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SPEL Semiconductor Directors Report, SPEL Semiconduc Reports by Directors
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SPEL Semiconductor

BSE: 517166|NSE: SPICELEC|ISIN: INE252A01019|SECTOR: Computers - Hardware
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Directors Report Year End : Mar '18    Mar 16

Directors'' Report

Your Directors present the 33rd Annual Report of the Company together with the Audited Accounts for the year ended Mar 31, 2018.

1. Financial Highlights/ Performance

The Operating results of your Company as per Ind AS Financial Statements for the year ended Mar 31, 2018 are given below

(Rs in Lakhs)

Particulars

Year ended Mar 31, 2018

Year ended Mar 31, 2017

Sales

41,66.31

35,53.22

Other Income

2,33.70

2,82.07

PBIDT

86.31

(22,98.94)

Finance Cost

2,89.16

2,15.67

Depreciation

6,30.57

6,93.33

Profit /(Loss) before Taxation

(8,33.42)

(32,07.94)

Tax Expense

13.64

(1,47.54)

Profit /(Loss) after Taxation

(8,47.06)

(30,60.40)

Turnover of your Company got improved significantly during the year under review. However, your Company is yet to recover from the aftermath of the Employees unrest during FY 2015-16, the recovery was considerably low. Though H1 FY 2017-18 first quarter was good, Q3 FY 2016-17 was the worst in the year as we had several natural calamities with delayed material deliveries. Customer demands for the existing products & packages were volatile however have seen phased increased in order receipts. Your Company had maintained good relationship with all its Customers in US & Europe and have seen good improvement in capturing business from one of the big Customers in the US. It is expected to improve production orders in FY 2018-19. The outlook for FY 2018-19 is good and SPEL has plans to induct new Customers from Europe & US regions.

2. Dividend

Due to the loss for the year, dividend could not be paid during the year.

3. Reserves

The reserves of the Company has been reduced from Rs 49,01.97 lakhs to Rs 40,90.24 lakhs at the end of the year.

4. The Global Semiconductor Industry

According to Semiconductor Industry Association (SIA), representing U.S. leadership in Semiconductor manufacturing, design, and research, worldwide sales of Semiconductors reached 1.1 billion during the first quarter of 2018, an increase of 20 percent compared to the first quarter of 2017, but 2.5 percent less than the fourth quarter of 2017. Sales for the month of March 2018 came in at .0 billion, an increase of 20 percent com pared to the March 2017 total of .8 billion and 0.7 percent more than the February 2018 total of .8 billion.

Regionally, year-to-year sales increased in America (35.7 percent), Europe (20.6 percent), China (18.8 percent), Asia Pacific/All Other (13.3 percent), and Japan (12.4 percent). Month-to-month sales increased in Europe (3.9 percent), China (2.2 percent), Japan (0.5 percent), and Asia Pacific/All Other (0.2 percent), but decreased slightly in the Americas (-2.0 percent)

Forecast for FY 2018-19

Despite the upward revision for 2018, the quarterly growth profile for 2018 is expected to fall back to a more normal pattern with a mid-single-digit sequential decline in the first quarter of the year, followed by a recovery and buildup in both the second and third quarters of 2018, and a slight decline in the fourth quarter.

Worldwide Semiconductor revenue is forecast to total 1 billion in 2018, an increase of 7.5 percent from 9 billion in 2017, according to Gartner, Inc. This represents a near doubling of Gartner''s previous estimate of 4 percent growth for 2018 Market Drivers for future

It was a growth year for the Semiconductor industry in 2017. Semiconductor earnings were driven by increasing memory prices, a boost in crypto currency, increasing adoption of GPUs (Graphics Processing Units) by Data Centers and Cloud Companies for Al (Aartificial Intelligence) tasks, and the growing popularity of e-sports.

Although the Semiconductor industry may not be able to replicate the double-digit growth it saw in 2017, it could continue to grow in 2018. The US Congress passed its tax reform bill in December 2017, which could make US Companies more competitive with their overseas competitors.

Another major development could be the adoption of Al (Artificial Intelligence) Technology across various verticals. Handset makers Apple and Samsung have already brought Al functionality to smartphones. The drone market is growing, and 2018 may see the commercial rollout of Al-powered drones throughout the world, many industries, from construction to healthcare, could adopt Al technology to improve efficiency and reduce costs

Next major development could be the shift to a 10 nm (Nanometer) node by Intel, which could put it back in a technological advantage. Taiwan Semiconductor Manufacturing (TSM) and Samsung could also shift to a 7 nm node, but that would be equivalent to Intel''s 10 nm node. The move to a smaller node could bring significant cost savings and improve the performance of the chips.

The Semiconductor industry could also come closer to the deployment of 5G (fifth-generation) technology. Although that may not generate any revenues in 2018, it could create significant growth opportunities for the future. Even AR/VR (Augmented Reality/Virtual Reality) adoption could pick up in the industrial as well as gaming space as Companies such as Advanced Micro Devices (AMD) work to make wireless headsets more user-friendly.

Outsourced Assembly and Test (OSAT) Industry

The Global Semiconductor assembly and testing services (SATS) market was valued at US$ 27,700 Mn in 2017 and is expected to register a CAGR of 4.7% from 2018 to 2027. Growing demand of consumer electronics, increasing integration of electronics and connectivity in automotive are major factors driving growth of the global Semiconductor Assembly and Testing Services (SATS) market.

On the basis of application, the global Semiconductor Assembly and Testing Services (SATS) market is segmented into communication, computing & networking, consumer electronics, industrial and automotive. The revenue contribution from the consumer electronics segment is anticipated to expand at a CAGR of 6.3% during the forecast period of 2018-2027.

Among the regions, Taiwan is projected to exhibit relatively high growth in the global market, registering a CAGR of 5.6% over the forecast period. Revenue from the Semiconductor Assembly and Testing Services (SATS) Market in North America and APAC (excluding Taiwan) is expected to collectively account for over 40% of the global Semiconductor Assembly and Testing Services (SATS) Market revenue in 2017.

Semiconductor Assembly and Testing Services providers can focus on expanding their footprints across several countries in APAC and Europe regions such as India and UK. The Indian Semiconductor Industry

India is strongly focusing on Semiconductor manufacturing, It is expected that the increased demand for modern chip designs and growing demand for electronics devices would drive the need of Semiconductor IP designing. The Indian Semiconductor component market is expected to be worth USD 32.35 billion by 2025, growing at a CAGR of 10.1% between 2018 and 2025.

The Indian Semiconductor ecosystem is quite robust, with most of the major global Semiconductor players having their R&D centers in India. In addition to global R&D centers, the past decade has seen quite a few Indian entrepreneurs starting their own fabless IP or SoC design houses. India is a highly attractive destination for global R&D centers owing to the availability of talent, as well as lower cost (compared with the US and Western Europe).

India''s ESDM (Electronics System, Design & Manufacturing) sector is poised to reach 8 billion by 2020 from 0 billion in 2016-17, growing at 16-23 per cent annually, said a joint report of the India Electronics and Semiconductor Association (IESA) and global services firm Ernst & Young (EY) at a summit.

5. Company Performance

The performance of your Company had improved significantly as compared to previous Financial Year and plans are in place to further improve significantly during the years to come. This is evident from the business with most of the Important / Growing / Emerging Customers is on the rise during Q1 FY 2018-19. There have been improved orders, new product introductions & Customer additions during this year. This was made possible due to the Engineering, Application support from SPEL apart from the QCDS factors (Quality, Cost, Delivery, and Service).

Withdrawal of Buyer''s Credit facility by RBI from middle of Mar 2018 is another policy change which has resulted strain on already tight cash flow. Earlier implementation of GST from July 2017 onwards had placed additional strain as we had to pay GST on all our imported materials including on wafers and later on claim refund. We had paid GST till middle of Oct and applied for refund and there had been delay in obtaining refund. Above policy changes by Government has affected our operations to a very major extent. SPEL was able to strengthen relationship with its one of the biggest European Customers and the volumes are growing. The outlook for FY2018-19 is good and other strategic partnership for new projects in the field of Aero Space & Medical.The demand for the packages supported by SPEL is steady for leaded packages and growing for QFNs and contribution is expected to increase in future years.

a. Leaded Packages - SPEL in able to find opportunities for increased loading from existing Customers to utilize the available capacity. No new capacity additions have been planned.

b. QFN Packages - Demand is growing. Flip Chip QFN is witnessing more growth than normal QFN and SPEL is planning to have this capability in the next Financial Year.

Human Resources Development

Your Company has enthroned the attributes listed below as its Core Values. The Management will assiduously practice and enthuse its Employees to imbibe these virtues. Towards this end training is imparted every month, every Employee goes throughout the drill at least once in six months :

a. Business Ethics

: defines us as a Company

b. Professionalism

: defines us as Individuals

c. Citizenship

: defines our contribution to Society

SPEL''s medium for Corporate Social Responsibility (CSR) is through Socio-Economic Contribution (S-E-C) and SPEL Employees Social Service Organization (SESSO). For most people, the idea of Social Service is donating money to a social organization - perhaps an old-age home or an orphanage or similar. This however is the easy part. The difficult part is volunteering one''s time to improve society.

When can we make a contribution to Society?

During Phase 1 of our lifetime, perhaps up to the age of 35, we are so focused on building our careers, starting our families & establishing a name for ourselves

During Phase 2 perhaps from age of 35 thru 65, we are the most active in our work, working as a team, being able to significantly contribute to Economic Development

During Phase 3 perhaps from age 65 onwards, we are most able to contribute our time on an increased basis to social causes S-E-C at SPEL is all about how we can contribute socially during Phase 2 itself while also handling Economic Development. Towards this, there are 3 areas that each of us can assist by making these a part of our day to day approach :

1. Following discipline in any and everything we do.

2. Providing a helping hand to people around us in any way we possibly can.

3. Showing the right path forward to people around us.

S-E-C in SPEL is primarily done by One-to-One mentoring as each person encourages & motivates the other, towards a more purposeful & effective lifestyle.

As part of the Core Values, following activities were undertaken through SESSO :

i) Educational assistance to the needy people in and around Factory.

ii) Voluntary Blood Donation camp.

iii) Assistance to orphanage and old age home located near Factory.

7. Material changes affecting the financial position of the Company which have occurred between the end of Financial Year and the date of the report.

Nil

8. Details of significant and material orders

passed by the regulators or courts or tribunals impacting the going concern status and Company''s operations in future. Nil

9. Adequacy of internal financial controls

The Company''s internal financial controls systems are commensurate with the nature of the business and the size and complexity of its operations. These are routinely tested buy the Internal Auditors and cover all key business areas.

10. Subsidiary/Joint Ventures/Associate Companies

Your Company had incorporated a Wholly Owned Subsidiary Company during the Financial Year with the due approval of the Shareholders, in the name and style of SPEL Semiconductor Packaging Limited. This Company is yet to commence production. It is envisaged to commence production after getting due statutory approvals from the authorities.

11. Deposits

The Company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the Balance Sheet.

12. Statutory Auditors

The term of office of your Company''s Auditors M. S. Krishnaswami & Rajan, Chartered Accountants, is geting completed at the conslusion of this AGM. They do not offer themselves for appointment as Statutory Auditors of the Company at the forthcoming Annual General Meeting for a further period. The Company has received notice from a Member recommending the appointment of Mr. K. Nandhiswaran, Chartered Accountant, Chennai, as Statutory Auditors in the place of M. S. Krishnaswami & Rajan.

Mr. K. Nandhiswaran, Chartered Accountant, has expressed his consent for the appointment as Statutory Auditors for the Financial Year 2018-19 and has confirmed that the appointment, if made, will be in accordance with the limits specified under Section 139 of the Companies Act, 2013.

13. Share Capital

There has been no change in the share capital of the Company during the year.

14. Extract of the Annual Return

As provided under Section 92 (3) of the Act, the extract of Annual Return is given in annexure in the prescribed Form MGT9, which forms part of this report.

15. Conservation of energy, technology absorption and foreign exchange earnings and outgo :

The details of conservation of energy, technology absorption, foreign exchange earnings and outgo are as follows :

Conservation of Energy

The Company has in place an Energy Committee which meets once a month. This Committee consists of Cross-functional Executives. It assesses the potential areas, develops means to save energy and

implements the plan with the approval of the Management.

Measures were taken during the year to conserve water and electricity resorting to reuse of Dicing process water, rain water harvesting, power factor improvement and investment on air cooled chillers and air compressors.

Savings in Electricity (Units)

43.229 Units

Savings in Water Consumption

531 KL

Technology Absorption

The particulars regarding Technology Absorption are not applicable to your Company.

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 4,24.31 Lakhs.

Foreign Exchange Earned used during the year: Rs 26,59.98 Lakhs.

16. Research & Development (R&D)

The Company has carved out an ambitious plan of investment in R&D. This will include investment in Package Intellectual Property, thereby assisting Company''s revenue and profitability in the future years.

17. Directors and Key Managerial Personnel

There was no change in either the Board position or Key Management Persons during the year under review.

18. Number of meetings of the Board

Six Meetings of the Board were held during the year. For details of the meetings of the board, please refer to the Corporate Governance Report, which forms part of this report.

19. Audit Committee

The details pertaining to composition of Audit Committee are included in the Corporate Governance Report, which forms part of this report

20. Vigil mechanism for Directors & Employees

The Company has a vigil mechanism by way of Whistle Blower Policy to provide a Vigil Mechanism for Employees and Directors to report genuine concerns. The provisions of this policy are in line with Section 177 (9) of the Act. A copy of the policy is uploaded in the website of the Company.

21. Nomination and Remuneration Committee

The details pertaining to Nomination and Remuneration Committee are included in the Corporate Governance Report, which forms part of this report.

22. Loans, Guarantees or Investments

Particulars of Loans, Guarantees and Investments have been disclosed in the financial statements.

23. Contracts or arrangements with Related Parties

The particulars of every contract or arrangements entered into by the Company with Related Parties referred to in sub-section (1) of section 188 of the Companies Act, 2013 including certain arm''s length transactions under third proviso thereto have been disclosed in Form No. AOC -2.

24. Managerial Remuneration

Managerial Remuneration is given in annexure which forms part of this report.

25. Secretarial Audit Report

Secretarial Audit Report is given as annexure, which forms part of this report.

26. Formal Annual Evaluation of Board on its own performance, Committees of the Board and the individual Directors

The Board of Directors has carried out an annual evaluation of its own performance, Committees of the Board and the individual Directors pursuant to the provisions of the Act and Corporate Governance as prescribed under Regulation 17(10) of SEBI (LODR) Regulation 2015.

In a separate meeting of the independent Directors, performance of the Non-independent Director and performance of the Board as a whole was evaluated.

27.Familiarization Programme for Independent Directors

The Company has prepared and presented a power point presentation for Independent Directors in order to enable them to familiarize with the Company''s policies and practices.

28. Risk Management

A Risk Management Committee to identify and monitor the risks has been formed with a responsibility to review the risks and evlove mitigation plan required. Periodical action is taken to address the major risks identified.

29. Corporate Governance Certificate

The Corporate Governance Certificate from the Auditors regarding compliance of conditions of Corporate Governance as stipulated in Regulation 23(4) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed with this report.

30. Reply to Statutory Auditor''s Comments in their Report

The Statutory Auditors have commented in their report regarding Going Concern assumption adopted in preparation of Financial Statements. The Management''s response is given in the Note 3.16 of the Financial Statements, which is self-explanatory.

The Statutory Auditors comment on Internal Financial controls relating to revenue recognition and inventory are being addressed to strengthern the internal control systems.

31. Reply to comments by Secretarial Auditor in his report

Regarding the comment that the Company is not regular in depositing undisputed PF, ESI, GST, Service tax and Income-tax (TDS), Property dues and Listing fee the Management is confident that the situation will improve, based on the austerity steps and proactive measures taken during the year. This in-turn will improve the liquidity and ensure that the statutory dues will be paid regularly in the future.

32. Directors'' Responsibility Statement

Pursuant to Section 134(5) of the Companies Act, 2013, the Board of Directors, to the best of their knowledge and ability confirm that:

(a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

(b) 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 loss of the Company for that period;

(c) they 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;

(d) they have prepared the annual accounts on a going concern basis;

(e) they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and operating effectively and

(f) They have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Based on the framework of internal financial controls and compliance systems established and maintained by the Company, work performed by the internal, statutory and secretarial auditors and external consultants and the reviews performed by the management and the relevant board committees, including the audit committee, the Board is of the opinion that the Company''s internal financial controls were adequate and effective during the financial year 2017-18.

33. Acknowledgements

Your Directors place on record their gratitude especially to the Promoters, who had assisted significantly towards the recovery bath. Directors also placed 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 the 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 supportive Employees at all levels of the Company.Yours Directors wish to thank the Shareholders who constitute the mainstay of the Company for their unstinted support, forbearance confidence reposed on the Management.

By order of the Board

for SPEL Semiconductor Limited

K. Ravikumar

N. Suryanarayanan

Director

Director

DIN: 00119753

DIN: 02282919

M. Jayasankar

D. Balakrishnan

Director

Whole Time Director & CEO

DIN : 00048351

DIN: 02131242

Dr. Enakshi Bhattacharya

Director

DIN : 05277571

Chennai

May 29, 2018

Form NO.AOC -2

(Pursuant to Clause (h) of sub-section 134 of the Act and Rule 8(2) of the Companies Accounts) Rules, 2014)

Form for disclosure of particulars of contracts / arrangements entered into by the Company with Related Parties referred to in sub-section (1) of Section 188 of the Companies Act, 2013 including certain arm''s length transaction under third proviso thereto :

1. Details of contracts or arrangements or transactions not at arm''s length basis : Nil

2. Details of materials contracts or arrangements or transactions at arm''s length basis : Nil

By order of the Board

for SPEL Semiconductor Limited

D. Balakrishnan

Chennai

Whole Time Director & CEO

May 29, 2018

DIN: 02131242

S.I. No.

Particulars

Ratio Explanation

to median emn.

1.

The ratio of remuneration of each director to the median remuneration of the employee of the Company of the financial year

Mr. D. Balakrishnan, Director & CEO

9.16

2.

The percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year

NIL

3.

The percentage increase in the median remuneration of employees in the financial year.

0.66%

4.

The number of permanent employee on the rolls of the company.

325 Employees

5.

The explanation on the relationship between average increase in remuneration and company performance

Increase in the remuneartion of employees is in line with industry standards

6.

Comparison of the remuneration of the Key Managerial Personnel against the performance of the company.

The remuneration of the KMP''s are in the with the remuneration policy of the company where there remuneration is determined based on their performance which is co related to the performance of the Company.

7.

Variations in the market capitalization of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies the variations in the net worth of the company as at the close of the current financial year and previous financial year.

Particulars Mar 31, 2018

% Change

Market captialization 52,75,83,548

-33.74 %

Price Earnings Ratio -6.22

22.73%

8.

Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration.

There was no increase in the managerial remuneration

9.

Comparison of the each remuneration of the Key Managerial Personnel against the performance of the Company

Comparision of the remuneration of the key managerial personnel against the performance of the company aggreate remuneration of key managerial personnel (KMP) in 2018.

Revenue in ( Lakhs) 41,66.31

Remuneration of KMPs (as % of revenue) 1.63%

Profit before tax (PBT) (Lakhs) (8,33.42)

Remuneration of KMPs (as % of PBT) -8.02%

10.

The key parameters of any variable component of remuneration availed by the directors

Not Applicable

11.

The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year

Not Applicable

12.

Affirmation that the remuneration is as per the remuneration policy of the company

The remuneration of Directors, Senior Management and Employees is as per the Remuneration Policy of the Company.

Source : Dion Global Solutions Limited
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