CORPORATE GOVERNANCE

FCI OEN’s philosophy on Corporate Governance

Your Company’s philosophy is that good corporate governance is the foundation of corporate excellence. Your Company recognises the rights of all stake holders to information about your Company, while at the same time ensuring that no one is privy to sensitive information before it reaches the public domain.

Board of Directors
FCI OEN’s Board comprises eight Directors (including one Alternate Director appointed on behalf of three foreign Directors) who have a wide and varied experience in different disciplines of corporate functioning. Managing Director is the only Whole time Director. Mr. Thierry Lacarne, Mr. Daniel Magne and Ms. Sylvie Richard are the nominees of the holding Company, FCI France. The Board has a non-executive Chairman. The Board of Directors meet at regular intervals and all major business decisions are taken after due deliberations and with unanimity of opinion.

During the year 2005, 5 Board meetings were held on 02.02.2005, 17.03.2005, 30.04.2005, 24.07.2005, and 15.10.2005.

The composition of the Board and summary of other directorships and board committee memberships of each of the Directors as on 31.12.2005 are as follows:

* - includes directorships held in public limited companies, subsidiaries of public limited companies and alternate directorships, but excludes directorships held in private limited companies and overseas companies. None of the Directors of your Company is a member of more than 10 committees or is the chairman of more than 5 committees across all companies in which they are directors.

Mr. P.K. Kurian is a partner of M/s. Menon & Pai, Cochin, carrying on the practice of Solicitors and Advocates, to whom the Company has paid fee of Rs.122,618/- for the year 2005 for professional advice rendered by the firm in which he is interested. The Board has determined that such payments in the context of overall expenditure incurred by the Company and his firm’s income is not significant and does not affect his independence.

The Board has constituted two committees viz, Audit Committee and the Investor Grievance Committee.

Audit Committee

The Audit Committee which has the mandate to monitor the Company’s financial reporting process, internal audit and to review the adequacy of internal control systems etc. met on 17th March 2005, 30th April 2005,
24th July 2005 and 15th October 2005. The terms of reference are as stipulated in Sec. 292 A of the Companies Act, 1956 and clause 49 of the Listing Agreement with the stock exchanges. The audit committee
currently comprises of Mr. S.N Talwar as the Chairman, Mr. P K Kurian and Dr. M.V. Pylee as members. All the above directors are non-executive and independent directors. Attendance particulars of these Committee
Members are as under:

Remuneration to Directors

The Board has not constituted a Remuneration Committee. All matters relating to the terms of appointment of the Executive and Non-executive Directors were considered by the Board subject to the confirmation by shareholders, if necessary.

The details of remuneration paid/ provided to directors are furnished below:-

A. To Executive Director

The service contract is for five years ending 10th December 2006. Incentive was computed based on performance criteria formulated by the Group.
B. To Non-Executive Directors

INVESTOR GRIEVANCE COMMITTEE
The Investor Grievance Committee constituted to review and redress shareholders grievances/ complaints met on 17th March 2005, 30th April 2005, 24th July 2005 and 15th October 2005. The members of the
committee are Dr. M V Pylee as the chairman and Mr. P George Varghese as Member. Mr. Biju K Elias, Company Secretary is the ComplianceOfficer. During the year under review, 3 complaints were received and disposed of. There are no pending legal cases where claims are made against the Company.

General Body Meetings

The details of Annual General Meetings held in the last three years are given below:-

No Special Resolution was passed in any of the above AGMs. Since there were no resolution that required shareholders’ approval through postal ballot, the postal ballot option was not exercised.

CODE OF CONDUCT

Board approved the Code of Conduct applicable to the Board members and the senior management of the Company on its meeting dated 15th October 2005.

DISCLOSURES

There is no materially significant transaction with related parties, i.e., Promoters, Directors or the Management, their subsidiaries or relatives conflicting with the Company’s interest. There were no instances of non-compliance on any matter related to the capital market during the last three years. Your Company has complied with all the applicable accounting standards. Your Company has affirmed that it has not denied any personnel, access to the Audit Committee of the Company (in respect of matters involving alleged misconduct) and that it has provided protection to “whistle blowers” from unfair termination and other unfair or prejudicial employment practices.

MEANS OF COMMUNICATION

The management of the Company has taken adequate steps to provide to the shareholders all the information which could have material bearing on the share prices of the Company. Company’s quarterly, half yearly and
annual results are published in leading news papers. The financial results are usually published in Economic Times and Malayala Manorama Newspapers. Immediately after the approval by the Board, the financial results are transmitted to the Stock Exchanges where the shares of the Company are listed. Also Company makes press releases to announceimportant developments which will have a bearing on the financial performance of the Company. The Company has an investor friendly website www.fcoen.com where news releases, financial results and other material information is posted. The management discussion and analysis report, which forms part of this report is attached herewith.





General Shareholder Information.

Listing on Stock Exchanges :

Stock Code : 504250 (BSE) ; OENCONNECT (NSE); OEN (CSE)

Market Price Data: High/Low during each month in last financial year.

Registrars and Share Transfer Agents (for both physical and demat segment)

M/s. Cameo Corporate Services Ltd
Subramanian Building
No. 1, Club House Road
Chennai 600 002.

Distribution of Shareholding as on 31st December 2005:

Shareholding pattern as on 31st December 2005:

Non-mandatory disclosures are not being included in this report.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Industry Structure and Development

FCI OEN Connectors has been producing a variety of connectors which caters to the requirement of Communication, Data, Automotive, Industrial, Electrical and Aero Space sectors. The Company had been mainly focusing on the Communication sector till about five years back.. In the last few years the domestic market for communication has come down since the land phones have given way to the mobile phones and consequently there has been a sizeable reduction in the installation of new Telephone Exchanges where the connectors were being used extensively. FCI OEN succeeded in overcoming this slump with increased exports. Communication business is poised to grow locally in future. Automobile sector has shown positive growth of late. The Company has been able to develop connectors for this market in a time-bound manner. A new facility for manufacturing Automotive connectors with 50,000 sq.ft manufacturing area is being set up near the existing factory which is expected to go into production during the third/fourth quarter of this year. The Company has reported good growth in the Industrial segment also. The Company’s sales has grown by 25% last year.

Opportunities and challenges

The Company has successfully completed an expansion programme where by it has acquired the capability for producing connectors for high speed applications and a variety of Smart cards which has good potential both in the export as well as inthe domestic market. With the augmentation of capacity in the Automotive connector manufacturing, there will be a quantum jump in the Turnover from 2007 onwards. With this addition of manufacturing capacities with the state of art technology, the Company is poised for a rapid growth in the coming years. The Company’s capability in the Engineering and Design fields and its fully integrated manufacturing facility to produce connectors to the choice of a wide global market at very competitive prices puts it in a very unique position . The challenges pertain to reaching global standards.

Segment-wise performance
FCI OEN is engaged in the business of manufacture and sale of connectors and accordingly this is the only primary reportable segment.

Outlook
With increased focus on exports combined with expansion plans in the non-communication sector , there will be accelerated growth for the Company in 2006 and beyond.

Risk & Concerns
The slump in the Communication sector in the domestic market is still continuing because of which the Company has not been able to utilise the capacity available for these products. The Company is facing a very competitive market. Therefore margins can be affected. The Company’s performance may also be affected
by unforeseen technology changes.

Internal Control Systems & their Adequacy
Internal control systems procedures are being reviewed periodically by the Audit Committee. An external firm of Chartered Accountants have been appointed to do the internal audit.

Discussion on financial performance with respect to operational performance

Net sales increased by 25% to Rs.1409 million (Rs.1130 million in the previous year). Export sales increased by 31% to Rs.828 million (Rs.631 million in the previous year). Operating profit has increased to Rs.350 million (previous year Rs.257 million). Profit before tax increased by 49% to Rs.260 million (Rs.175 million in the previous year). Profit after tax remains at Rs.175 million (Rs.118 million in the previous year).

Material Developments in Human Resources/ Industrial Relations

The Company continued to maintain cordial relationship with its employees throughout the year. There were no material developments in the industrial relations front.

C E R T I F I C A T E
(Under Clause 49 of the Listing Agreement)