SPEL Semiconductor

The Directors have great pleasure in presenting the 23rd Annual Report
 of the Company together with the Audited Accounts for the year ended
 Mar 31, 2008.
 
 Global and Indian Industry scenario
 
 The worldwide market for Semiconductor Assembly and Test Services
 (SATS) grew for the sixth consecutive year in 2007 and the SATS market
 continued to outpace the overall semiconductor market by more than 50%
 and also the overall semiconductor revenue grew by 2.9% in 2007,
 according to preliminary results by Gartner Research.
 
 Packaging, assembly and test services have become important in the
 total semiconductor industry because a growing percentage of the total
 industry revenue is now attributed to this segment.
 
 Although the general economy is weak, the bulls and bears are in
 surprising harmony when it comes to predicting the prospects for the
 global semiconductor industry in 2008. True to recent form, U.K.-based
 market analysis firm, Future Horizons, is among the more bullish with
 estimates of 10-percent unit growth and 12-percent growth in dollar
 terms.
 
 With the major drivers for semiconductor demand remaining strong in
 2007, namely PCs, mobile handsets, and consumer electronics, global
 sales of semiconductors grew for the sixth consecutive year and reached
 a record 5.6 billion in 2007, up 3.2% from 7.7 billion in 2006,
 According to the Semiconductor Industry Association (SIA). Total
 industry sales, excluding memory products, were up by 4.5%
 year-over-year.
 
 Rapidly declining prices coupled with increases in performance and
 functionality provides consumers with additional computing power at
 lower prices resulting in higher productivity. In conclusion, the past
 year was another good year for the global semiconductor industry.
 
 SPEL performance during the year
 
 Your company continues to be India’s First & only Semiconductor IC
 assembly & Test production facility and is continuously determined to
 maintain its position despite the market fluctuations and other
 external factors. Further Your Company continues to be a trusted &
 strategic contract manufacturing partner for many of the world’s
 leading Semiconductor companies.
 
 The performance of your Company for the year has improved multifold.
 Board of Directors of the Company is happy to announce that
 profitability has significantly improved this year over the previous
 year.
 
 Management continued its efforts to rope in more customers this year
 also as in previous years. During the year in spite of rupee exchange
 variation, reasonable margins were maintained along with increased
 revenues.
 
 During this year, Your Company has taken steps to set up Windmill to
 generate power for captive consumption, in order to enable the company
 to reduce the power cost and to carry on the business more economically
 and efficiently. Company has also been implementing various suggestions
 on Cost reduction during the year.
 
 Your Company has obtained Central Government formal approval to
 establish the Special Economic Zone during the year. The Board at its
 meeting held on Jun 20, 2008, has decided to withdraw the SEZ, since
 the co-developers are not in a position to proceed further.
 
 Emphasis on Value system
 
 Your Company has adopted the following as its core values and the
 Management is highly committed to put in practice all these values.
 Training sessions are conducted every month to make all the Employees
 aware of the core values. All the Employees attend this program at
 least once in six months and put it to practice.
 
 a. Business Ethics : defines us as a Company
 
 b. Professionalism : defines us as individuals
 
 c. Citizenship : defines our contribution to society
 
 Operational Performance
 
 A.  Resource Conservation Water
 
 Recycling water by installing Two-stage RO plant at ETP.  At present 15
 KL water is reused. Dicing treatment plant efficiency is enhanced to
 recycle 25 KL quantity of water.  Hence ground water off take of 90 KL
 is reduced.  New anti-scalant chemical used for RO feed water. This
 avoided the usage of soft water input to RO plant and thereby reduced
 the softener reject water.
 
 Power
 
 1.  Energy efficient Vacuum pump is commissioned thereby 1.8KW/hr is
 saved.
 
 2.  400units per month minimized by replacing copper choke with
 electronic choke.
 
 3.  Energy efficient Condenser water pump installed and13KW/hr is
 saved.
 
 Proposal
 
 Wind mill - 50 % of the utilization power from the proposed wind mill.
 
 B Waste Minimization
 
 1.  RO reject water is using for domestic purpose there by water is
 saved.
 
 2.  Additional Two stage RO provided for DI plant to reduce the CA
 regeneration.
 
 3.  New anti - Scalant chemical is using for RO feed water and avoided
 the usage of soft water input to RO plant and thereby reduced the
 softener reject water.
 
 C.  Pollution prevention
 
 1.  Wet Scrubber provided for electroplating section.
 
 2.  Solar evaporation Pond area increased to cater the effluent from
 ETP
 
 Financial Performance
 
 The Operating results of your Company for the year ended Mar 31, 2008
 are given below
                                                       (Rs. in million)
 Particulars                                Year ended      Year ended
                                          Mar 31, 2008    Mar 31, 2007
 
 Sales                                          728.14          539.97
 Other Income                                    36.68           11.95
 PBIDT                                          197.78          120.87
 Interest                                        27.90           14.58
 Depreciation                                    60.67           42.62
 Profit before Taxation                         109.21           63.67
 Tax/Deferred Tax                                36.10           24.55
 Profit after Taxation                           73.11           39.12
 
 Sales of your Company for current year has increased by 35% over sales
 of previous year and Profit after tax of the company has increased by
 87% over revenue of the previous year.The increased expenditure on
 manpower, power, marketing expenses, other overheads that were
 necessitated due to operational growth, have partially offset the
 higher contribution.  All the package lines of company are in good
 demand and are expected to increase the contribution in future years.
 
 Dividend
 
 Your Directors would like to place on record their appreciation for the
 Shareholders’ patient waiting for these days.
 
 You may also be aware that your Company is committed for a big leap in
 future years to cater to the demands of the industry.  This will
 envisage the following :
 
 i. Expanding the existing package lines and introducing new packages
 which will generate more revenue.
 
 ii. The above expansion will also envisage increase in power cost which
 would strain the cash flow position of the Company. The Board, as an
 alternative to the increasing energy cost and to motivate generation of
 green power, decided to establish Wind Turbine Generators which will
 provide electricity to support a portion of our power requirement.
 
 Your Companys above initiatives would obviously increase PAT and
 thereby increasing the Earning Per Share (EPS).  However, you would
 concur that your Company has consolidated itself for achieving a strong
 financial position conducive for this.
 
 Fixed Deposits
 
 The total amount of deposits outstanding as on Mar 31, 2008 was Rs.1.5
 Crores and is not overdue for repayment.
 
 Dematerialization of Shares
 
 As the Members are aware, the Company’s shares are in the compulsory
 demat mode, facilitated through arrangement with M/s. National
 Securities Depository Ltd. (NSDL) and M/s. Central Depository Services
 (India) Ltd. (CDSL). Going by the percentage of demat shareholders, it
 is found that as many as 1,81,77,547 shares (39.42% of total shares
 issued), continued to be in physical mode. Your Directors earnestly
 appeal to all of you to demat the shares and derive the benefits of
 holding the shares in electronic form.
 
 Subsidiary
 
 The Wholly Owned Subsidiary Company SPEL America Inc, in California,
 USA has been rendering the marketing services to your Company resulting
 in enhanced Customer base and satisfaction. The details required under
 Section 212 of the Companies Act, 1956 has been enclosed herewith in
 the report.
 
 Auditors
 
 Your Companys auditors, M/s. Natarajan & Co., Chartered Accountants,
 retiring at the conclusion of the ensuing Annual General Meeting, are
 eligible for re-appointment.
 
 Directors
 
 Mr. S. R. Vijayakar and Dr. A. Besant C Raj are the directors retiring
 at the ensuing annual general meeting. As both are being eligible,
 offering themselves for reappointment. A brief profile of both director
 are provided as follows :
 
 Mr. S. R. Vijayakar holds an Honours Degree in Electrical and
 Mechanical Engineering. After two years experience in the U.K. in the
 power industry he worked with the Ahmedabad Electricity Company till
 1967. Thereafter, he worked with the Electronics Corporation of India
 Limited under the Department of Atomic Energy, Culminating as its
 Chairman and Managing Director till 1984. He was appointed as
 Secretary, Department of Electronics, Government of India until he got
 retired in 1986.  Post retirement he was Chairman of MELTRON,
 Government of Maharashtra and was associated with several companies.
 Currently he is also on the Board of TVS Electronics and Surana
 Telecom. He is a member of SPEL Board’s Remuneration and Compensation
 Committee.
 
 Dr. A. Besant C. Raj is an MBA from the Indian Institute of Management,
 Ahmedabad (First Batch). He also holds a doctoral degree in Business
 Administration from the Harvard Business School, Harvard University,
 USA. He has a Master’s degree in Philosophy from Madras University and
 a Master’s degree in Psychology from Banaras Hindu University. He is
 the founder Chairman of the Institute of Chartered Financial Analysts
 of India (ICFAI), Hyderabad. He is closely associated with development
 of several educational institutions. He has held various senior
 positions in the Government of India. He is the Chairman of SPEL
 Board’s Audit Committee and a Member of SPEL Board’s Securities
 Transfer & Investors Grievances Committee (STIGC).
 
 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 :
 
 1.  That in the preparation of the annual accounts for the year ended
 Mar 31, 2008 the applicable Accounting Standards had been followed
 along with proper explanation relating to material departures
 
 2.  That the Directors had selected such accounting policies and
 applied them consistently and made judgment and estimates that were
 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 or loss of your Company for the year under review
 
 3.  That the Directors had 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
 
 4.  That the Directors had prepared the accounts for the year ended Mar
 31, 2008 on a going concern basis.
 
 Corporate Governance
 
 Your Company is committed to the standards of Corporate Governance and
 in this direction has laid down well documented internal policies,
 procedures including Board and Committee procedures and practices in
 particular relation with Shareholders, Customers, Suppliers and
 Employees in order to enhance the long-term Shareholder value and
 maximize interest of all stakeholders.
 
 Your Company has complied with the provisions of Clause 49 of the
 Listing Agreement relating to Corporate Governance.
 
 A detailed Report on Corporate Governance and a Management Discussion
 and Analysis report have been attached to form part of the Annual
 Report.
 
 A Certificate from the Auditors of your Company regarding the
 compliance of conditions of Corporate Governance has been annexed to
 this report.
 
 Information pursuant to Section 217 of the Companies Act, 1956
 
 In terms of Section 217 (1) (e) of the Companies Act, 1956 and the
 rules framed there under, the particulars relating to the conservation
 of energy, technology absorption & foreign exchange earnings and outgo
 are given below:
 
 a.  Conservation of Energy
 
 The Company has in place an Energy Committee which meets once a month.
 This Committee consists of Cross- functional Executives. This Committee
 identifies the potential areas to conserve energy and implements novel
 energy saving measures, apart from recommending investment proposals to
 the management.
 
 The Company has taken various measures to conserve water and energy,
 notable amongst them being, reuse of Dicing process water, Rain Water
 Harvesting, Power factor improvement and extension of length of
 condenser in the A/c system to improve efficiency. Following
 Consumption were made during the year.
 
 Power                  Water            Gas
 
 79,31, 543.70 units    56,575 KLits     Rs.10,09,012/-
 
 b.  Technology Absorption
 
 The particulars regarding Technology Absorption are not applicable to
 your Company.
 
 c.  Foreign Exchange Earnings and Outgo
 
 Your company is a 100% export oriented unit and is constantly striving
 to increase its exports.
 
 Foreign Exchange used during the year : Rs.54.25 crores
 
 Foreign Exchange earned during the year: Rs.74.09
 
 crores
 
 Particulars of Employees
 
 There are no such employees drawing remuneration in excess of limits
 mentioned as per section 217(2A) and hence no disclosure is required as
 per the said section.
 
 Employee Stock Option Scheme
 
 ESOS - 2005
 
 Members may be aware that at the 20th Annual General Meeting held on
 Jul 29, 2005, the Employees Stock Option Scheme has been approved. The
 said scheme has come to an end during this year.
 
 ESOS - 2007
 
 A New Employees stock option scheme, 2007 has been approved by the
 Members on Extra-ordinary general meeting held on Jan 18, 2008.
 
 Disclosure required under Section 12 of SEBI (ESOP & ESPS) Guidelines,
 1999 is as follows :
 
 Sl.  Particulars as on the year          ESOS- 2005     ESOS- 2007
 No.  ended Mar 31, 2008
 
 a.   Options Granted                         709590        1680950
 
 b.   Pricing Formula                  Priced on par      Priced at
                                                         premium of
                                                            Rs.9.90/-
 
 c.   Options vested                          709590            Nil
 
 d.   Options exercised                       681240            Nil
 
 e.   Total no.of shares arising as           681240            Nil
      a result of exercise of options
 
 f.   Options lapsed.                          28350            Nil
 
 g.   Variations of terms of Options   Not Applicable           Nil
 
 h.   Money realized by exercise             6812400            Nil
      of options
 
 i.   Total no. optionsin force               687930            Nil
 
 j.   Employee-wise details of
      options granted to
 
 i)   Senior managerial personal              159590         230950
 
 ii)  Any other employee who                  550000        1450000
      receives a grant in any one
      year of option amounting to
      5% or more of options
      granted during that year
 
 iii) Identified employees who                   Nil            Nil
      were granted options, during  
      any one year, equal to or
      exceeding 1% of the issued
      capital of the Company at
      the time of grant
 
 k.   Diluted Earnings per share                  NA             NA
     (EPS)
 
 Declaration as required under SEBI (ESOS and ESPS) Guidelines 1999.
 
 “In case the Company calculates the Employee Compensation cost using
 the intrinsic value of the stock options, the difference between the
 Employee Compensation cost so computed and the Employee Compensation
 cost that shall have been recognized if it had used the fair value of
 the options, shall be disclosed in the Directors report and also the
 impact of this difference on profits and on EPS of the Company shall
 also be disclosed in the Directors’ report”
 
 Corporate Social Responsibility (CSR)
 
 SPEL’s answer towards CSR is through SPEL Employees Social Service
 Organization (SESSO). As part of the Core values, following activities
 were undertaken though SESSO during the previous year.
 
 a.  Provided educational assistance to the needy people in and around
 Factory.
 
 b.  Conducted a voluntary Blood Donation camp.
 
 c.  Provided assistance to an orphanage and old age home located near
 Factory.
 
 Environment and Safety Measures
 
 Your Company understands that every individual has a responsibility
 towards our environment. Towards this, Your Company has been devising
 measures and encouraging its Employees to care for the environment and
 protect it through conservation of resources, waste minimization and
 proper disposal, pollution prevention and planting of trees.
 
 Further Your Company’s manufacturing activities do not result in any
 significant release of effluent in the environment.
 
 The Environmental Management System established and maintained by your
 company is certified by Bureau Veritas Certification. The upgraded ISO
 14001 Certificate from 1996 version to 2004 version will
 comprehensively take care of safe environment practices. It is hopeful
 that the Company will be able to achieve this certification during the
 current year
 
 Your Company considers environmental care to be a continuous effort and
 are always on the look out for more avenues to nurture nature by
 enhancing its environmental performance and also keeping in view the
 global trends in procurement of environment friendly products, company
 is in the process of introducing Green-molding compounds that are
 environment friendly as demanded by the Customers.
 
 Acknowledgements
 
 Your Directors wish to place on record their gratitude to the
 Government of India, the Government of Tamil Nadu, Financial
 Institutions, Bankers, Insurance Companies, Customs & Excise
 authorities, valued overseas Customers & Vendors and the Promoters for
 their continued assistance and support extended to the Company.
 
 Yours Directors wish to place on record, their appreciation of the
 efficient and loyal services rendered by the employees at all levels to
 the Company.
 
 Yours Directors wish to thank the Shareholders for their continued
 support and forbearance and the confidence reposed on the Management..
 
                           For and on behalf of Board of Directors
 
 Chennai                                Dr.A.C. Muthiah
 Jun 20, 2008                                Chairman