Phillips Carbon Black

The Directors have pleasure in presenting the Forty-seventh Report and
 Accounts of Phillips Carbon Black Limited for the year ended 31st
 March, 2008.
 
 FINANCIAL HIGHLIGHTS
 
                                                       (Rs. in crore)
                                        31.03.08            31.03.07
 
 Carbon black                            1018.25                988.07
 
 Power                                     14.94                 10.55
 
 Other Income                               6.12                  4.09
 
 Total Turnover                          1039.31               1002.71
 
 PBDIT                                    152.37                 97.51
 Less: Interest                            19.45                 32.60
 
 PBDT                                     132.92                 64.91
 
 Less: Depreciation                        20.14                 20.36
 
 PBT                                      112.78                 44.55
 
 Tax expense                               23.47                 21.02
 
 PAT                                       89.31                 23.53
 
 Surplus brought forward                   35.84                 19.99
 
 Profit available for Appropriation       125.15                 43.52
 
 Proposed Dividend                         10.10                  5.05
 
 Tax on proposed dividend                   1.72                  0.86
 
 Transfer to General Reserve                9.00                  1.77
 Balance carried forward
 to next year                             104.33                 35.84
 
 DIVIDEND
 
 Your Directors recommend for approval of Members at the ensuing Annual
 General Meeting a dividend of 40% on the paid up share capital of the
 Company which will absorb Rs.10.10crore.Thetaxon dividend to be borne
 by the Company will be Rs. 1.72 crore.
 
 INDUSTRY STRUCTURE & DEVELOPMENT
 
 Global demand for carbon black is estimated at 9.50 to 10 million MT.
 The Asia-Pacific region accounts for 50% of global demand for carbon
 black, 47% is almost equally divided between America and Europe,
 whereas demand from Africa and Middle-East is less than 3%. Global
 carbon black capacity is estimated between 10.50 and 11 million .MT.
 Asia-Pacific has 50% of the aforesaid capacity, America 26%, Europe
 21%, while Africa and Middle East account for the remaining 3%.  The
 industry being highly freight intensive, regional demand- supply
 situation has stronger influence on pricing than global demand-supply.
 China and India registered double digit demand growth on the back of
 strong rise in domestic economy, investment in road infrastructure and
 increasing vehicle population. The rest of the world clocked 3.5%
 growth.
 
 In India, carbon black demand rose by 11% in FY08, while production
 increased by 7%. There has been no significant capacity expansion
 during last 5 years, except 70,000 MT expansion by your Company in 2004
 and 60,000 MT by the other major player in 2007. Carbon black
 manufacturers in
 
 India are operating at almost full capacity. Therefore, substantial
 part of the incremental demand during FY08 had to be met through
 import. Your Company had to curtail export volume to meet increasing
 domestic demand. Capacity constraint in the industry is expected to
 continue in near future, as all major Indian tyre companies have
 undertaken capacity expansion.
 
 PERFORMANCE
 
 Carbon Black
 
 Your Company achieved the highest ever operating margin (PBDIT) of
 14.66% during FY08, as compared to 9.73% in previous year. Companys
 profit before tax convincingly entered the three digit trajectory
 during FY08 i.e. Rs. 112.78 crore.  Despite modest growth in top line
 and volatility in feedstock price, profitability increased
 substantially due to beneficial impact of various operational
 efficiency measures implemented in the recent past, better working
 capital management and cost management, particularly logistics and
 finance cost.
 
 Power
 
 Revenue from the power segment during FY08 was Rs. 14.94 crore,
 excluding revenue from carbon credit, reflecting 42% growth over
 previous year. The rise in revenue was achieved due to selling price
 revision coupled with higher saleable power.  During FY08, substantial
 work relating to 30 MW co-generation power plant at Durgapur was
 completed. The plant is expected to be commissioned during July, 2008.
 
 Manufacturing
 
 Production volume during FY08 was 250,484 MT, compared to 244,900 MT
 during FY07. The green field project at Mundra (Gujarat), expected to
 be commissioned during FY09, will provide substantial boost to the
 Companys manufacturing capacity and help it meet higher domestic
 demand and raise export volume. The plant at Cochin was awarded ISO
 14001 certification during FY08.
 
 Research & Development
 
 Research & Development received major attention during FY08, when
 various special grade carbon blacks were developed for plastic and
 paint industries. The quality of these grades are comparable to those
 offered by other global players.
 
 Environment, Health, Safety & Social Responsibility
 
 Your Company took several initiatives to reach greater heights in
 Environment, Health and Safety (EHS). Progressing,towards the desired
 goal, your Company initiated new policies for greener surroundings.
 
 At all manufacturing locations, the Company strictly adhered to the
 Environment, Health and Safety norms resulting in improved Environment.
 
 Efforts to incorporate ideal Corporate Social Responsibility continued
 during FY08, which included Pulse Polio Immunization Programme, Free
 Eye Check-up Camps, Rural Area Development, Free distribution of
 Medicines at Medical Camps,
 
 Aids Awareness Programme and support to some institutions involved in
 social service.
 
 In the current scenario of global pollution threat, your Company has
 prepared itself towards a greener tomorrow by becoming the first carbon
 black Company in the world to receive Carbon Credits from the United
 Nations for its co-generation power plant at Baroda.
 
 Human Resource Development
 
 Human Resources continue to be a focus area for your Company.  Several
 initiatives were taken to facilitate the performance and developmental
 requirements of all employees. A performance planning process based on
 the globally acclaimed Balance Business Scorecard method was
 introduced. This was supported by a pay for performance recognition
 system to motivate employees to perform at levels higher than the
 preceding year.
 
 The Companys manpower requirement for all the new expansions has been
 carefully planned and recruitment for critical positions has been
 completed.
 
 The industrial relations scenario continues to be healthy.
 
 Internal Control System and Adequacy
 
 Your Company has established adequate internal control systems in all
 areas of operation by utilizing the services of internal and external
 auditors, as also its in-house resources.  The Company continuously
 upgraded these systems in line with the best available practices.
 Reports and variance analysis were regularly discussed at Management
 Committee meetings and actions taken. Operational Reports are tabled at
 each Board meeting, after discussion by the Audit Committee.
 
 An independent Audit Committee of the Board reviews the adequacy of
 internal control.
 
 Opportunities and Threats
 
 Your Company constantly examines the opportunities and threats that
 exist in its business and is geared to undertake course corrections
 wherever necessary.
 
 Opportunities
 
 The growth in domestic economy and automobile industry should create
 higher demand for carbon black.
 
 The national thrust on road infrastructure should further increase
 demand for tyres and consequently demand for carbon black.
 
 India is likely to emerge as a major auto sector hub for smaller cars.
 This should also have a favorable impact on demand for carbon black.
 
 The Company can convert lean gases (which are currently flared) to
 generate electricity and add to profitability.
 
 Threats
 
 Carbon black import.
 
 Inadequate infrastructure at ports, resulting in detention of vessels
 and higher transportation cost.
 
 Segmentwise Performance
 
 The performance of Carbon Black and Power segments have been covered in
 this Report earlier.
 
 Risks and Concern
 
 The raw material for the Company (carbon black feedstock) is residue
 oil from extraction process (of crude) and has witnessed volatility.
 However, the Companys business model demonstrated robustness during
 such period. Further, share of profit from the power segment which is
 increasing every year will grow further with the commissioning of the
 30 MW co-generation power plant at Durgapur.
 
 The Company is exposed to risks from market fluctuations of foreign
 exchange, interest rate and regulations relating to environment.
 
 Major Expansion Plans
 
 Civil work for the Companys 30 MW co-generation power plant at
 Durgapur was completed during the year. All equipment have been
 delivered at site. The project is expected to be commissioned during
 July, 2008. The evacuation line, being set up by a State owned utility,
 is expected to be completed during July, 2008.
 
 The Company has also embarked upon a green field project at Mundra,
 Gujarat and a brown field project at Kochi, Kerala.  At Mundra, the
 expected annual carbon black capacity will be 90,000 MT, while its
 power generation plant will have a capacity of 16 MW. At Kochi, the
 expected additional carbon black capacity is 50,000 MT and power 16 MW.
 The total project cost, estimated at Rs. 390 crore, will be funded
 through a debt-equity ratio of 1 :1.
 
 Your Company also signed an MOU to examine the feasibility of setting
 up in Vietnam a Carbon Black facility of 50,000 MT along with a
 co-generation power plant of 16 MW .
 
 Preferential issue
 
 Pursuant to SEBI guidelines and necessary approval of members, the
 Company allotted 30,00,000 convertible warrants of Rs.149/- each on
 15th March, 2007, with an option to subscribe to one equity share of
 Rs.10/- each at a premium of Rs.139/- per share fully paid up within 18
 months from the date of allotment.
 
 FUTURE OUTLOOK
 
 Carbon Black
 
 During FY08 major tyre companies either embarked upon or announced
 expansion plans. A couple of tyre companies are in the process of
 reviving operations. One of the top 10 global tyre companies has also
 announced its plan to set up manufacturing facilities in North India.
 All these projects are expected to be commissioned during the next 2 to
 3 years. To keep pace with rising domestic demand, your Company
 undertook substantial expansion during FY08. It is creating new
 capacity at Mundra, Gujarat. This is expected to be commissioned during
 FY09. The expansion at Kochi is expected to be completed during FY10.
 Manufacturing capacity of 140,000 MT will be added during next 18
 months, taking total capacity to 410,000 MT.
 
 Power
 
 During FY09 the total installed power plant capacity at Durgapur will
 increase from 18.50 MW to 48.50 MW and consequently saleable power will
 jump more than three folds from the current 7.50 MW.
 
 Further, co-generation power plants have been planned at Mundra and
 Kochi with aggregate capacity of 32 MW. These are scheduled to be
 commissioned during FY10.
 
 Profit from the power segment will increase substantially from FY09
 onwards.
 
 Conservation of Energy, Technology Absorption, Foreign Exchange
 Earnings and Outgo
 
 A statement giving details of conservation of energy, technology
 absorption, foreign exchange earnings and outgo as required under
 Section 217(1)(e) of the Companies Act, 1956 read with Companies
 (Disclosure of Particulars in the Report of the Board of Directors)
 Rules, 1988 is annexed. This forms an integral part of this Report.
 
 Public Deposits
 
 The Company does not have any Fixed Deposit Scheme and have repaid all
 Fixed Deposits that matured and. were claimed by depositors under the
 earlier Fixed Deposit Schemes.  Matured unclaimed deposits as on 31st
 March, 2008 is Rs. 7,34,000/-. Apart from matured unclaimed deposits,
 no amount is outstanding as on 31st March, 2008. Reminders have been
 sent to all depositors who have not claimed repayment.
 
 Particulars of Employees
 
 Pursuant to the provision of section 217(2A) of the Companies Act,
 1956, read with the Companies (Particulars of Employees) Rules, 1975,
 as amended, the Particulars of Employees, though forming part of this
 Report is not being mailed to members and the same is available for
 inspection at the Registered Office of the Company during working hours
 for a period of twenty-one days before the date of AGM. Any member
 interested in obtaining a copy of the said statement may write to the
 Company Secretary at the Registered Office.
 
 Corporate Governance
 
 Under Clause 49 of the Listing Agreement with the Stock Exchanges, a
 section on Corporate Governance together with a certificate from the
 Companys Auditors confirming compliance is set out in the Annexure
 forming part of this Annual Report.
 
 Directors Responsibility Statement
 
 Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors
 to the best of their knowledge and belief confirm that:
 
 i) in the preparation of the annual accounts, the applicable accounting
 standards have been followed and that there are no material departures;
 
 ii) appropriate accounting policies have been selected and applied
 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 financial year and of profit or loss of the
 Company for the period;
 
 iii) proper and sufficient care have been taken, 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;
 
 iy) the annual accounts have been prepared on a going concern basis.
 
 Auditors
 
 The Auditors, Messrs Price Waterhouse, retire at the ensuing Annual
 General Meeting and are eligible for re-appointment.
 
 Cost Audit
 
 The Central Government had directed an audit of the cost accounts
 maintained by the Company in respect of carbon black. The Central
 Government approved the appointment of M/s. Shome & Banerjee, Cost
 Accountants, for conducting the cost audit for the financial year ended
 31st March, 2008.
 
 M/s. Shome & Banerjee, Cost Accountants, have given their consent for
 conducting the audit of the cost accounts of the Company for the
 financial year ending 31st March, 2009, if appointed.
 
 Directors
 
 Dr. Ram. S. Tarneja and Mr. K. S. B Sanyal retire by rotation and being
 eligible offer themselves for re-appointment.
 
 Forward- Looking Statement
 
 This Report contains forward-looking statements that involve risks and
 uncertainties. Actual results, performance or achievements could differ
 materially from those expressed or implied in such forward-looking
 statements. Significant factors that could make a difference to the
 Companys operations include domestic and international economic
 conditions affecting demand-supply and price conditions, foreign
 exchange fluctuations, changes in government regulations, tax regimes
 and other statutes.
 
 Acknowledgement
 
 Your Directors record their thanks for the encouragement, assistance
 and co-operation received from shareholders, government authorities,
 financial institutions, banks and customers. They also thank them for
 the trust reposed in the Management. Finally your Directors thank all
 employees for their commitment and contribution.
 
 
 
                             For and on behalf of the Board
 
                             Kolkata Sanjiv Goenka
 
 28th April, 2008            Chairman