The essence of good Corporate Governance

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Adoption of best ethical business practices in the company within the regulatory framework is the essence of good Corporate Governance. On the one hand good Corporate Governance calls for accountability of the persons who are at the helm of affairs of the company and on the other

hand it also brings benefits to all stakeholders of the company such as investors, customers, employees and the society at large. Nelco continues to believe in such business practices and gives thrust on providing reliable financial information, maintenance of transparency in all its business transactions and ensuring strict compliance of all

applicable laws.

PERFORMANCE HIGHLIGHTS

Despite global economic slowdown Nelco which start in the 2nd quarter of the financial year nelco Company achieved 100% capacity utilization in Alumina Refinery and Smelter and could meet the marketing targets. Details of performance given below stands very high testimony to the performance of Nelco Company possesses in

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withstanding such crisis:

PRODUCTION

Product Unit 2008-09 2007-08

Bauxite MT 47,00,027 46,84,684

Alumina & Hydrates MT 15,76,500 15,75,500

Aluminium Metal MT 3,61,262 3,60,457

Electricity (Net) MU 5,541 5,609

This Company exceeded the target which is set for production of aluminum during the year. The aluminum industry plant has achieved the highest ever cast metal production since its start of the project. The production of Bauxite has improved compared to previous year and has met the requirement of the refinery in full. On the Other hand targeted volume of Bauxite could not be achieved due to the reson of shut down of cable belt. The production of Alumina Hydrate has also been increase as compared to previous year with over hundred percent capacity use. The electricity demand for production plant could be met by increasing during the year.

MARKETING

In pursuance of its strategy to proactively increase the customer base, Company signed MoU with 181 domestic customers for supply of metal during 2008-09 as against 118 customers in 2006-07 and 151 customers during 2007-08. Initiatives were taken for market penetration through development of new Original Equipment Manufacturer customers, such as,

various state road transport undertakings, BHEL etc. for sale of rolled products of Company.

Company sold 3,53,591 MT metal during 2008-09 as against sale of 3,53,335 MT metal during 2007-08. This comprises the highest ever domestic sale of 2,71,274 MT surpassing the previous best of 2,63,494 MT achieved in 2006-07 and export of 82,317 MT of metal in 2008-09. The global economic meltdown and tighter credit availability affected automobile, building and construction sectors severely that led to decline in demand for aluminium and resulted in piling-up of inventory at unprecedented levels resulting in sharp drop in aluminium prices.

Despite these turbulent times of low demand and consistent fall in

metal price, Company could meet the sales targets.

Company has been put ting thrust on sale of value added products.

The sale of billets, wire rods and rolled products in 2008-09 has been the highest-ever surpassing the previous best. Your Company has implemented e-tendering procedure for export of primary metal. Details of sales are given below:

(in MT)

Particulars 2008-09 2007-08

Export

Alumina 8,51,886 8,59,984

Aluminium 82,317 1,01,723

Domestic

Alumina & Hydrates 37,637 31,730

Aluminium 2,71,274 2,51,612

Total Metal Sale 3,53,591 3,53,335

Total Chemical Sale 8,89,523 8,91,714

FINANCE

Your Companys total income was Rs.5,631 crore as against Rs.5,576 crore during the previous year. The profit after tax for the year under report stands at Rs.1,272 crore as against Rs.1,632 crore for the previous year. The decline in profit is due to lower sales realization in alumina and aluminium due to global recession which started in the 2nd quarter and continued during rest of the financial year. Your Company achieved export earning of Rs.2,071 crore during the year as

against Rs.2,135 crore of the previous year.

The summarized financial results as compared to the previous year are

furnished below:

(Rs. in crore)

2008-09 2007-08

Net Sales 5,108 4,989

Other Income 523 587

Total Income 5,631 5,576

Expenses 3,427 2,822

Gross Margin 2,204 2,754

Less: Interest & depreciation 277 287

Profit Before Tax (PBT) 1,927 2,467

Provision for Txes 655 835

Profit After Tax (PAT) 1,272 1,632

Appropriation:

a) General Reserve 900 1,200

b) Dividend including Dividend Tax 377 452

Earning per Share (In Rs.) 19.75 25.32

Financial Performance

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DIVIDEND AND APPROPRIATIONS

Considering the requirement of funds and for the expansion project in hand and for the gradation and growth plans, Nelco management have recommended a final dividend of the Rs.1.50 per share in addition to the interim dividend of Rs.3.50 per share (35%) paid in February, 2009. The dividend for the financial year 2008-09 thus aggregates to Rs.5.00

per share (50%) as against Rs.6.00 (60%) paid for the previous year.

The final dividend will be paid after your approval at the AnnualGeneral Meeting. Your Directors have also proposed to transfer Rs.900 crore to General Reserve Account from the profits for the year under review as against Rs.1,200 crore transferred during the previous year.

INDUSTRIAL RELATIONS

The industrial relations scenario of Nelco has remained by and large peaceful with not any reportable loss of mondays on account of industrial relations problem. Each unit of the Company except Mines has a recognized union as per verification of membership through secret ballot. The process of verification of membership through secret ballot in Mines is still in the process. The general practice of structured interaction of the management with the recognized unions covering the matters relating to production, productivity, discipline, work culture, and various demands and employee related issues continued during the year under review.

NELCO still believes in transparency in all its activities. In line with that this Company continued to encourage employee involvement by sharing information about physical and financial performance as well as challenges being faced by Company through various means of

communication and regular interactions with the recognized unions. Efforts are still continuing to encourage employees for giving suggestions on production and the objective to sustain the environment of mutual co-operation and trust. Competency mapping of individual employees and thrust on training and development is given to enhance the efficiency and knowledge levels of the employees. With the introduction of Enterprise Resource Planning , the employee service related issues are expected to be further streamlined in this Company.

CORPORATE SOCIAL RESPONSIBILITY

NELCO Company is fully committed to fulfill its obligation of Corporate Social Responsibility through it Development Policy under which it allocates 1% of its net profit every year for the socio economic development in the local areas surrounding the plant sites in specific for the State of Orissa in general.

An allocation of Rs.16.32 crore was earmarked by this Company for the financial year 2008-09. The Government of Orissa, where all the production units of your Company are located, has constituted Rehabilitation and Peripheral Development Advisory Committees for each location. These committees decide the Peripheral Development Projects in the region and also monitor their implementation.

Apart from allocating the cited sum for development projects,this Company continued to provide quality education to students from the periphery localities at highly subsidized cost. The cost incurred by the Company on this account for the year under review was Rs.5.20

crore.

GROWTH PLANS

NELCO under corporate governance has taken Expansion with an investment of Rs.4,402 crore (at November, 2008 price

level). Existing capacities and the capacities after the completion of

the above ongoing 2nd Phase Expansion are as under:

Segment total Capacity Capacity after 2nd

Phase Expansion

(a) Bauxite Mine 4.8 TPY 6.3 TPY

(b) Alumina Refinery 1.575 TPY 2.1 TPY

(c) Aluminum Smelter 3,45,000 TPY 4,60,000 TPY

(d) Captive Power Plant 960 MW 1,200 MW

The progress achieved in 2nd Phase Capacity Expansion Project at the

end of July, 2009 is as follows:

The commissioning of production plant has been started as per schedule with pre-heating of 1st pot of 4th Pot Line in December, 2008. As of July, 2009, 150 pots out of total 240 pots have been commissioned.

The new Refinery is expected to become operational by November, 2009.

OVERALL PROGRESS

(At the end of July, 2009)

different Segment Progress (%)

(a) Mines & Refinery 93

(b) Smelter 97

(c) CPP 94

.

VIGILANCE

Thrust of vigilance in your Company is preventive in nature. Though vigilance activities like surprise checks, sample tests, regular inspections, CTE type intensive examination of works / contracts etc. are preventive in nature, these activities often aid and assist management in detecting corruption which may have crept in innocuously during business operations. Your Company is using technology in the form of e-tendering, e-payments, e-auctioning etc. For creating awareness among employees, Vigilance Awareness Week was celebrated in the month of November, 2008 at all the units of your Company. training sessions were organized at different units of the organization for sensitizing employees on the evil effects of corruption.

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CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION

A statement giving details of the Conservation of Energy, Technology

Absorption is placed at Annexure - I hereto and forms part of this

report.

FOREIGN EXCHANGE EARNING AND OUTGO (ON CASH BASIS)

The foreign exchange earnings of your Company for the year under review

is Rs.2,097.32 crore as against Rs.2,095.26 crore in the previous year.

The foreign exchange outgo of your Company for the year 2008-09 is

Rs.645.62 crore as against Rs.719.32 crore in the previous year

2007-08.

PARTICULARS OF EMPLOYEES

Details of employees in receipt of remuneration of Rs.2 lakh per month

or Rs.24 lakh per annum during the year 2008-09 pursuant to the

provisions of Section 217 (2A) of the Companies Act, 1956 read with the

Companies (Particulars of Employees) Rules, 1975 as amended, are given

at Annexure-II.

IMPLEMENTATION OF THE RIGHT TO INFORMATION ACT, 2005

As a responsible corporate citizen and a Public Authority, your Company

has been giving thrust in attaining maximum level of transparency in

all facets of its business activities and in its interaction with all

segments of its stakeholders including the public at large. This

practice has helped your Company in providing access to information

under its control to the Indian citizens under the provision of the

Right to Information Act, 2005 (RTI Act) as well.

This Company has been complying with the requirements of provisions of the Act since its promulgation, like appointing Public Information Officer, Asst. Public Information Officers and the Appellate Authority and hosting voluntary/suo-moto disclosure of information under

different templates in the Company’s website www.nalcoindia.com.

.