Mercator Lines

The take great pleasure in presenting the 24th annual report of your
 Company for the year ended on March 31, 2008.
 
 FINANCIAL HIGHLIGHTS:
 
 Particulars                           Year ended             Year ended
                                       31.03.2008             31.03.2007
                                      Consolidated          Consolidated
 
 Income from operations                 1454.87                1,122.76
 Total Income                           1588.98                 1142.69
 Operating Profit                        721.48                  322.91
 Interest                                144.64                   80.77
 Depreciation                            167.49                  103.80
 Profit before Tax & Minority Interest   409.35                  138.34
 Minority Interest                       (29.89)                  (0.08)
 Taxes
 -Current Year                            (8.81)                  (3.27)
 -Fringe Benefit Tax                      (0.21)                  (0.13)
 Net Profit After Tax & 
 Minority Interest                       370.44                  134.86
 Balance brought forward
 from last year                          236.13                  150.99
 Prior Period Adjustments                (41.49)                  (0.43)
 Short provision for tax of
 earlier years                            (1.30)                   Nil
 Profit available for appropriations     563.79                   285.42
 Less:   Appropriationsnsfers to Reserves
 -Tonnage Tax Reserve                     33.00                    16.00
 -General Reserve                         17.70                     7.50
 Interim Dividend on Preference   
 shares                                    3.08                     3.20
 Dividend on Equity Shares of  
 previous yr                               0.80                     Nil
 Provision for final Dividend on Equity   25.84                    18.92
 Shares
 Tax on Dividend                           5.05                     3.67
 Balance carried to Balance Sheet        478.32                   236.13
 
                      Amount Rs. in Crores
 Year ended           Year ended
 31.03.2008           31.03.2007
 Standalone           Standalone
 
 781.14                 783.26
 863.07                 801.15
 339.14                 235.78
  58.56                  63.38
 103.83                  97.54
 176.7                   74.86
   N.A                    N.A
  (7.70)                 (3.10)
  (0.21)                 (0.13)
 168.84                  71.63
 153.06                 131.15
  (1.20)                 (0.43)
  (1.30)                   Nil
 319.41                  202.35
  33.00                   16.00
  17.70                    7.50
   3.08                    3.20
   0.80                     Nil
  25.84                   18.92
   5.05                    3.67
 233.94                  153.06
 
 The consolidated turnover for the year under review was significantly
 higher at Rs. 1588.98 crores as against Rs. 1142.69 crores in the
 previous year; registering a substantial growth of 39%. The operating
 profit for the year of Rs. 721.48 crores was higher by 123% over
 previous year of Rs. 322.91 crores.
 
 Inspite of 79% higher interest costs amounting to Rs. 144.64 crores
 (previous year Rs. 80.77 crores); and 61% higher depreciation to the
 tune of Rs. 167.49 crores (The previous year Rs. 103.80 crores). The
 Profit Before Tax (PBT) almost tripled this year; precisely an increase
 of 196% to Rs. 409.35 crores as against Rs. 138.34 crores in the
 previous year. Profit After Tax (PAT) also grew correspondingly by 197%
 to Rs. 400.33 crores as against Rs. 134.93 crores for the previous year
 in spite of the higher tax outgo of Rs. 9.02 crores against Rs. 3.41
 crores in the previous year; increase of 165%. After providing for the
 minority interest of Rs. 29.89 crores (Rs. 0.08 crore, previous year)
 the net profit was recorded at Rs. 370.44 crores (Rs. 134.86 crore); an
 increase of 175%.
 
 The key driver of this exciting consolidated performance of the Company
 was timely expansion of the fleet, culminating in achievement of 99%
 fleet utilization.
 
 On a standalone basis, the turnover of the Company for the year under
 review was Rs. 863.07 crores as against Rs. 801.15 crores in the
 previous year, registering a growth of 8% for the year. The operating
 profit for the year under review at Rs. 339.14 crores was higher by 44%
 as against Rs. 235.78 crores of the previous year. The Profit Before
 Tax increased by 136% to Rs. 176.75 crores as against Rs. 74.86 crores
 in the previous year. Profit after Tax also grew by 136% to Rs. 168.84
 crores as against Rs. 71.63 crores for the previous year. Better
 utilization of the fleet and the profits due to sale of vessels have
 contributed to register a remarkable growth in the bottom line of the
 Company.
 
 AWARDS AND RECOGNITIONS
 
 A few more feathers to our cap were added this year too.  Mr.  H.  K.
 Mittal, the Executive Chairman of the Company was awarded the Newsmaker
 of the Year 2007” by Lloyds List Middle East and India Subcontinent
 and “Outstanding Achievement Innovation” by Shipping & Marine
 Leadership & Excellence Awards 2008.
 
 EXPANSION AND FINANCE
 
 During the year under review, the Company continued its expansion-cum
 diversification drive, and forayed into Dredging by acquiring three
 dredgers of 24,153 DWT at a total cost of about Rs.  240.23cr. Two of
 these dredgers were financed by internal accruals and one with a mix of
 internal accruals and financial assistance from the banks.  Subsequent
 to the year end, the Company contracted to acquire one more dredger at
 a cost of about Rs.  57.60 crore which was proposed to be financed
 through mix of internal accruals and debt. The Company through its
 subsidiary Mercator Lines (Singapore) Ltd. (MLS), acquired five
 Kamsarmax vessels; thereby adding a total tonnage of 387,265 MT, during
 the year under review. The total cost of acquisitions was Rs. 1048.26
 crores which was financed by a mix of internal accruals and debt.
 Subsequent to the year end, MLS also contracted to acquire two Panamax
 vessels of 1,38,442 DWT in aggregate, at a cost of about Rs. 522
 crores, equivalent to USD 131 million. These are proposed to be
 financed by its IPO proceeds.
 
 In December 2007, MLS successfully concluded its maiden IPO for an
 amount of about Rs. 568.56 crores, which is equivalent of USD 142.80
 million. MLS also issued shares arising upon conversion of FCCB Series
 A of USD 35mn which is about Rs. 139 crores (together with an interest
 amount of USD 4mn (about Rs. 16 crores ) accrued thereon) as per the
 terms of the issue. The shares of this subsidiary are listed on the
 main board of the Singapore Stock Exchange.
 
 BUSINESS OPERATIONS & FUTURE OUTLOOK:
 
 With a foray into dredging during the year, your Company has added one
 more segment under its fold in addition to its existing range of
 segments of Bulk Carriers, Tankers and Offshore.
 
 The global demand for commodities still continues to be mainly driven
 by India and China. India expects the rate of growth to be around 8-9%
 per annum. With a consolidation in double hulls taking place at faster
 pace; the tanker market is expected to remain firm in near future.
 
 All major Indian ports are presently working at 100% capacity, whereas
 India further expects 8 to 9% growth rate. This would translate into a
 meteoric rise in seaborne trade from current levels of about 400mn tons
 to 900mn tones by the year 2013. The Indian Government plans to develop
 new ports, as well as deepen the existing ports to absorb additional
 requirements. In addition to this is the “Sethusamduram” project that
 promises to provide tremendous opportunities in dredging.
 
 In the offshore services; the delivery of the jack-up rig is expected
 as scheduled during the quarter of Jan-March 2009. Subsequent to the
 year end; this rig has been contracted for deployment with effect from
 date of its delivery. With the demand overhang from the year 2008; the
 business prospects of further acquisitions and the deployment of rigs
 appears good. Your Company is also equipped to take up Exploration and
 Production (E&P) activities in the Oil & Gas sector. With forthcoming
 NELP VII by the Government of India; your Company foresees good
 opportunities in this sector too.
 
 Being one of the largest carriers of coal into the country; one of the
 strategic fit was to integrate the company backwards. Your company has
 therefore, forayed into coal mining through its subsidiaries. Two coal
 licenses in Indonesia and one in Mozambique have already been granted
 to the said subsidiaries.  Both the projects are progressing well in
 terms of timelines and operational milestones. The company expects
 revenues from these projects in the current year.
 
 In view of the global trade in commodities continuing to be growing at
 a higher rate, the future outlook of industry in general, and that for
 your Company in particular, appears to be bright, barring unforeseen
 circumstances.
 
 SHARE CAPITAL:
 
 During the year, the Company allotted 3,76,52,887 equity shares of Rs.
 1/- each on the conversion of 5,150 FCCBs of an aggregate amount of
 USD 51,500,000 at a price of Rs. 59/812 per share at a fixed exchange
 rate of Rs. 43/73 per USD. The Company also issued and allotted
 32,00,000 equity shares of Re. 1/- each at a price of Rs.  137/50 along
 with the entitlement of 48,00,000 equity shares as bonus shares to the
 promoters group Company in exchange of warrants allotted to them,
 pursuant to the resolution passed by the shareholders of the Company at
 their EOGM held on January 17, 2006. Subsequent to the year end,
 further 10,96,686 equity shares of Re. 1/- each were issued and
 allotted in lieu of surrender of 15 0 FCCB for conversion out of the
 abovementioned FCCB issue.
 
 Further during the year 285,00,000 warrants carrying an option to apply
 and subscribe for an equivalent number of shares at a price not less
 than Rs. 58/50 per share to one of promoters on preferential basis in
 accordance with SEBI Guidelines pursuant to the resolution passed by
 shareholders of the Company at their EOGM held on October 11, 2007.
 
 During the last quarter of the financial year; the Company redeemed its
 8% Preference Share capital aggregating Rs. 40 crores on maturity.
 
 DIVIDEND:
 
 The Board of Directors are pleased to recommend a 110% dividend i.e.
 Rs. 1.10 per equity share of Re. 1/- each for the financial year
 2007-08 on the enlarged capital base post issue of shares on conversion
 of FCCBs; for your approval. The previous year total dividend was 100%
 i.e. Re.1 per share aggregating Rs. 19.72 crores on 19,72,42,500
 shares. The aggregate amount of the dividend on equity shares for the
 financial year 2007-08 would be Rs. 30.23 crores including corporate
 tax & surcharge thereon (as against Rs.  22.14 crores in the previous
 year). The dividend pay out has therefore increased significantly in
 absolute value i.e. by 37%.
 
 Further during the year; the Directors declared and paid pro-rata
 dividend of 8% on the Redeemable Cumulative Preference shares of Rs.
 4000 lacs, amounting to Rs. 3.60 crores (as against the previous year
 at Rs. 3.65 crores) inclusive of the Corporate Tax & surcharge thereon
 amounting to Rs. 0.52 crore (as against Rs. 0.45 crore in the previous
 year).
 
 DIRECTORS:
 
 In accordance with the provisions of the Companies Act, 1956 and the
 Articles of Association of the Company, Anil Khanna is the Director
 liable to retire by rotation at the ensuing Annual General Meeting and
 being eligible, has offered himself for re- appointment. The brief
 resume of Anil Khanna is included under the Corporate Governance
 section of this report.
 
 Your Directors recommend for your approval the re-appointment of Anil
 Khanna at the ensuing Annual General Meeting.
 
 SUBSIDIARY COMPANIES:
 
 Your company has following subsidiaries/fellow subsidiaries:
 
 
 
 1            Mercator International Pte. Ltd.       Singapore
 2            Mercator Offshore Ltd.                 Singapore
 3            Mercator Lines (Singapore) Ltd.        Singapore
 4            Varsha Marine Pte. Ltd.                Singapore
 5            Vidya Marine Pte. Ltd.                 Singapore
 6            Mercator Lines (Panama) Inc.           Panama
 7            Mercator Oil & Gas Ltd.                India
 8            Oorja Holdings Pte. Ltd.               Singapore
 9            Oorja 1 Pte. Ltd.                      Singapore
 10          Oorja 2 Pte. Ltd.                       Singapore
 11          Oorja 3 Pte. Ltd.                       Singapore
 12          Oorja Indo KGS.                         Indonesia
 13          Oorja Mozambique Lda.                   Mocambique
 14          Broadtec Mozambique Minas Lda.          Mocambique
 
 Pursuant to Accounting Standard (AS 21) issued by the Institute of
 Chartered Accountants of India, consolidated financial statements
 presented by the Company include financial information of its
 subsidiaries.
 
 A statement in respect of the said subsidiaries pursuant to Section 212
 of the Companies Act, 1956 is enclosed herewith as required.  The
 Company has received an exemption from the Government of India u/s
 212(8) of the Companies Act 1956 from attachment of the documents of
 above subsidiaries for the year ended on March 31, 2008. The annual
 reports and accounts of subsidiaries will be kept for inspection at the
 registered office of the Company and also of the subsidiary companies
 concerned; and the same along with related detailed information will be
 made available to the investors of the Company, as well as,
 subsidiaries at any point of time. Investors desirous of obtaining
 annual accounts of the Companys subsidiaries may obtain the same on
 request.
 
 AUDITORS:
 
 The Auditors of your Company, M/s. Contractor, Nayak & Kishnadwala,
 Chartered Accountants, retire at the ensuing Annual General Meeting and
 have confirmed their eligibility for re- appointment under Section 224
 (1-B) of the Companies Act, 1956.
 
 The Directors recommend their re-appointment for approval of the
 members.
 
 PARTICULARS OF EMPLOYEES:
 
 At Mercator, we believe that our employees are our partners in our
 success and hence our partners in rewards. It is nothing but their
 dedication, hard work and inimitable team spirit that has enabled the
 Company to achieve new milestones in business.
 
 As required under provisions of Section 217(2A) of the Companies Act,
 1956, read with the Companies (Particulars of Employees) Rules 1975 as
 amended, the requisite particulars in respect of the employees of the
 Company, who were in receipt of remuneration in excess of the limits
 specified under the said section are set out in the annexure forming
 part of this report.
 
 CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION; EXPORT MARKET
 DEVELOPMENT AND FOREIGN EXCHANGE EARNINGS & OUTGO:
 
 The Conservation of Energy and Technology Absorption under the
 Companies (Disclosure of Particulars in the Report of the Board of
 Directors) Rules, 1988 are not applicable to your Company. All the
 same, the Directors would like to assure you that every measure is
 taken to save and conserve energy at all the stages of our operation of
 the vessels, as well as, in our shore activities.
 
 In its endeavor of the development of the export market, the Company
 has formed new subsidiaries during the year.
 
 Your Company has not imported any technology during the year. It has
 earned foreign exchange of Rs. 269.00 crores (as against the previous
 year earnings of Rs. 201.73 crores) and spent Rs. 602.12 crores (as
 against Rs. 751.75 crores for the previous year) in foreign exchange on
 account of acquisition of vessels, charter hire & other vessel expenses
 and interest etc.
 
 CORPORATE GOVERNANCE:
 
 Your Company complies with the provisions laid down in Corporate
 Governance laws. It believes in and practices good corporate
 governance. Mercator maintains transparency, creates value and wealth
 for its shareholders and also enhances corporate accountability.
 
 A separate report on the Corporate Governance, along with the requisite
 certificate from the Auditors of the Company is annexed herewith as
 part of this Annual Report.
 
 OUR SOCIAL RESPONSIBILITY:
 
 Your company is a responsible corporate citizen, both in letter and in
 spirit. Mercator therefore is always keen to discharge its social
 responsibility towards the society it operates within. The company has
 several such initiatives; mainly focused on education sector.
 
 Your company has increased its amount of donations by about 9% during
 the year to Rs. 32 lacs.
 
 INSURANCE:
 
 All properties of the Company are adequately insured.
 
 DIRECTORS RESPONSIBILITY STATEMENT:
 
 Pursuant to the provisions of section 217(2AA) of the Companies Act,
 1956, the Directors hereby confirm that:
 
 (I) In preparation of the annual accounts, the applicable
 
 accounting standards have been followed along with proper explanation
 relating to material departures;
 
 (ii) They 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 and of the profit for the
 year under review;
 
 (iii) They have taken proper and sufficient care for the maintenance of
 adequate accounting records in accordance with the provision of the
 Companies Act 1956, for safeguarding the assets of the Company and for
 preventing and detecting fraud and other irregularities;
 
 (iv) They have prepared the annual accounts on a going concern basis.
 
 GROUP FOR INTERSE TRANSFER OF SHARES:
 
 As required under clause 3(1) (e) of the Securities and Exchange Board
 of India (Substantial Acquisition of Shares and Takeovers) Regulations,
 1997 persons constituting “Group” (within the meaning as defined in the
 Monopolies and Restrictive Trade Practices act, 1969) for the purpose
 of availing exemption from applicability of the provisions of
 Regulation 10 to 12 of the aforesaid Regulations, are given in the
 annexure B attached herewith and forms part of this Annual Report.
 
 ACKNOWLEDGMENTS:
 
 The Directors would like to take this opportunity to thank the
 Ministry of Shipping, M/s. Transchart, the Directorate General of
 Shipping and other statutory authorities for their continual support
 and encouragement.
 
 We would also like to express our gratitude towards our bankers; all
 the stakeholders and employees for their unflinching support and faith
 in the Company.
 
                                          For and on behalf of the Board
 
 
                                                            H. K. MITTAL
                                                      Executive Chairman
 
 Regd. Office:
 3rd Floor, Mittal Tower,
 B-wing, Nariman Point,
 Mumbai - 400021
 Dtd:   May 14, 2008