the Greentech Foundation, New Delhi. 7. Renusagar.Golden Peacock National Quality Award 2011 in the Service category. 8. Renusagar:Greentech Gold Safety Award 2011 in the Power Plant category for exemplary efforts towards occupational health & safety, presented by Greentech Foundation, New Delhi. 9. Renusagar:Greentech Environment Excellence Gold Award. 10. Birla Copper Dahej: Greentech Environment Gold Award. 11. Hirakud Smelter:Odisha State Safety Conclave Award 2011. 12. Hirakud Power:Cil Odisha State Award (1st Prize) for best practices in Environment, Health, Safety (ESH) for 2011. 13. Belgaum Alumina Works:Government of Karnataka State Export Excellence Award for the years 2009-10 and 2010-11, presented in March 2012. 14. Quality Circle Teams of Renukoot, Renusagar, Birla Copper Dahej and Hirakud Complex :National Quality Convention 2011 for Excellence and Distinguished performance awards. 15. Durgmanwadi, Chandgad and Lohardaga Mines Division : Awards at regional / state level, during the Mines, Safety Productivity Week, Environment Conservation Week and other such programmes. 22. Environment Protection and Pollution Control Your Company is committed to sustainable development. Your Company is a signatory to the Global Compact and subscribes to the principle of triple-bottom line accountability. A separate chapter in this report deals at length with your Company''s initiatives and commitment to environment conservation. 23. Auditors The observations made in the Auditors'' Report are self-explanatory and do not call for any further comments under Section 217 (3) of the Companies Act, 1956. M/s. Singhi & Company, Chartered Accountants and Auditors of the Company, retire, and being eligible, offer themselves for appointment. In pursuance to Section 233B(2) of the Companies Act, 1956 and Notification dated 3rd June, 2011, 2nd May, 2011 and 24th January, 2012 and Order dated 30th June, 2011, your directors have appointed M/s. R. Nanabhoy & Co, cost accountants and M/s. Mani & Co, cost accountants as Cost Auditors for auditing the Cost Accounts of the Company for Financial Year 2012-13, covering the relevant Product Groups as per the statement placed under Central Excise Tariff and for the following industries as relevant to your Company; a) Aluminium b) Mining & Metallurgy of Ferrous & Non- Ferrous Metals c) Fertiliser d) Organic & Inorganic Chemicals e) Engineering Machinery (including Electrical & Electronic Products) The due date for filing Cost Audit Reports for the financial year 2010-2011 was 30th September, 2011 and the same was filed by the Cost Auditors on 23rd September, 2011. 24. Appreciation Your Directors place on record their sincere appreciation for the assistance and guidance provided by the Honorable Ministers, Secretaries and other officials of the Ministry of Mines, Ministry of Coal, the Ministry of Chemicals and Fertilizers and various State Governments. Your Directors thank the Financial Institutions and Banks associated with your Company for their support as well. Your Company''s employees are instrumental in your Company scaling new heights, year after year. Their commitment and contribution is deeply acknowledged. Your involvement as Shareholders is greatly valued. Your Directors look forward to your continuing support. For and on behalf of the Board Mumbai Chairman Dated 27th June, 2012

Source : Dion Global Solutions Limited

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