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ABG Shipyard Ltd.

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ABG Shipyard is not traded on NSE in the last 30 days

Annual Report

For Year :
2016 2015 2014 2013 2012 2011 2010 2009 2008

Director’s Report

TO THE MEMBERS,

The Board of Directors of your Company are pleased to present the 31st Annual Report together with the Audited Financial Statements for the financial year ended 31st March 2016.

1. FINANCIAL PERFORMANCE:

Financial performance of the Company for Financial Year 2015-16, on standalone basis is summarized below:

(Rs. in Crores)

Particulars

2015-16

2014-15

Sales and Other Income

37.76

401.67

Profit/(Loss) before Interest, Depreciation & Tax

(1866.53)

(361.82)

Less: Interest (Net)

801.49

724.89

Profit/(Loss) before Depreciation & Tax

(2668.02)

(1086.71)

Less: Depreciation

81.51

99.18

Profit/(Loss) before Tax

(2749.53)

(1185.89)

Exceptional/Extraordinary Items

974.56

-

Less: Provisions for Taxation

(19.38)

(288.19)

Net Profit/(Net Loss) after Tax

(3704.71)

(897.70)

* Figures regrouped wherever necessary.

2. FINANCIAL REVIEW

During the financial year ended 31st March 2016, the Company reported revenue from operations of Rs 37.76 Crores and EBDIT of Rs. (1866.53) Crores. Net loss after tax is Rs 3704.71 Crores. Major reasons for increased losses are low level of business activity resulting into low turnover, impairment of inventories and increased interest cost. Exceptional items include foreign exchange losses and reversal of profits on account of cancellation of contract / invocation of bank guarantees. The global economic slowdown has severally impacted the ship building industry. This has led to lower capacity utilization and adversely affected the operations of the Company.

3. DIVIDEND

In view of the losses, your Directors do not recommend any dividend for the year under review.

4. SHARE CAPITAL

During the Year under review, your Company has allotted total 1,91,279 nos. of Equity shares of face value of Rs. 10/- each at a price of Rs. 275.92/- and total 7,65,52,717 nos. 0.01% Compulsorily Convertible Preference Shares (CCPS) of face value of Rs. 10/- each at par, to the Corporate Debt Restructuring Lenders (CDR Lenders) towards conversion of the Funded Interest Term Loan (FITL)/interest on FITL.

As on 31st March 2016, Authorized Capital was Rs. 17,000 Crores divided into 1500 Crores Equity Shares of Rs. 10/- each and 200 crores CCPS of Rs. 10/- each.

Total paid up Capital of the Company as on 31st March 2016 stood at Rs. 387,67,69,040/- divided into 5,40,30,848 equity shares of Rs. 10/- each and 33,36,46,056 CCPS of Rs. 10/- each. Last date for conversion of CCPS was 26th March, 2016, but due to Honorable Delhi High Court order dated 29th September 2015 in case of Stretegic Capital Pvt. Limited & Anr. Vs. Jaroli Viacom Pvt. Ltd. & Ors. restraining the Company from any change of capital structure, the conversion of CCPS could not be effected.

5. BUSINESS OPERATIONS AND OUTLOOK

Your Company has strong footprint in ship building industry not only in India but also worldwide. The Company has State of the Art world class manufacturing facilities at Dahej and Surat in the State of Gujarat. Your Company is one of the India''s largest private sector shipyards and has expertise in building Specialized and Sophisticated vessels like Interceptor Boats, Battle Practice Target, Cadet Training Ship, Self-Loading and Discharging Bulk Cement Carriers, Floating Cranes, Art couple Tugs and Flotilla, Split Barges, Bulk Carriers, Newsprint Carriers, Offshore Supply Vessels, Dynamic Positioning Ships, Anchor Handling Tug Supply Vessels, Multi-purpose Support Vessel, Diving Support Vessels, Pollution Control Vessel etc. for Government of India, leading companies in India and overseas. It has expertise in offshore Rig building also.

The manufacturing processes in the Shipyards are in line with world class standards and the Yards have been certified by DNV for ISO 9001:2008 (for Quality Management Standards), by IRS for ISO 14001:2004 (for Environment Management Systems) and OHSAS 18001:2007 (for Occupational Health & Safety Management Systems).

Your Company has delivered a Pollution Control Vessel to the Indian Coast Guard, however, during the period under review, the Company could not deliver any other ship as its Dahej yard was closed from June, 2015 and Surat yard was partially operational. Progress of construction of vessels was affected due to the factors like unavailability of working capital etc. In Surat yard, ship repair activity is going on at present but with low volume. The Company has undertaken repair of Coast Guard Vessels and other commercial vessels in the period under review.

Due to suspension of operations at Dahej yard and low key operation at Surat, losses have piled up over the period which has resulted into erosion of net worth of the Company. As on 31st March, 2016, net worth of the Company is fully eroded. The Board of Directors in their meeting held on 30.05.2016 has decided that the Company may explore the possibility of filing a reference to the Board for Industrial and Financial Reconstruction (BIFR) under Sick Industrial Companies (Special Provisions) Act, 1985.

Indian Shipbuilding sector is facing crisis due to global downturn in ship building industry since last few years. Most of the shipyards in India are idle due to lack of orders, liquidity problem etc. Concerted efforts are required by all stakeholders like Banks, Govt., and other Industry participants to revive the Industry. Assets of the shipyards are of National importance and can''t be left to remain idle for long time.

To uplift the ship building sector, Govt. of India has also unfolded their hands and taken following measures to revive the ailing ship building industry:

- Infrastructure status has been provided to Shipbuilding Industry. This will make the Industry eligible to avail/restructure long term loans up to 25 years.

- Financial Assistance (Subsidy Scheme) to Shipbuilding Industry to the tune of Rs. 4,000 crores over 10 years.

- Policy for subcontracting from PSUs to Private Shipyards Rs. 50,000 crores.

- Preference to Indian built ships : Right of first refusal for “Indian make Indian Flag” vessels.

- Setting up of National Infrastructure Investment Fund (NIIF) with a corpus of Rs. 20,000 crores. The idea is to revive commercially viable including stalled Infrastructure projects.

- Indirect Tax Exemptions announced - Excise Duty and Customs Duty.

- Development of Inland Waterways.

A growing Indian economy, favorable Government policies and incentives framework, a long coastline and growing sea borne trade present a huge business opportunity within the Indian Shipbuilding and Ship Repair industry. Ship building industry as well as your Company is poised to come up in near future.

6. Financial Restructuring

As you are aware that during the financial year 2013-14, your Company had undertaken a debt restructuring exercise under the CDR mechanism governed by the Corporate Debt Restructuring Scheme issued by Reserve Bank of India dated August

27, 2008 and the Corporate Debt Restructuring Guidelines formulated there under in consultation with its senior secured lenders. Pursuant thereto, the CDR Empowered Group at the meeting held on 24th March 2014 has approved a restructuring package in terms of which the existing financial assistance provided by the existing lenders of the Borrower as mentioned in the LOA (the “CDR Lenders”) was restructured as set out in the letter of approval dated 27th March 2014 issued by the Corporate Debt Restructuring Cell to the Borrower and the CDR Lenders (the “LOA”) and in this regard the Company has entered into a Master Restructuring Agreement with the CDR Lenders (the “Master Restructuring Agreement”) as on 28th March 2014 as amended / modified from time to time.

The salient features of the CDR Package are as follows :

a) Cut-off date - 01st August 2013;

b) Total Debt rescheduled has funded interest ranging from 1 year 6 months to 3 years 7 months and loan is payable over a period of 10 years.

c) Priority Debt sanctioned for meeting the immediate operational and capital requirement of the Company;

d) Reduction in the rate of interest to 11% PA.

e) Conversion of the FITL and further interest thereon into the Equity Shares/0.01% CCPS of the Company.

On 23.12.2015, CDR lenders in their meeting invoked Strategic Debt Restructuring (SDR) provisions in the Company. SDR invocation was approved by requisite majority of lenders. As per RBI guidelines, SDR process including both finalization of package and allotment of share was to be concluded within 210 days from the SDR reference date i.e. on or before 20.07.2016. But, it could not be effected due to Hon''ble Delhi High Court order restraining the Company not to alter its capital structure. On 11.07.2016, the Court has issued order permitting the Company to alter its capital structure. The Company is working out to implement the same.

The Company along with CDR lenders exploring the possibility of inducting a strategic investor who will infuse necessary funds in the Company to strengthen the operations of the Company.

The lenders have disbursed total Rs. 550.81 Crores up to 31st March 2016 towards the Priority Debts as per the terms of the MRA for meeting the immediate operational and capital expenditure requirement of the Company.

7. Issue of Equity Shares and 0.01% Compulsorily Convertible Preference Shares (CCPS)

Issue of the Equity shares and CCPS to the CDR Lenders towards the conversion of the FITL and further interest thereon till 31st March 2016, FITL/Interest on FITL amounting to Rs. 419.40 Crores has been converted into the Equity shares and CCPS of the Company.

In order to strengthen the Balance Sheet of the Company by repayment of its debt and for general corporate purposes, the Company proposes to raise capital by issue of further securities including but not limited to Convertible Bonds, Preference Shares, Equity Shares and other securities whether convertible or not, etc., up to Rs. 2,000 Crores (Rupees Two Thousand Crores).

Accordingly the enabling resolution mentioned in the Notice of Annual General Meeting is commended for your approval.

8. MANAGEMENT DISCUSSION AND ANALYSIS

In terms of Regulation 34 of SEBI Listing Regulations, 2015, Management Discussion and Analysis Report elaborating detailed Industry Review, Outlook etc. is presented in a separate section forming part of this Report as “Annexure B”.

9. NUMBER OF MEETINGS OF THE BOARD

The Board of Directors of your Company met four times during the year. Details of the Meetings are elaborated in the Corporate Governance section of this report

10. DECLARATION OF INDEPENDENCY:

All Independent Directors have given declarations that they meet the criteria of independence as laid down under section 149

(6) of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

11. BOARD EVALUATION AND SEPARATE INDEPENDENT DIRECTORS'' MEETINGS

The Board of Directors has carried out an annual evaluation of its own performance, Board committees and individual Directors pursuant to the provisions of Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. A structured questionnaire was prepared after considering the various criteria such as Board functioning, composition, committee culture and their directions and governance. The process evaluation was completed and the Board expressed the satisfaction over the evaluation process.

The Independent Directors meet at least once in a half year, without the presence of Executive Directors or Management representatives. They also have a separate meeting with the Non-Executive Chairman, to discuss issues and concerns, if any.

The Independent Directors met twice during the Financial Year ended 31st March, 2016 on 13th August, 2015 and 11th February, 2016.

12. FAMILIARIZATION PROGRAMME FOR INDEPENDENT DIRECTORS

The Company proactively keeps its Directors informed about the activities of the Company, its management and operations and provides an overall industry perspective as well as issues being faced by the industry.

13. SUBSIDIARIES

Your Company has three (3) subsidiaries i.e. Western India Shipyard Limited (a BSE listed Company), ABG Shipyard Singapore Pte. Limited (Singapore based Wholly Owned Subsidiary) and ABG FPSO Private Limited and two Joint Ventures i.e. ABG Business Ventures Pte. Ltd and Varada Seven Pte. Ltd at the end of the financial year 2015-16.

Financial results of Western India Shipyard Limited are not available to prevailing unavoidable circumstances i.e. labour unrest in the yard. There was no access of books of account and other documents, hence, audited accounts could not get ready. Financial results of other subsidiaries and Joint Ventures are not consolidated because of their unavailability. Therefore, statement containing salient features of financial statements of subsidiaries and JVs are not being attached to this report as required under section 129(3) of the Companies Act, 2015.

14. DIRECTORS AND KEY MANAGERIAL PERSONNEL

In terms of the Section 152 and 160 of the Companies Act, 2013 read with Article 190 of the Articles of Association of the Company, Mr. S. Muthuswamy is liable to retire by rotation at the ensuing Annual General Meeting and eligible for reappointment.

During the period under review, Mr. Syed Abdi - Managing Director and CEO of the Company has resigned from the Company w.e.f. 30th April 2016, due to personal reasons.

During the period under review, Mr. Dhananjay Datar, Director liable to retire by rotation, retired from the Directorship of the Company from the date of last Annual General Meeting dt. 30th September, 2015.

A brief resume of the Director being re-appointed at the ensuing AGM, nature of expertise in specific functional areas and names of the Companies in which he holds directorship and/ or membership/ chairmanships of Committees of the respective Boards, shareholding and relationship between Directors inter se as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, is given in the notice of Annual General Meeting forming part of this Annual Report.

None of these Directors is disqualified as per the provisions of Section 164 of the Companies Act, 2013, to be re-appointed as directors of your Company.

Mr. Dheeraj Sharma, Company Secretary has resigned from the Company w.e.f. 20th January, 2016.

15. AUDITORS

M/s. Nisar & Kumar, Chartered Accountants, Statutory Auditors of the Company was appointed at the last AGM till conclusion of the 32nd AGM subject to ratification by the Shareholders at every Annual General Meeting. But, they expressed their unwillingness to be re-appointed as a Statutory Auditors of the Company. Therefore, M/s GMJ & Co., Chartered Accountants has been appointed as a Statutory Auditors of the Company by the Board of Directors at their meeting held on 11th August, 2016. M/s GMJ & Co., Chartered Accountants have consented for their appointment in terms of section 139 of the Companies Act, 2013 and also provided a certificate to the effect that if they are appointed, it would be in accordance with Section 141 of the Companies Act, 2013.

Your Directors propose the appointment of the M/s. GMJ & Co. Chartered Accountants as a Statutory Auditors of the Company from the conclusion of ensuing AGM to conclusion of 36th AGM.

The Auditors have marked Qualifications/ Matter of Emphasis on the financial statements for the FY 2015-16. Explanations of the Management towards the same are as follows:

Independent Auditors Qualifications and Management''s Replies:

1. Carrying value of Plant Assets at Dahej Shipyard: Dahej yard is shut down for last one year, hence the physical verification and study for impairment if any, could not be carried out. The Management believes that the Assets and Assets under construction are of such nature as not to deteriorate or lose its value in such duration. The Management is striving its best to resume production/ completion of capitalization at yard which is likely to happen shortly.

2. Loans, Advances and Receivables from Related Parties: All loans, advances and receivables are either to operating entities or having business plans or possessing corresponding value. Some recoveries have been made during the year and for the balance, Management is taking steps.

3. Subsidy receivable from Government of India: The subsidy has been accounted for, strictly in accordance with the Subsidy Scheme of Government of India and relevant Accounting Standards. Currently, owing to low scale activities at its yards , the Company is not able to complete the ships and deliver them .The Management is confident about recoverability of the subsidy from the Government, once the eligible ships are constructed and delivered.

4. Going Concern: The Company has sizable and marketable inventory, ready/ under construction state of the art fixed assets. With potential business, supportive lending bankers and favorable Government initiatives and policies, the Management is of firm belief that the Company does not cease to be a Going Concern.

Emphasis of Matters:

1. Investment in Subsidiaries: The Management has evaluated the investments in all related entities / subsidiaries, which is strategic and of long term nature. It believes that there is not permanent diminution in values of the investments, so as to warrant for provisioning.

2. 2.1 Impairment of Inventory: The Management has carried out a technical valuation and accounted the impairment. For some ships and Rigs the valuation process shall be taken in due course.

2.2 Rig Work in progress and Advances: This is only for information.

3. Advances to certain suppliers/ contractors: The advances given to suppliers / contractors are for material / services of long gestation period and represent part advance in most of the cases. Once the production activities are normalized and material is required, the Company shall be paying the balance and obtaining the material. The Management has taken special efforts to obtain confirmation / refund in some cases.

4. Non Provision of Managerial Remuneration: The Management is taking legal advice on this matter.

5. Compensation Payable in lieu of Banks'' Sacrifice: This is only for information.

6. Non Availability of some confirmations/ statements from banks / institutions: This is only for information. However the Company has accounted for all the transactions based on the material / evidences available with it.

7. Legal proceedings by some authorities / creditors: Management believes that this is in normal course of business and dealing with the matter legally.

Annexure A to the Independent Auditors Report:

1.& 2 Physical Verification of fixed assets and inventory at Dahej yard: Due to closure of the Dahej yard , the physical verification of fixed assets and inventory could not be carried out this year. The Management believes that the fixed assets and inventory has sound physical safeguard and effective custodial accountability. Advance of Rs. 72.93 lacs as such does not represent any immovable property and it needs to be allocated over existing lands. Efforts are on to obtain documents from the vendor/ agent to account the same appropriately.

3. Pending updating of Register under Section 189 of the Companies Act, 2013: the updating has been done.

4. Non Charging of interest to certain parties: The charging of interest is not expedient, considering the relationship of the Company with these parties.

5. Maintenance of Cost records: The Company has been maintaining appropriate cost records since years consistently; however the Management is engaging Professionals to make the records more compliant.

6. Delays and defaults in depositing Statutory Dues: The delays and defaults are owing to lack of cash flows. As the Company is under Corporate Debt Restructuring, its Cash flows are controlled by monitoring institution of consortium of banks / institutions. However with the available Cash flows, the Management is endeavouring to deposit the dues in small tranches/ installments.

7. Fraud by the Company/ Its Employees: The Management reiterates that there is no fraud committed either by the Company or its employee. Due to non-payments of outstanding to certain creditors the company has received notices alleging fraud, which Company is dealing legally. The DRI has certain issues relating the valuation of certain assessed and cleared imports by the Company and thus have made few employees as parties also. The matter is under adjudication.

Secretarial Audit

Pursuant to provisions of section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the company has appointed Mrs. Kala Agarwal, a firm of Company Secretaries in practice to undertake the Secretarial Audit of the Company. The Secretarial Audit report is annexed herewith as “Annexure C”

The report does not contain any qualification save and except updating of Company''s website as regard of Secretarial compliances and not filing of statutory forms.

The website is not updated due to technical problem. Non availability of requisite staff is the major cause for other non compliances, which are been complied with now.

16. EXTRACT OF ANNUAL RETURN:

The extract of the annual return as provided under sub-section (3) of section 92 of Companies Act, 2013 in the prescribed Form MGT-9 is forming part of this report as “Annexure D”

17. DEPOSITS/FIXED DEPOSITS

The Company has not accepted deposits by way of invitation to the public and therefore, provisions of Section 73 of the Companies Act, 2013 are not applicable to the Company.

18. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FORIEGN EXCHANGE EARNINGS & OUTGO

Information required under Section 134(3)(m) of the Act read with Rule 8(3) of the Companies (Accounts) Rules, 2014, with respect to conservation of energy, technology absorption and foreign exchange earnings/outgo is included in “Annexure A”.

19. CORPORATE GOVERNANCE

The Company consistently emphasizes its commitment towards a healthy corporate governance policy and adherence of the same that defines and drives organization performance as per its cherished values and commitments to every stakeholder.

A detailed report on compliance of Corporate Governance in terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, is presented in a separate section forming part of this Report as “Annexure E”.

The Statutory Auditors'' certificate on compliance with Corporate Governance by the Company is attached to the report on Corporate Governance.

20. DIRECTORS'' RESPONSBILITY STATEMENT

In pursuance of section 134(5) of the Companies Act, 2013, the Directors, to the best of their knowledge and belief and according to the information and explanations obtained by them, confirm that:

I. In the preparation of the annual accounts, the applicable accounting standards have been followed.

II. The directors have selected such accounting policies and applied them consistently and made judgments 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 the Company for the year under review.

III. The directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

IV. The directors have prepared the annual accounts on a going concern basis.

V. The directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

VI. The directors had devised proper system to ensure compliance with the provisions of all applicable laws and that such system were adequate and operating effectively.

21. PARTICULARS OF LOAN, GUARANTEE OR INVESTMENT:

Particulars of the outstanding loans or guarantees covered under the provisions of Section 186 of the Act as on March 31, 2016 have been elaborated in note no. 40 to the Financial Statements.

During the Financial Year 2015-16, the Company has not given any Guarantee/Loan or provided Security under the provisions of Section 186 of the Companies Act, 2013.

22. PARTICULARS OF EMPLOYEES

The information required pursuant to Section 197 read with Rule, 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, will be provided upon request. In terms of Section 136 of the Act, the Report and Accounts are being sent to the Members and others entitled thereto, excluding the information on employees'' particulars which is available for inspection by the Members at the Registered Office of the Company during business hours on working days of the Company up to the date of the ensuing Annual General Meeting. If any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary in this regard.

23. PREVENTION OF INSIDER TRADING

The Company has adopted a Code of Conduct for Prevention of Insider Trading with a view to regulate trading in securities by the Directors and designated employees of the Company. The Code requires pre-clearance for dealing in the Company''s shares and prohibits the purchase or sale of Company shares by the Directors and the designated employees while in possession of unpublished price sensitive information in relation to the Company and during the period when the Trading Window is closed. The Board is responsible for implementation of the Code. All Board Directors and the designated employees have confirmed compliance with the Code.

24. INDUSTRIAL RELATIONS

Your Company has maintained healthy, cordial and harmonious industrial relations at all levels at the offices and yards of the Company throughout the year.

25. CORPORATE SOCIAL RESPONSIBILITY

In compliance with the requirement of Section 135 of the Companies Act, 2013, the Company has constituted a Corporate Social Responsibility Committee. A report on CSR Activities of the Company is attached with this Directors'' Report as “Annexure F”.

26. NOMINATION AND REMUNERATION POLICY

The Board of Directors of the Company have Nomination and Remuneration Committee in line with the provisions of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. The Board has placed the Nomination and Remuneration Policy in terms of Section 178 of the Companies Act, 2013.

Composition of the Nomination and Remuneration Committee and Nomination and Remuneration Policy are elaborated in the Corporate Governance Report annexed to this Report.

27. WHISTLE BLOWER POLICY/VIGIL MECHANISM

A Whistle Blower Policy/Vigil Mechanism policy is framed and has established the necessary vigil mechanism in line with SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and Section 177 (9) of the Companies Act, 2013, for the directors and employees to report concerns about unethical behavior. No person has been denied access to the Audit Committee. However, no instances of fraud or other irregularities have been observed, which need to be reported to the Board/ Audit Committee.

28. RISK MANAGEMENT POLICY

The Board of Directors has constituted a Risk Management Committee. The Committee is responsible for reviewing the risk, managing plan and ensuring its effective ness. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis.

The Company has developed a Risk Management Policy detailing the risk management system, process and procedure.

Composition of the Risk Management Committee and Terms of reference thereof is described in the Corporate Governance Report annexed to this Report.

29. INTERNAL CONTROL SYSTEM

The details of internal control system and its adequacy are included in Management Discussion and Analysis Report which forms part of this report.

30. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES

Particulars of contracts or arrangements with related parties referred to in section 188 of the Companies Act, 2015 are given in the prescribed form AOC-2, refer Annexure G.

31. APPRECIATION

Your Directors wish to extend their sincere gratitude to all the Customers, Suppliers, Bankers, Financial Institutions, Trustees, Government Authorities/Officials, Business Associates, Shareholders and Debenture Holders of the Company for their continuous guidance and support to the Company and their continued confidence in the management of the Company.

Further, the Company and its Board of Directors wish to express admiration and acknowledge the understanding, support and services of the employees at all levels which have largely contributed to efficient operations and management of the Company during the year under review and make the Company confident to come out from the tough business span of the Company.

Place: Mumbai For and on behalf of the Board

Date: 11th August, 2016

Ashwani Kumar S. Muthuswamy

Director Executive Director

Director’s Report