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CMC AR 2003 04


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CMC AR 2003 04

  1. 1. CMC Limited Twenty eighth annual report 2003 - 2004 Contents Corporate Information 2 Notice 3 Directors’ Report 8 Management Discussion and Analysis 17 Corporate Governance Report 22 Auditors’ Certificate on Corporate Governance 29 Company Secretary’s Responsibility Statement 30 Auditors’ Report 31 Balance Sheet 34 Profit & Loss Account 35 Cash Flow Statement 36 Schedules & Notes on Accounts 37 Balance Sheet Abstract 51 Details of Subsidiary Company 52 Auditors’ Report on the Consolidated Accounts 53 Consolidated Accounts 54 Proxy/Attendance Sheet 69 Payment of Dividend by Electronic Clearing Services 71 Annual General Meeting on Monday, August 30, 2004 at 2.30 p.m. at Bhartiya Vidya Bhavan Auditorium, BVB Hyderabad Kendra No. 5-9-1105, Basheerbagh-King Koti This annual report can be Road, Hyderabad-500 029 accessed at 1 CMC-1.p65 1 8/10/2004, 3:00 PM
  2. 2. CMC Limited Twenty eighth annual report 2003 - 2004 CORPORATE INFORMATION Audit Committee Dr KRS Murthy BOARD OF DIRECTORS Mr Surendra Singh Mr C B Bhave Chairman Share Transfer-cum-Shareholders Mr S Ramadorai Grievance Committee Managing Director & CEO Mr Surendra Singh Mr R Ramanan Mr R Ramanan Mr Shardul Shroff Directors Mr Vivek Agarwal Mr Ishaat Hussain Remuneration Committee Dr KRS Murthy Dr KRS Murthy Mr Surendra Singh Mr S Ramadorai Mr C B Bhave Mr C B Bhave Mr Shardul Shroff Ethics and Compliance Committee Company Secretary Mr Surendra Singh Mr Vivek Agarwal Mr R Ramanan Mr Shardul Shroff Auditors Mr Vivek Agarwal M/s S.B. Billimoria & Co. Registrars & Share Transfer Agents M/s MCS Limited Registered Office Sri Venkatesh Bhavan CMC Centre W-40, Okhla Industrial Area, Phase II Old Mumbai Highway New Delhi-110020 Gachibowli Stock Exchanges where Company’s Hyderabad-500019 (A.P.) Securities are listed Corporate Office Madras Stock Exchange Ltd. PTI Building, 5th Floor The Stock Exchange, Mumbai 4, Sansad Marg National Stock Exchange of India Ltd. New Delhi-110001 The Calcutta Stock Exchange Asson. Ltd. Principal Bankers Canara Bank State Bank of Bikaner & Jaipur ICICI Bank 2 CMC-1.p65 2 8/10/2004, 3:00 PM
  3. 3. NOTICE Notice is hereby given that the 28th Annual General Meeting of the Members of CMC Limited will be held on Monday, August 30, 2004 at 2.30 P.M. at the Bhartiya Vidya Bhavan Auditorium, BVB Hyderabad Kendra No. 5-9-1105 Basheerbagh-King Koti Road, Hyderabad –500 029, A.P. to transact the following business: ORDINARY BUSINESS: To receive, consider and adopt the audited Profit and Loss Account for the year ended 31st March, 2004 and the Balance 1. Sheet as at that date and the Reports of the Board of Directors and the Auditors thereon. 2. To declare a dividend. 3. To appoint a Director in place of Mr Surendra Singh, who retires by rotation and, being eligible, offers himself for re- appointment. 4. To appoint a Director in place of Mr C B Bhave, who retires by rotation and, being eligible, offers himself for re-appointment. 5. To appoint Statutory Auditors and to fix their remuneration. SPECIAL BUSINESS: 6. To consider and, if thought fit, to pass with or without modification(s), the following Resolution as an Ordinary Resolution: “RESOLVED that in accordance with Section 198, 269, 309, 310 Schedule XIII and other applicable provisions, if any, of the Companies Act, 1956, or any amendment or modification thereof, the Company hereby approves the appointment and terms of remuneration of Mr R Ramanan as Managing Director & CEO of the Company, with effect from 13th December, 2003 for a period of three years on the terms and conditions as set out in the Explanatory Statement and entered into an Agreement between Mr. R. Ramanan and the Company with liberty to the Board of Directors to alter and vary the terms and conditions of the said appointment and/or Agreement in such manner as may be agreed to between the Company and Mr. R. Ramanan.” “Further Resolved that the Board of Directors of the Company be and is hereby authorized to vary, alter, increase or enhance from time to time terms and conditions of appointment of Mr. R. Ramanan subject to the limit laid down under the applicable provisions of the Companies Act, 1956 and subject to the requisite approvals, if any, being obtained. 7. To consider and, if thought fit, to pass with or without modification(s), the following Resolution as a Special Resolution: “RESOLVED that Pursuant to Section 31 and other applicable provisions, if any, of the Companies Act, 1956, the regulations contained in the draft Articles of Association of the Company submitted to this meeting and for the purpose of identification initialed by the Chairman be and are hereby approved and adopted as the new Articles of Association of the Company in substitution for and to exclusion of all the existing Articles thereof.” BY ORDER OF THE BOARD For CMC LIMITED Mumbai VIVEK AGARWAL July 17, 2004 COMPANY SECRETARY 3 CMC-1.p65 3 8/10/2004, 3:00 PM
  4. 4. CMC Limited Twenty eighth annual report 2003 - 2004 Notes: 1. A Member entitled to attend and vote is entitled to appoint a Proxy to attend and vote at the meeting instead of himself and the proxy need not be a Member of the Company. The Proxy Form must be deposited at the Registered Office of the Company not later than 48 hours before the commencement of the meeting. 2. The relevant explanatory statement pursuant to Section 173(2) of the Companies Act, 1956 setting out the material facts in respect of the business under item nos. 6 & 7 and the relevant details of item nos. 3 & 4 above pursuant to Clause 49 of the listing agreement are annexed hereto. 3. Members who hold shares in dematerialised form are requested to bring their DP ID and Client ID numbers for easy identification of attendance at the meeting. 4. For the convenience of the members, attendance slip is enclosed elsewhere in the Annual Report. Members/Proxy Holders/ Authorised Representatives are requested to fill in and affix their signatures at the space provided therein and surrender the same at the venue. Proxy/Authorised Representatives of a member should state on the attendance slip as ‘Proxy’ or ‘Authorised Representative as the case may be. 5. The Register of Members and the Share Transfer Books of the Company will remain closed from Thursday August 26, 2004 to Monday, August 30, 2004 (both days inclusive). 6. The dividend as recommended by the Board of Directors, if declared at the Annual General Meeting, will be paid at par after August 30, 2004 (i) to those shareholders whose names appear on the Company’s Register of Members after giving effect to all valid share transfers in physical form lodged with the Company on or before August 25, 2004; (ii) in respect of shares held in electronic form to those ‘deemed’ members whose names appear in the statements of beneficial ownership furnished by National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) as at the end of business hours on August 25, 2004. 7. In accordance with SEBI’s directions vide their Circular No. DCC/FITT/Cir-3/2001 dated October 15, 2001, arrangements have been made to credit your dividend amount directly to your bank account through the Electronic Clearing Service (ECS). In case you hold shares in physical form please furnish your bank details in the ECS Mandate Form enclosed separately together with a xerox copy of your cheque leaf and return to our Registrars, MCS Limited on or before August 21, 2004. The said details in respect of the shares held in electronic form should be sent to your respective Depository Participant and not to the Registrar as the Registrar is obliged to use only the data provided by the Depository while making payment of dividend. 8. Pursuant to provisions of Section 205A(5) of the Companies Act, 1956, dividends which remain unclaimed for a period of 7 years from the date of transfer of the same to the company’s unpaid dividend account will be transferred to the Investor Education and Protection Fund established by the Central Government. Shareholders who have not encashed their dividend warrant(s) so far are requested to make their claim to the Registrar & Share Transfer Agents of the Company. The Company has been periodically reminding the shareholders concerned to claim their dividend from the Company. 9. Pursuant to Section 109A of the Companies Act, 1956, shareholders are entitled to make nomination in respect of shares held by them. Shareholders desirous of making nominations are requested to send their requests in Form No. 2B in duplicate (which will be made available on request) to the Registrar & Share Transfer Agents of the Company. 10. As an austerity measure, copies of the Annual Report will not be distributed at the Annual General Meeting. Members are requested to bring their copies to the meeting. 4 CMC-1.p65 4 8/10/2004, 3:00 PM
  5. 5. Explanatory Statement pursuant to Section 173(2) of the Companies Act, 1956 Item No. 6: Mr R Ramanan, age 45 years, has a Bachelor of Technology in Electrical Engineering from IIT, Mumbai with more than 21 years of rich working experience in Tata Consultancy Services (TCS). He held several key positions in TCS. Starting his career as a Software Engineer in TCS in July 1981, he has been a Project Leader, a Group Leader and an Overseas Regional Manager representing TCS in the USA. He is also Chairman of CMC Americas Inc. He joined CMC as Dy. Managing Director & COO on October 16, 2001 and elevated to the post of Managing Director & CEO on December 13, 2003 on superannuation of Mr S S Ghosh. The Board of Directors passed a resolution on December 13, 2003 regarding elevation of Mr R Ramanan as Managing Director & CEO of the Company for a period of three years at a remuneration and upon the terms and conditions as set out in the agreement (Agreement) entered into by the Company with Mr R Ramanan (Mr Ramanan), the material terms of which are as under: 1. Period: From December 13, 2003 to December 12, 2006 2. Remuneration: Basic Salary : Rs. 38040 per month with such revision as the Board may approve from time to time. Perquisites: Furnished accommodation, electricity, water, gas and soft furnishings, medical reimburesements and leave travel concessions for self and family, profit linked incentive, club fees, medical insurance, personal accident insurance, leave encashment, benefits of Provident Fund and Gratuity Fund, car and telephone etc. in accordance with the rules of the Company. In case no accommodation is provided to Mr Ramanan, he will be paid House Rent Allowance as per rules of the Company. Provided that the total remuneration payable to him by way of salary and perquisites shall not exceed 5% of the net profits of the Company calculated in accordance with Section 198 and 309 of the Companies Act, 1956 (the Act). 3. The terms and conditions of the said appointment may be altered and varied from time to time by the Board as it may, in its discretion, deem fit, within the maximum amount payable to Managing and Whole-Time Directors in accordance with Schedule XIII to the Act or any amendments made hereafter in this regard. 4. Mr Ramanan shall, subject to the supervision and control of the Board of Directors, carry out such duties as may be entrusted to him. 5. The Agreement may be terminated by either party giving the other party six months’ notice or the Company paying six months’ remuneration in lieu thereof. 6. If at any time Mr Ramanan ceases to be a Director of the Company for any cause whatsoever, he shall cease to be the Managing Director. If at any time Mr Ramanan ceases to be in the employment of the Company for any cause whatsoever, he shall cease to be a Director of the Company. 7. Mr Ramanan is appointed by virtue of his employment in the Company and his appointment is subject to the provisions of Section 283(1)(l) of the Act. 8. Mr Ramanan shall not be entitled to supplement his earnings with any buying or selling commission. He shall not also become interested or otherwise concerned directly or through his wife and/ or minor children in any selling agency of the Company without the prior approval of the Central Government. 5 CMC-1.p65 5 8/10/2004, 3:00 PM
  6. 6. CMC Limited Twenty eighth annual report 2003 - 2004 9. That Mr Ramanan shall not be paid any sitting fee for attending the meetings of the Board of Directors or Committees thereof. 10. Mr Ramanan shall not have the following powers: The power to make calls on shareholders in respect of monies unpaid on shares in the Company. The power to issue debentures and The power to invest the funds of the Company in shares, stocks and securities. The Resolution set out in item 6 of the convening notice has to be considered accordingly and the Board recommends the same. The Agreement made between the Company on the one part and Mr R. Ramanan on the other part, is available for inspection by the Members of the Company at its Registered Office during usual business hours on any working day upto the date of this Meeting. None of the Directors of the Company except Mr R Ramanan is concerned or interested in the said Resolution. Item No. 7: At present, the Articles of Association of the Company consists of several restrictive Clauses, which have become redundant due to sale of balance holding of Company’s shares by the Government of India to the general public. Accordingly, the Board of Directors at its 144th Meeting held on April 26, 2004 has recommended to approve and adopt a new set of Articles of Association of the Company. Section 31 of the Companies Act, 1956 requires approval of Members of the Company by way of a Special Resolution for any such changes. Hence the present Resolution. A set of the new Articles of Association of the Company is available for inspection by the Members at the Registered Office of the Company during usual working hours on all working days upto the date of this Meeting. None of the Directors is interested or concerned in the said Resolution. BY ORDER OF THE BOARD For CMC LIMITED Mumbai VIVEK AGARWAL July 17, 2004 COMPANY SECRETARY 6 CMC-1.p65 6 8/10/2004, 3:00 PM
  7. 7. DETAILS OF DIRECTORS RETIRING BY ROTATION AND SEEKING REAPPOINTMENT (In Pursuance of Clause 49 of the Listing Agreement) Name Mr Surendra Singh Mr C B Bhave Date of Birth 21.07.1937 28.08.1950 Date of Appointment 16.10.2001 16.10.2001 Qualifications Retd. I.A.S. Officer B.E. (Electrical) Expertise in specific functional areas Business and Finance Management Business and Finance Management Directorships in 1. UTI Bank Limited 1. National Securities Depository other Companies Limited, Mg. Director 2. NIIT Limited 2. Tata Telecom Limited 3. Jubilant Organosys Limited 4. BAG Films Limited 5. Andhra Pradesh Paper Mills Limited Chairman/Member of Committees CMC Limited CMC Limited of the Board of Companies of Share Transfer-cum-Shareholders Audit Committee, which he is a Director Grievance Committee – Chairman, Remuneration Committee Audit Committee Tata Telecom Limited NIIT Limited Audit Committee Audit Committee, Shareholders Grievance Committee – Chairman UTI Bank Limited Remuneration Committee – Chairman, Shareholders Grievance Committee – Chairman BY ORDER OF THE BOARD For CMC LIMITED Mumbai VIVEK AGARWAL July 17, 2004 COMPANY SECRETARY 7 CMC-1.p65 7 8/10/2004, 3:00 PM
  8. 8. CMC Limited Twenty eighth annual report 2003 - 2004 DIRECTORS’ REPORT TO THE MEMBERS OF CMC LIMITED Your Directors have pleasure in presenting the Twenty-eighth Annual Report and the Audited Statement of Accounts for the year ended 31st March, 2004. 1. FINANCIAL RESULTS (Rs. in Crores) Particulars 2003-04 2002-03 Income from Sales and Services 747.07 607.99 Other Income 16.60 6.74 Total Income 763.67 614.73 Operating Expenses 685.65 548.58 Profit before Depreciation, Interest and Tax 78.02 66.15 Depreciation 8.75 8.05 Interest 3.56 1.44 Profit before Tax 65.71 56.66 Provision for Taxation (incl. deferred Income Tax) 17.72 19.61 Profit after Tax 47.99 37.05 Add: Profit brought forward from previous year 97.14 70.63 Amount available for appropriations 145.13 107.68 Appropriations Proposed Dividend 8.33 6.06 Tax on Proposed Dividend 1.07 0.78 Transfer to General Reserve 4.80 3.70 Balance carried to Balance Sheet 130.93 97.14 145.13 107.68 1.1 Operating Results The Company’s total revenue for the year at Rs. 763.67 crores registered an increase of 24% over the previous year. The profit before tax at Rs. 65.71crores registered an increase of 16% over the previous year. The profit after tax stood at Rs. 47.99 crores registering an increase of 30% over the previous year. 8 CMC-1.p65 8 8/10/2004, 3:00 PM
  9. 9. 2. DIVIDEND Your Directors recommend payment of dividend at 55% of paid-up equity share capital for the year ended March 31, 2004. 3. CHANGE IN SHAREHOLDING OF PROMOTERS Under disinvestment programme, the Government of India has divested its remaining holding of 39,76,374 shares representing 26.25% of issued and paid-up equity capital of the Company by way of offer for sale to the general public through 100% book building process. The discovered price under the said process was Rs. 485 per share and retail investors had been offered shares at a discount of 5% over the discovered price, i.e. Rs. 460.75 per share. The offer got very good response and was over-subscribed 11 times. The shares were transferred on March 15, 2004. As a result, the Government has ceased to be a shareholder of the Company. Further, on March 29, 2004, Tata Sons Limited transferred its entire shareholding of 51.12% to Tata Consultancy Services Limited, a subsidiary of Tata Sons Limited. 4. BUSINESS OPERATIONS 2003-04 2002-03 OTHERS OTHERS INTL INTL 2% 1% 20% 18% E&T E&T 2% 4% ITES 4% ITES CS CS 5% 63% 54% SI 11% SI 16% Total Revenue: Rs. 763.67 crores Total Revenue: Rs. 614.73 crores 4.1 Domestic Operations: 4.1.1 Customer Services (CS) Customer services SBU undertakes activities of IT Infrastructure development and management, network design, consultancy and management, storage management, security solutions, business continuity/disaster recovery, third party maintenance and equipment supply and integration. The revenue of CS SBU from domestic operations increased by 41.7% to Rs. 476.32 crores during the year. The CS SBU has positioned the Company as a dominant provider of end-to-end solutions and services, encompassing comprehensive services of IT infrastructure design, implementation and life cycle support. 9 CMC-1.p65 9 8/10/2004, 3:00 PM
  10. 10. CMC Limited Twenty eighth annual report 2003 - 2004 The CS SBU enhanced its position in Banks and Financial Institutions segment. During the year under review, the SBU implemented large and complex IT infrastructure projects for four of the biggest banks in India. The SBU managed the front-end and back-end IT operations of the entire Afro Asian Games conducted at Hyderabad. This SBU also bagged a prestigious order from one of the State Governments to computerize excise and taxation department of the State. The CS SBU undertook a major drive for skill enhancement of its engineers. A larger number of its employees got certifications from various OEMs like CISCO, SUN, HP, IBM etc. during the year. 4.1.2 Systems Integration (SI) SI SBU undertakes the activities of solution deployment that includes software development, software maintenance and support, turnkey project implementation and systems consultancy. The revenue of SI SBU from domestic operations declined by 11.5% to Rs. 85.24 crores. SI SBU continues to be dominant player in general insurance sector. The SBU got its first order for implementation of its insurance solution in private sector during the year. The SBU also leveraged its finger printing solution for first civilian application at the largest depository company in India. SI SBU has won a prestigious order for implementation of state-of-the art trading solution at one of the largest stock exchanges in the Middle East. The SBU also got a major order from one of the State Police Departments to implement Intelligence System Police Administration, General Administration and Public Interface System. 4.1.3 IT Enabled Services (ITES) During the year, the Company has changed the name of Indonet SBU to ITES. ITES SBU is a value added service provider providing OMR/ICR based forms processing services, document management services, managed network services, Electronic Data Interchange (EDI) services, web design and hosting services, facility management etc. The revenue of ITES SBU from domestic operations increased by 7.4% to Rs. 32.34 crores. The ITES SBU successfully completed the largest ever project of its kind – the digitization of India Census 2001 six months ahead of schedule. 4.1.4 Education & Training (E&T) E&T SBU of the Company offers courses on information technology including professional courses, vendor certified courses, career development courses, through its own and franchisee centers. The revenue of E&T SBU from domestic operations declined by 28.3% to Rs.17.79 crores due to continued sluggishness in IT education industry. In line with changed industry scenario, the SBU has started focusing on corporate training and training in embedded systems. The Company entered into collaboration with Jadavpur University for high end courses like bio-informatics and embedded system, National Technological University, Chhatisgarh for B.Sc (IT) programme, University of Kolkata, Burdhaman University, Netaji Subhas Open University for MCA courses. This SBU also tied up with Netg for content, e-learning, wave centres and has also started training of foreign students under the scheme of Ministry of External Affairs. This SBU outsourced IT education for private engineering colleges and has started giving training to teachers of different Polytechnics and also helping in setting up prometric testing centres all over India. 10 CMC-1.p65 10 8/10/2004, 3:00 PM
  11. 11. 4.2 International Operations: Increased focus on international markets is a part of the core strategy of the Company. The Company increased its International revenue by 12.3% to Rs. 135.38 crores. The international market strategy of the Company revolves around leveraging TCS’s international presence and CMC’s products and solutions. The Company made further inroads in the hi-tech embedded systems space in the US market during the year through TCS synergy. The Company also set up a dedicated Offshore Development Centre at its R&D Centre, Hyderabad to develop Field Programmable Gate Arrays (FPGA) based solutions for one of the largest suppliers of programmable logic solutions in the world. The Company further consolidated its position in Middle East African region during the year by getting orders in Biometric Solutions, e-Cops Solutions, Insurance and Education segment. Its Ports & Cargo Solutions made further inroads in the European market. The ITES SBU of the Company made its entry in the international BPO market by getting orders from North America. Your Company executes most of its export transactions from two Software Technology Parks situated at Mumbai and Hyderabad. 5. ACTIVITIES AT CMC CENTRE, HYDERABAD Activities of the various R&D and competency groups located in the CMC Center, Hyderabad are as under: 5.1 Real Time Systems (RTS) Group The Real Time Systems Group activities continue to grow both in international and domestic markets. In the International segment, the offshore business has grown up significantly during the year. 5.2 Finger Print Group The Fingerprint Analysis and Criminal Tracing System (FACTS) was developed using our core competencies in image processing and pattern recognition technology- a field in which your Company is one of the few IT companies in the world conducting product development activities. This solution has been deployed in various police departments in India and abroad. Your Company has extended its expertise to adopt this solution for civilian applications. 5.3 Information Systems for Public Service (ISOPS) Group Automatic Railway Ticketing System (ARTS) based ticketing machines have been upgraded significantly and is being used for the Indian Railways unreserved ticketing system. The group has also developed Centralised Ticketing System (CTS) comprising both reserved and unreserved ticketing operations which can work both in stand-alone and in a network mode, currently under implementation for one of the International Railways. The group has also developed a Point of Sale Terminal for various applications in the retailing sector. The other solutions developed by this group are Mobile Ticketing System (MTS), a total on-board ticketing solution for checking authenticity of tickets. 11 CMC-1.p65 11 8/10/2004, 3:00 PM
  12. 12. CMC Limited Twenty eighth annual report 2003 - 2004 5.4 Visual Information Systems and Internet Commerce (VISIC) Group The products developed by the group continued to be a vital component of solutions offered by the company in the banking and financial services segment. The group also developed products and prototypes in areas like e-Tendering, e-Voting, image based Cheque truncation and biometrics based authentication system for access control applications. 5.5 Ports & Cargo Group MACH and CALM are products addressing the need of ports to automate their container and other operations. The products were customized and implemented in major ports in the country and five ports worldwide. 6. BUSINESS EXCELLENCE AND QUALITY INITIATIVES In pursuit of implementation of Tata Business Excellence Model (TBEM) the company has put in place specific process improvement initiatives in the area of project management, resource management, competency management and improving internal communications. The company has initiated actions to further strengthen the adoption and implementation of TBEM practices across the company. The Company is targeting to achieve CMMI compliance in all delivery centers by 2004-05. 7. SUBSIDIARY COMPANY During the year, your Subsidiary Company, CMC Americas Inc. has changed its financial year from December to March in alignment with the parent Company. In terms of the approval granted by the Central Government under section 212(8) of the Companies Act, 1956, a copy of the Balance Sheet, Profit & Loss Account, Reports of the Board and the Auditors of the Subsidiary company has not been attached. The related detailed information of the Annual Accounts of the Subsidiary Company will be made available to the Holding and Subsidiary Company investors seeking such information at any point of time. The Annual Accounts of the subsidiary company are also kept for inspection by any investors at the Registered Office of your Company. However, pursuant to Accounting Standard AS-21 issued by the Institute of Chartered Accountants of India, the Consolidated Financial Statements presented by the Company include the financial information of its Subsidiary. 8. FIXED DEPOSIT During the year, the Company has not accepted any fixed deposits under Section 58A of the Companies Act, 1956. 9. LISTING Pursuant to the resolution passed by you at the 27th Annual General Meting held on July 31, 2003, your Company had made applications to the Stock Exchanges at Delhi, Hyderabad, Chennai and Kolkata for voluntary delisting of the Company’s shares. The Hyderabad and Delhi Stock Exchanges have since delisted the shares of the Company. The equity shares will continue to be listed on The Stock Exchange, Mumbai and National Stock Exchange. 12 CMC-1.p65 12 8/10/2004, 3:00 PM
  13. 13. 10. DIRECTORS Mr S S Ghosh retired from the Board on December 12, 2003 on superannuation from the services of the Company. He served the Company for more than 25 years in various positions. Mr Y S Bhave resigned from the Board w.e.f. November 04, 2003. Mr R Chandrashekhar was nominated by the Government of India as Director w.e.f. December 04, 2003. Consequent upon disinvestment of remaining shares by the Government of India, Mr R Chandrashekhar and Dr U P Phadke resigned from the Board w.e.f April 26, 2004. The Board acknowledges the invaluable services rendered by Mr Ghosh, Mr Bhave, Mr Chandrashekhar and Dr Phadke during their tenure. Mr R Ramanan was elevated as Managing Director & CEO of the Company. A resolution seeking confirmation of his appointment as Managing Director & CEO has been recommened for your approval. Mr. Surendra Singh and C B Bhave are retiring from the Board by rotation at this Annual General Meeting and, being eligible, offer themselves for re-election. 11. COMMUNITY DEVELOPMENT It has been the Company’s endeavor to make a distinctive difference to the communities it serves. The Company has identified students, economically and socially underprivileged, and physically and mentally challenged people as the target community. The Company is focusing on IT education and health care in target communities. The Company has undertaken SPICE (School Project – Initiative for Computer Education) to spread computer literacy amongst school children in rural and backward areas. The Company organized “Gift of sight” campaign under which Eye Donation Camps were organized by the Company at various locations. A large number of employees bequeathed their eyes to the National Eye Bank after the death. The Company also organized blood donation camps at various regions during the year. The Company participated in the TATA Group initiative to join hands with the Government in cleanliness drive. 12. CORPORATE GOVERNANCE As required under Clause 49 of the Listing Agreement with the Stock Exchanges, the report on Management Discussion and Analysis, Corporate Governance as well as the Auditors’ Certificate regarding compliance of conditions of Corporate Governance form part of this Annual Report. 13. TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Information as required under the Companies (Disclosure of particulars in the Report of Board of Directors) Rules, 1988 in respect of energy conservation, technology absorption and foreign exchange earnings and outgo is given in Annexure-I to this Report. 14. DIRECTORS’ RESPONSIBILITY STATEMENT Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956, the Directors based on the information and representations received from the operating management confirm that: 13 CMC-1.p65 13 8/10/2004, 3:00 PM
  14. 14. CMC Limited Twenty eighth annual report 2003 - 2004 i) In the preparation of the Annual Accounts, the applicable Accounting Standards have been followed with no material departures; ii) The Directors had 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 as on 31st March, 2004 and of the profit of the Company for that period; iii) The Directors had taken proper and sufficient care to the best of their knowledge and ability 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 and iv) The Directors had prepared the Annual Accounts on a ‘going concern’ basis. 15. AUDITORS M/s S B Billimoria & Co., the Statutory Auditors of the Company, hold office until the ensuing Annual General Meeting. The said Auditors have under Section 224(1) of the Companies Act, 1956, furnished the certificate regarding their eligibility for re-appointment. 16. PARTICULARS OF STAFF Information as required under Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975, as amended, regarding particulars of employees drawing remuneration of Rs. 24 lacs per annum and above is NIL. 17. ACKNOWLEDGEMENTS The Directors wish to convey their appreciation to the Department of Information Technology and business associates for their support and contribution during the year. The Directors would also like to thank the employees, shareholders, customers, suppliers and bankers for the continued support given by them to the Company and their confidence reposed in the management. For and on behalf of the Board Mumbai S. RAMADORAI July 17, 2004 Chairman 14 CMC-1.p65 14 8/10/2004, 3:00 PM
  15. 15. Annexure-I ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO FORM A PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY: The Company has continued its endeavors for conservation and optimal use of energy. The Technical and Infrastructure Development Service Groups at different locations have devised mechanisms to improve the conservation of energy in all its forms as utilized in the organization. CMCalso continues to carry out research to devise new mechanisms to apply Information Technology (IT) for achieving energy conservation. The major areas in which Research & Development is carried out this year include Automated Monitoring and Control of Electrical Load Dispatch and Distribution Automation in the power sector; Monitoring, Leak-Detection and Control in Oil and Gas pipelines and Water Resources Management and Monitoring and Control in Railway Traction. CMC has provided energy-saving IT enabled solutions this year to Electricity Boards and Indian Railways thus making it possible for these organizations to effectively monitor, control and conserve energy resources. FORM B PARTICULARS WITH RESPECT TO TECHNOLOGY ABSORPTION: 1. CMC’s project activities during the year derived major technology support from R&D in the following areas: Use of Java, XML and smart card Technologies to develop a host of e-Commerce products Application of Information Technology in ‘e-Governance’ projects On line unreserved ticketing system for Railways using embedded client technology Cost-effective PDA-based solutions for Health Care in rural India GPS based vehicle tracking systems solutions 2. Benefits derived from the above: Many new technologies developed at R&D Centre have been used in projects in India and abroad Developing Technologies to optimize the operations at the Generation, Distribution and Transmission of electricity Developing applications requiring tracking of vehicles can be used for tracking police vehicles, buses, ambulances, fire engines etc., Making forays into the e-Commerce arena with latest standards R&D and other Application Specific Development Centre (ASDC) activities have continued to commercialize the technologies developed in respective areas. All design, development, support and maintenance activities at the R&D Centre are carried on under the ISO-9001:2000 certified processes and practices. Activities are initiated towards CMM Level 5 assessment. 15 CMC 14.p65 15 8/10/2004, 3:00 PM
  16. 16. CMC Limited Twenty eighth annual report 2003 - 2004 3. Expenditure on R&D (Rs. in crores) Particulars 2003-04 2002-03 A Capital 0.68 0.14 B Recurring 10.86 7.81 C Total 11.54 7.95 D Total R&D Expenditure as a Percentage of Turnover 1.51 1.29 TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION: 1. Efforts in brief, made towards technology absorption and innovation are as under: CMC through its R&D division proactively develops technology for its business needs. It also uses available state-of-the-art- technology in conceptualizing solutions. Technologies developed by R&D are used extensively by our Business Group for providing solutions to our customers. CMC constantly gives training to its staff to enable them to adapt newer technologies and apply them to the problem domains. CMC is in the process of exchanging technological advances and developments with TCS – one of the oldest IT Companies in India. 2. Benefits derived as a result of the above: The work done at the R&D Centre forms the core of the most of the solutions provided by the Strategic Business Units (SBUs) and hence is directly responsible for the improved profitability of the Company Another significant benefit is the social benefits arising out of the use of IT in core sectors and ‘IT-enabling’ the Country-especially in Healthcare. FOREIGN EXCHANGE EARNINGS AND OUTGO: The information of the foreign exchange earnings and outgo is contained in the Notes to the Accounts of the Annual Report. 16 CMC 14.p65 16 8/10/2004, 3:00 PM
  17. 17. MANAGEMENT DISCUSSION & ANALYSIS Overview The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956 and Generally Accepted Accounting Principles (GAAP) in India. There are no material departures from prescribed accounting standards in the adoption of the accounting standards. The management of CMC Limited accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgements used therein. These estimates and judgements relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the form and substance of transactions and the state of affairs and profits for the year. Industry Structure and Development The IT industry has shown signs of recovery during the year. As per Dataquest, after growing at an average of around 4% p.a. in previous two years, the Domestic IT spend has grown by almost 24% during 2003-04. As compared to this, CMC’s domestic revenue has increased by 26% thereby increasing its market share. The software exports from India are estimated to have grown by 24% during the year. International software services revenue of the Company increased by 19%. The domestic growth has been driven by mainly increased IT spends by Banks, Financial Services & Insurance, Telecom, Government and BPO segments. However IT Education & Training segment has remained flat during the year. There is a distinct shift in Government spending from automation of offices to such core governance applications like citizen services, fiscal management and also other governance infrastructure in general. The deregulation of the financial sectors like Banking and Insurance has brought in a fresh wave of IT investments for upgrading the infrastructure to meet the standards set by the new entrants thereby retaining their competitive advantage. Software exports from India are clearly demonstrating increased offshore delivery model. Offshore revenue is estimated to have increased its share from 57% to 60% as per NASSCOM. The Company’s offshore revenue also increased by 30% during the year and currently it accounts for 44% of international revenue. Opportunity and Threats Opportunity TThe company is strong in providing IT infrastructure setup, support and management as well as in the system integration business in the domestic market, namely in verticals like insurance and banking etc. It also has built up capabilities in back office data conversion and data center applications. The strong suite of IT assets and competency pools created by the company over the years is now mature to be scaled up to international standards thereby unlocking the inherent value. The company now has the extended reach and brand equity of the TATA group to market its products and services in unrepresented geographies and newer customer segments. Services will continue to be a key business area and will be strengthened to improve price performance and market share. Appropriate business alliance will be entered into to compliment internal efforts towards consolidation and growth. Threats: The emergence of international IT players as new entrants in the domestic solutions projects is a new factor in the competitive scenario in India. The company has duality of relationship with its major suppliers. In specific instances the company partners with the suppliers to offer the most competitive products at optimal prices to its customers and there are many instances where the company ends up competing with them. The company has in an effort to address the situation entered into alliances with major suppliers to lend some predictability to its operations. 17 CMC 14.p65 17 8/10/2004, 3:00 PM
  18. 18. CMC Limited Twenty eighth annual report 2003 - 2004 Segment-wise Review Customer Services The customer services earned revenue of Rs. 476.32 crores registering an increase of 41.7% over previous year. The revenues of CS SBU largely are impacted by the level of domestic spend on IT hardware, peripherals, networking and hardware services, which has increased by 25% during the year. The share of CS SBU in total revenue increased from 54.7% to 62.4%. Systems Integration The Systems Integration earned revenue of Rs. 85.24 crores registering a decline of 11.5% over previous year. The share of SI SBU in total revenue declined from 15.7% to 11.2%. ITES The ITES earned revenue of Rs. 32.34 crores registering an increase of 7.4% over previous year. The share of ITES SBU in total revenue declined from 4.9% to 4.2%. Education & Training The E&T SBU earned revenue of Rs. 17.79 crores registering a decline of 28.3% over previous year reflecting the continued sluggishness in the industry. The share of E&T SBU in total revenue declined from 4.0% to 2.3%. International The Company earned International revenues of Rs. 135.38 crores registering an increase of 12.2% over previous year mainly on account of new businesses earned in Middle East and Africa Regions and projects being jointly executed by CMC and TCS especially in the areas of Ports and Cargo and Embedded Systems. The international service revenue, however, increased by 19% from Rs. 113.47 crores to Rs. 135.38 crores. The share of international revenue in total revenue declined from 20% to 18%. Of the total International Revenue, onsite revenue constituted 56% whereas the balance was offshore. Offshore Revenue at Rs. 59.56 crores registered an increase of 30.5% over previous year. Onsite revenue at Rs. 75.82 Crores registered an increase of 1.1% over previous year. Future Outlook The Company believes that the domestic IT spends is likely to continue its current upward trend. The domestic IT spend is expected to be driven by banks, financial institutions, telecom, oils and gas, power and government sectors. In addition mid and large size companies feel the need of increased IT spends for process improvements and efficiency enhancement to face global competition. The Company has also experienced increased acceptance of its solutions in the international market. The Company strategy revolves around leveraging its competencies/expertise and its strategic relationship with TCS to exploit these emerging market opportunities. Financial Performance Revenues: During the year under review, the Company earned total revenue of Rs. 763.67 crores compared with Rs. 614.73 crores in the previous year registering a growth of 24%. The income from sales and services at Rs. 747.07 crores registered a growth of 23% compared with Rs. 607.99 crores earned in the previous year mainly on account of 12.2% growth in international revenue and 44% growth in equipment supply business. However revenue from Education and Training suffered further decline of 27.9% in line with continuing sluggishness in the industry. The other income increased by 146.3% at Rs. 16.60 crores compared with Rs. 6.74 crores earned in the previous year mainly on account of provisions no longer required written back as under: The segment-wise breakdown of total revenue is given below: (Rs. Crores) Segment 2003-04 2002-03 Domestic - Customer Services 476.32 336.10 - Systems Integration 85.24 96.34 - ITES 32.34 30.10 - Education & Training 17.79 24.81 International 135.38 120.64 Other Income 16.60 6.74 Total 763.67 614.73 18 CMC 14.p65 18 8/10/2004, 3:00 PM
  19. 19. Expenditure: During the year under review the operating expenses at Rs. 685.65 crores increased by 25% compared with Rs. 548.58 crores incurred last year mainly on account of increase in business. As a percentage of operating revenue, these expenses registered an increase from 90.2% to 91.8% mainly on account of increase in purchase of equipments for resale. The cost of equipment purchase for resale as a percentage of operating revenue increased from 41.4% to 49.4% in line with increase in revenue from sale of purchased equipment. Manpower cost has increased by 9.4% from Rs. 120.37 crores to Rs. 131.72 crores mainly on account of impact of new salary structure implemented from 1st October, 2003. However, manpower cost as a percentage of operating revenue has declined from 19.8% to 17.6% mainly on account of increase in revenue. The interest cost increased from Rs. 1.44 crores to Rs. 3.56 crores during the year under review mainly on account of increase in borrowings to finance working capital. Depreciation charge increased from Rs. 8.05 crores to Rs. 8.75 crores mainly on account of increase in gross fixed assets by Rs. 5.58 crores. As a result, Profit before Tax (PBT) has increased by 16% from Rs. 56.66 crores to Rs. 65.71 crores. However, PBT as a percentage of total revenue has declined from 9.2% to 8.6%. The provision for taxation (including deferred tax) declined from Rs.19.61 crores in 2002-03 to Rs.17.72 crores in 2003-04 resulting in a reduction of 9.6% despite an increase of 16% in PBT, mainly due to higher income from exports eligible for concessional tax treatment. As a result effective tax rate for the Company declined from 34.6% to 27%. As a result, Profit after Tax (PAT) has increased from Rs. 37.05 crores to Rs. 47.99 crores, an increase of 29.5% over the previous year. PAT as a percentage of total revenue has increased from 6% to 6.3%. Financial Position Fixed assets The gross fixed assets as at 31st March, 2004 was Rs. 131.05 crores as compared to Rs. 125.46 crores as at 31st March, 2003, resulting in an increase of 4.5%, mainly on enhancement in IT and office infrastructure. Working capital Net current assets as at 31st March, 2004 increased to Rs. 168.02 crores compared with Rs. 115.72 crores as at 31st March, 2003 mainly on account of increase in current assets from Rs. 402.59 crores to Rs. 446.65 crores and decrease in current liabilities and provision from Rs. 286.87 crores to Rs. 278.63 crores. Increase in current assets is attributable mainly to increase in inventory from Rs. 17.39 crores to Rs. 18.48 crores, and increase in unbilled revenue from Rs. 61.32 crores to Rs. 114.93 Crores. However sundry debtors decreased from Rs. 207.91 crores to Rs. 179.82 crores despite 24% increase in total revenue as a result of focused and intense follow-up and monitoring of collections. As a result, the level of debtors in terms of number of days has declined from 123 days sales to 88 days. The unbilled revenue increased from 38 days sales to 56 days sales mainly on account income accrued on some long term projects being executed by the Company, where the billing mile stones have not been reached. Decrease in current liabilities and provisions are attributable mainly to decrease in sundry creditors from Rs. 131.69 crores to Rs. 106.51 crores due to more procurement from MNC vendors offering shorter credit. Capital Structure Net worth of the Company as at 31st March, 2004 was Rs. 160.64 crores compared with Rs. 122.43 crores as at 31st March, 2003 resulting in an increase of 31.2% on account of retained income. Loan funds as at 31st March, 2004 was Rs. 66.18 crores compared with Rs. 51.33 crores as at 31st March, 2003 resulting in an increase of 29% mainly to finance increase in working capital. As a result the debt equity ratio decreased from 0.42:1 to 0.39:1. Risk and Concerns A comprehensive and integrated risk management framework forms the basis of all the de-risking efforts of the Company. Formal reporting and control mechanisms ensure timely information availability and facilitate proactive risk management. These mechanisms are designed to cascade down to the level of the line managers so that risks at the transactional level are identified and steps are taken towards mitigation in a decentralised fashion. The Board of Directors is responsible for monitoring risk levels on various parameters and the Managing Director/Deputy Managing Director ensures implementation of mitigation measures. The Audit Committee provides the overall direction on the risk management policies. 19 CMC 14.p65 19 8/10/2004, 3:00 PM
  20. 20. CMC Limited Twenty eighth annual report 2003 - 2004 1. Business risks: Excessive dependence on any single business segment increases risks and needs to be avoided. The Company has adopted prudential norms wherever required, to prevent undesirable concentration in any one vertical technology client or geographic area. Excessive exposure to a few large clients has the potential to impact profitability and to increase credit risk. However, large clients and high repeat business lead to higher revenue growth and lower marketing cost. Therefore, the Company needs to strike a balance. CMC actively seeks new business opportunities and clients to reduce client concentration levels. A high geographical concentration of business could lead to volatility because of political and economic factors in target markets. However, individual markets have distinct characteristics – growth, IT spends, willingness to outsource, costs of penetration, and price points. Cultural issues such as language, work culture and ethics, and acceptance of global talent also come into play. Due to these business considerations, the company has decided not to impose any rigid limits on geographical concentration. Proactively looking for business opportunities in new geographies and thereby increasing their contribution to total revenues helps manage this risk. Vertical domains relate to the industries in which clients operate. CMC has chosen to focus on selected vertical segments with a view to leverage accumulated domain expertise to deliver enhanced value to its clients. Being a company exposed to rapid shifts in technology, an undue focus on any particular technology could adversely affect the risk profile of the company. Given the rapid pace of technological change, CMC has chosen not to impose rigid concentration limits. Often, industry characteristics and market dynamics determine the choice of technology. 2. Financial risks The debtor recovery cycle of the Company is long due to dominance of Government entities in its customer profile resulting in need to finance higher level of working capital. The Company is broad-basing its client profile in order to reduce debtor’s recovery cycle on one hand and to strengthen the collection efforts on the other hand. In the interim, the Company is confident to have adequate funding to finance its working capital requirements. 3. Legal risks Litigation regarding intellectual property rights, patents and copyrights is significantly high in the software industry. In addition, there are other general corporate legal risks. The management has clearly charted out a review and documentation process for contracts. Legal compliance issues are an important factor in assessing all new business proposals. 4. Internal process risks The key resource for CMC is its people. The company has been able to create a favorable work environment that encourages innovation and meritocracy. An employee-friendly work environment combined with challenging job opportunities, which ensures that CMC has low employee attrition rates. Risk management processes at the operational level are a key requirement for reducing uncertainty in delivering high-quality software solutions to clients within budgeted time and cost. Adoption of quality models such as the Software Engineering Institute’s Capability Maturity Model (SEI-CMM) has ensured that risks are identified and measures are taken to mitigate these at the project plan stage itself. The company evaluates technological obsolescence and the associated risks on a continuing basis and makes investments accordingly. Internal control systems and their adequacy The Company has an adequate system of internal controls implemented by the management towards achieving efficiency in operations, optimum utilisation of resources and effective monitoring thereof and compliance with applicable laws. The system is continuously reinforced with analysis of data to strengthen it to meet the changing requirements. The system comprises well defined organisation structure, pre-identified authority levels and documented policy guidelines and manuals for delegation of authority. A qualified and independent Audit Committee of the Board of Directors reviews the internal audit reports and the adequacy of internal controls. 20 CMC 14.p65 20 8/10/2004, 3:00 PM
  21. 21. Human Resources The Company’s HR Policy aims to enable scalability of our business and process, simultaneously achieving a high level of ownership and involvement of employees. The Company’s HR policy is built around: Trust and Faith, Flexibility, Open Culture, Development of Employees being prime responsibility, concern for individuals etc. The Company’s initiatives, policies and procedures evolved through a consultative process with the employees helped in creating a non- hierarchical, flexible and informal work environment. Company gives importance at the time of recruitment and tries to attract the best available talent and effectively deploy for the growth of business. The Company revamped the employee compensation structure w.e.f. 1st October, 2004 to make it more flexible and tax effective to meet employee expectation, and is structured on cost to company concept. The new employee friendly structure has two components – fixed and variable. The variable salary depends on company performance as well as performance of the individual employee and the concerned group/SBU. The staff strength of the Company as on March 31, 2004 was 2985 as compared to 3368 as on March 31, 2003. Cautionary Statement Statements in the Management Discussion and Analysis describing the Company’s objectives, expectations or predictions may be forward looking within the meaning of applicable securities, laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Company’s operations include change in Government regulations, tax laws, economic and political developments within and outside the country and such other factors. 21 CMC 14.p65 21 8/10/2004, 3:00 PM
  22. 22. CMC Limited Twenty eighth annual report 2003 - 2004 CORPORATE GOVERNANCE REPORT Company’s philosophy on Corporate Governance As part of the Tata Group, CMC’s philosophy on Corporate Governance is founded upon a rich legacy of fair and transparent governance practices. The Corporate Governance philosophy has been further strengthened with the adoption of the Tata Business Excellence Model and Tata Code of Conduct two years ago, and the adoption, of the requirements under Clause 49 of the Listing Agreement with the stock exchanges by the Company. Board of Directors (a) Composition The present Board consists of one executive Director and six non-executive Directors. Out of the non-executive Directors, four are Independent Directors and the other two represent the Promoters. The non-executive Directors with their diverse knowledge, experience and expertise bring in their independent judgment in the deliberations and decisions of the Board. Apart from the sitting fees paid for attending Board/ Committee Meetings, the non-executive Directors did not have any material pecuniary relationship or transactions with the Company during the year 2003-04. The Company has a non-executive Chairman and the number of Independent Directors is more than one-third of the total number of Directors. The number of non-executive Directors is more than 50% of the total number of Directors. The Company, therefore, meets with the requirements relating to the composition of Board of Directors. (b) Attendence of each Director at the Board Meetings/Annual General Meeting During the year 2003-04 five meetings of the Board of Directors were held on May 07, July 31, October 21, December 22 in 2003 and on January 28 in 2004. The 27th Annual General Meeting of your Company was held on July 31, 2003. None of the Directors of the Board serve as Members of more than 10 Committees nor are they Chairman of more than 5 Committees, as per the requirements of the Listing Agreement. A detailed explanation in the form of a table is given below: Name Category Board Attendance No. of outside No. of outside Directorships4 Meetings at the Committee attended AGM held Positions held during the on 31.07.2003 Indian Foreign Member Chairman year Mr S Ramadorai Promoter 4 Yes 09 01 05 02 (Chairman) Non-executive Mr S S Ghosh1 Promoter 3 Yes _ 01 _ _ Executive Mr R Ramanan Promoter 5 Yes _ 01 _ _ Executive Mr Ishaat Hussain Promoter 5 Yes 13 1 09 04 Non-executive 2 Mr Y S Bhave Govt. Nominee 1 No 03 - 03 - Non-executive Mr R Chandrasekhar3 Govt. Nominee 2 N.A. - - - - Non-executive Dr U P Phadke5 Govt. Nominee 3 No 02 _ 01 _ Non-executive Dr KRS Murthy Independent 5 Yes - _ - - Non-executive Mr S Shroff Independent 1 No 05 _ 05 _ Non-executive Mr Surendra Singh Independent 5 Yes 06 _ 03 03 Non-executive Mr C B Bhave Independent 3 No 02 _ 01 - Non-executive 1 Mr SS Ghosh superannuated on December 12, 2003 2 Mr YS Bhave resigned from the Board w.e.f. November 4, 2003 3 Mr R Chandrashekhar has joined the Board w.e.f. December 4, 2003 as Government Nominee and resigned w.e.f. April 26, 2004. 4 This does not include directorships in Private Limited Companies. 5 Dr UP Phadke resigned from the Board w.e.f April 26, 2004. 22 CMC 14.p65 22 8/10/2004, 3:00 PM
  23. 23. • Audit Committee The Company complies with the provisions of Section 292A of the Companies Act, 1956, as well as per listing agreement pertaining to the Audit Committee and its functioning. The scope of the Committee includes: • review of the Company’s financial reporting process, the financial statements and financial/risk management policies. • review of the adequacy of the internal control systems in the Company. • review of the internal audit report forwarded by the internal auditors. • discussions with the management and the external auditors, the audit plan for the financial year and a joint post-audit review of the same. • Review the Annual financial statements before submission to the Board. • Review of the Statutory and Internal Auditors Remuneration. During the year, 6 Audit Committee meetings were held on May 07, June 03, July 31, October 21, December 22 in 2003 and on January 28 in 2004. The Audit Committee meetings are held both at Corporate Office and other locations and attended by the Chief Financial Officer, and the representatives of Internal Auditors and Statutory Auditors are also invited. The Company Secretary acts as the Secretary to the Audit Committee. The Chairman of the Audit Committee was also present at the last Annual General Meeting of the Company. The Composition of the Audit Committee and number of meetings attended by the Members are given below: Name of Member Composition of the Audit Committee Number of meetings attended Dr KRS Murthy Chairman - Independent Director 6 Mr R Chandrashekhar1 Govt. Nominee - Non Executive 1 Mr YS Bhave2 Govt. Nominee - Non Executive 1 Mr CB Bhave Independent Director 4 Mr Surendra Singh Independent Director 6 1 From December 4, 2003 to April 26, 2004 2 Resigned w.e.f. November 04, 2003 Pursuant to Clause-49(II) of the Listing Agreement, Mr R Chandrashekhar is having requisite financial and accounting knowledge and having experience as I.A.S. Officer working in his capacity as Joint Secretary in the Ministry of Information Technology. MANAGERIAL REMUNERATION a. Remuneration Committee The Company has constituted Remuneration Committee on December 22, 2003. The Remuneration Committee consists of non-executive Directors, with the Chairman being an independent Director. The members of the Remuneration Committee are as follows: - Dr KRS Murthy .. Chairman - Mr S Ramadorai - Mr Surendra Singh - Mr CB Bhave The scope and function of the Remuneration Committee is to review and fix the remuneration payable to executive Directors and other senior employees of the Company. Mr R Ramanan has been promoted to Managing Director & Chief Executive Officer of the Company w.e.f December 13, 2003 on superannuation of Mr SS Ghosh. Managing Director’s terms & conditions of appointment and payment of remuneration had been fixed by the Board subject to Shareholders approval in the ensuing Annual General Meeting of the Company. The Non-Executive Directors are entitled for sitting fee only for attending the Board/Committee Meetings. b. Remuneration Policy The remuneration of the executive directors/ senior managers is decided by the remuneration committee based on criteria such as industry benchmarks, the Company’s performance vis-à-vis the industry, performance track record of the executive director(s)/ appointee(s). The Company pays remuneration by way of salary, perquisites and allowances (fixed component and variable). Annual increments are decided by the Remuneration Committee within the salary scale approved by the Members and are effective April 1, annually. 23 CMC 14.p65 23 8/10/2004, 3:00 PM
  24. 24. CMC Limited Twenty eighth annual report 2003 - 2004 A sitting fee of Rs. 5,000 per meeting of the Board and Rs. 2,500 per meeting of the Audit Committee, Remuneration Committee, Share Transfer-cum-Shareholders Grievance Committee and other committees was paid upto December, 2003 and Rs. 10,000 per meeting of the Board, Audit and Rs. 5,000 per meeting of the Remuneration, Share transfer cum shareholders grievance committee is paid for attendance at the meetings of the said Board/Committees to its members from January 2004. c. Remuneration to Directors • Non-Executive Directors Name of Director Sitting Fee paid (Rs.) Mr. S. Ramadorai 20,000 Mr. Ishaat Hussain 30,000 Mr. Y. S. Bhave 17,500 Mr. R. Chandrashekhar 30,000 Dr. U. P. Phadke 15,000 Dr. K. R. S. Murthy 52,500 Mr. Shardul Shroff 27,500 Mr. Surendra Singh 95,000 Mr. C. B. Bhave 37,500 • Executive Director Salary and Perquisites paid to Mr. Ramanan, Managing Director & CEO during the year 2003-04, Rs. 572446 and Rs. 250686 respectively. Share Transfer-cum-Shareholders Grievance Committee The Share Transfer cum Shareholders Grievance Committee is constituted to consider and approve various requests for transfer, sub-division, consolidation, renewal, exchange, issue of new Certificates in replacement of old ones and redressal of the grievances of the Shareholders as may be received from time to time. The present composition of the Share Transfer cum Shareholders Grievance Committee is as under: Name of Member Category Mr Surendra Singh .. Chairman Mr S S Ghosh .. Member (upto Dec 12, 2003) Mr R Ramanan .. Member Mr Y S Bhave .. Member (upto Nov 11, 2003) Mr R Chandrashekhar .. Member (from 11.12.03-26.04.04) Mr S Shroff .. Member Mr Vivek Agarwal .. Member (Company Secretary) The Committee has had 14 Meetings during the year ended March 31, 2004 on April 14, June 16, July 04, July 31, September 09, September 26, October 10, November 17, December 08, December 22 in 2003 and January 12, January 28, February 19 and March 03 in 2004 and a total of 126 Meetings till March 31, 2004 have taken place since its constitution. Mr Vivek Agarwal, Company Secretary, is the Compliance Officer and can be contacted at: CMC Limited Tel: 91-11-23736151 PTI Building, 5th Floor Fax:91-11-23736159 4, Sansad Marg E-mail: New Delhi-110001 301 members’ complaints/queries were received during the period under review and there were no complaints/queries pending as on March 31, 2004. 24 CMC 14.p65 24 8/10/2004, 3:00 PM
  25. 25. COMMITTEE OF DIRECTORS In addition to the above Committees, the Board has constituted Ethics and Compliance Committee w.e.f from 28 January 2004 for the following purpose: – Set forth the policies relating to and oversee the implementation of the code of conduct for prevention of insider trading and code of corporate disclosure practices. – Take on record the status reports prepared by the compliance officer dealing in securities by the specified persons on monthly basis. – Decide penal action in respect of violation of the SEBI Regulations/code by any specified person. This committee consists of the following members: Mr Surendra Singh .. Chairman Mr R Ramanan Mr Shardul Shroff Mr R Chandrashekhar (from 11.12.03-26.04.04) Mr Vivek Agarwal No Committee meeting has been held during the year ended March 31, 2004. GENERAL BODY MEETINGS Location and time of General Meetings held in the last 3 years: Year Type Date Venue Time 2001 AGM 28.09.2001 CMC Centre, Gachibowli 2.30 p.m. Old Mumbai Highway, Hyderabad 2001 EGM 01.12.2001 - do - 12 Noon. 2002 AGM 29.08.2002 - do - 2.30 p.m. 2003 AGM 31.07.2003 - do - 2.30 p.m. Whether Special Resolutions: (a) Were put through postal ballot last year - No Details of voting pattern - N.A. Persons who conduct the postal ballot exercise- - N.A. (b) Are proposed to be conducted through - No postal ballot – • Disclosures i) During the year under review, there were no materially significant related party transactions with its promoters, directors, management and subsidiaries that had a potential conflict with the interest of the Company at large. ii) The Company has complied with all rules and regulations prescribed by the Stock Exchanges, Securities and Exchange Board of India or any other Statutory Authority relating to the capital markets during the last three years. No penalties or strictures have been imposed by them on the Company. • Means of Communication Half-yearly report sent to each household : The results of the Company are published in the of shareholders newspapers. Quarterly results and in which newspaper : Results are normaly published in Business Standard normally published in. and in Eenadu (Telugu – Hyderabad edition). Any website where displayed. : Yes, the results are displayed on the Company’s website Whether it also displays official news releases : Yes 25 CMC 14.p65 25 8/10/2004, 3:00 PM
  26. 26. CMC Limited Twenty eighth annual report 2003 - 2004 Whether the website displays the presentation : Yes. The Company holds an Analysts Meet after the made to the institutional investors and to quarterly, half yearly and Annual Accounts, have been the analysts. adopted by the Board of Directors, where information is disseminated and analysed. Whether Management Discussion and Analysis : Yes. Management Discussion and Analysis forms part of is a part of Annual Report or not. Annual Report. Compliance Officer Mr Vivek Agarwal Company Secretary & Legal Head. Address: CMC Limited, PTI Building, 5th Floor 4, Sansad Marg New Delhi-110 001 Phone: +91-11-23736151-58Ext 632 +91-11-23738075 (Direct) Fax : +91-11-23736159 e-mail : General Shareholder Information Annual General Meeting: Date and time : August 30, 2004 at 2.30 p.m. Venue : Bhartiya Vidya Bhavan Auditorium Basheerbagh Hyderabad-500029 Financial Calendar : 1st April to 31st March Financial reporting for a) Quarter ending June, 30, 2004 : July, 2004 b) Quarter ending Sept. 30, 2004 : October, 2004 c) Quarter ending Dec. 31, 2004 : January, 2005 d) Quarter ending March, 31 2005 : April/May, 2005 Date of Book Closure : Thursday, August 26, 2004 to Monday, August 30, 2004 (both days inclusive) Dividend Payment Date: : The dividend warrants will be posted with in a week’s time of the A.G.M. on and after August 30, 2004. Listing: The Stock Exchanges on which the Company’s shares are listed: The Stock Exchange, The Calcutta Stock The National Stock Exchange Mumbai, Phiroze Association Ltd. Association of India Ltd. Exchange Plaza, 5th Floor Jeejeebhoy Towers 7, Lyons Range Dalal Street Kolkata-700001 Plot No.C/1, G Block Mumbai-400001 Bandra-Kurla Complex Bandra (E), Mumbai-400051 Madras Stock Exchange Association Ltd. 11, Second Line Beach Chennai-600001 The Company, has already applied for delisting of its shares from Madras, and Kolkata Stock Exchanges and their communications are awaited. 26 CMC 14.p65 26 8/10/2004, 3:00 PM