FCI OEN CONNECTORS LTD

Regd.Office:XXIX/2089, Tripunithura Road, Thykoodam, Cochin 682 019

DIRECTORS' REPORT

We are pleased to present the annual report and accounts for the year 2006

FINANCIAL RESULTS
The financial results are summarised below:

ECONOMIC SCENARIO

The Indian economy is witnessing robust growth. GDP grew during 2005-2006 at 8.1%. RBI sees the GDP further growing in 2006-2007 at 9.2%. The manufacturing sector is expected to grow at 11.3% during this fiscal year.

Though telecommunication sector has been under-performing in the past three years, the sector reversed the direction and started growing. Focus is being given to the communication sector by the Government, consequent to which tele-density is expected to grow to 250 million telephone connections in 2007, up by over 100 million from previous year.

BUSINESS PERFORMANCE

During the year, sales to Communication & Data market grew. With the Government's initiative for higher tele-density, local telecom equipment manufacturers started scaling up their production plans. Many international players in the communication market such as Nokia, Ericson, Motorolla scaled up their operations in India. Contract equipment manufacturers such as Flextronics, Soletron, Volex etc also strated their operations in India to support the original equipment manufacturers. This resulted in higher business for your Company.

FCI OEN is working very closely with Tejas Networks, an Indian Telecom equipment manufacturing company.  Your Company supplies connectors and cable assemblies / board assemblies  to these equipment manufacturers.

Data market recorded reasonable growth in 2006.   Industrial , Automotive, Electrical segments also showed marginal growth during the year.  These markets helped to increase your Company’s turnover.

Margin was under heavy pressure due to the steep increase in metal prices, which constitute around 50% of raw material cost.   Your Company fared reasonably well by adopting cost cutting measures,  bringing new product lines, adding value added business, entering new markets and customers.

 Exchange rate fluctuations  during the year under report  resulted in gain for the Company.

CURRENT YEAR PERFORMANCE

Sales for the month of January 2007 was Rs.144 million against Rs.116 million during the corresponding period of last year.  Communication and Data market is expected to grow this year also. 

Government of India 's  thrust on higher tele-density & penetration of telephone lines in rural areas,  setting up of operation in India by telephone equipment manufacturers and contract equipment manufacturers;  will all augur well for your Company.

There is a mobile phone explosion in the country.  FCI does not have much presence  in the  mobile  connector  market; but connectors required for switching stations of mobile operators are being supplied by FCI.  Hence greater mobile penetration in India will also benefit your Company.

As India has the inherent advantage of  having  highly skilled labour force coupled with strong domestic requirement of telecommunication equipments, more players in this market are expected to set up operations  in India  in future.

Bangalore factory is now fully geared up to cater to the increasing demand of cable assemblies, which goes into the Communication & Data market.   Your Company continues to cater to customers in the data market.  Major customers include APC.   Your Company has the strength of a large portfolio of products including  connectors  with high speed application  and  good engineering capability. 

SALES CHANNELS

Your Company has predominantly opted  for the direct sales channel.  Your Company has central sales office at Cochin and sales offices in all the major cities  in India.  This facilitates good contact with customers.  Few distributors are engaged to sell the matured products to different territories.  For overseas market,  parent company’s marketing network, helps the Company considerably.

Sales to the Indian market is not only from products manufactured by your Company; but also from products manufactured in FCI’s overseas locations.  During the year 2006,  36% of  total domestic sales came from such trade sale activity.   We expect this trade sales to improve in the current year too.

EXPORTS SALES

Exports have crossed the Rs.1 billion mark for the first time, up from Rs.828 million in 2005.  This is a significant growth of over 28% year over year.  55% of exports were to Asia Pacific, and the region has emerged as the largest.  34% export sales went to Europe and 11% to Americas.  This trend is likely to continue in 2007 also, with the Asia Pacific likely to record  most growth.

SALE OF ELECTRICAL AND AUTOMOTIVE BUSINESS

On 5th May 2006, FCI at France decided to sell off its Electrical Connectors business world wide excluding USA & Japan.  This was as part of FCI’s move to concentrate on its core areas such as communication, automotive and micro connections.  Since FCI was the sole source of technological support for this business for your Company, the Board decided to sell the electrical business. The shareholders approved the sale and on  24th October 2006, a formal agreement was entered into with SICAME India Connectors Pvt. Ltd,  at a  consideration of Rs.40.41

The Board of Directors of your Company on 12th December 2006, discussed economics of  continuing the  automotive connector business and decided to sell off the said business to FCI Technology Services Ltd, for a consideration of Rs.258.2 million, plus value of assets tobe acquired for the Auto business from 10th December 2006 to 31st December 2006 subject to the approval of shareholders.  The Postal Ballot process has been completed and the resolution for the sale of automotive business has been duly approved by the shareholders.  The transfer of business will take place after the approval by FIPB and after executing a formal agreement by the parties.

QUALITY

Quality department of FCI OEN employs experienced and qualified personnel.  The primary functions of Quality department includes Maintenance of Quality Management System & Environmental Management System, Handling of Customer Issue, Maintenance of Product Approvals , Maintenance of Testing Laboratory , Calibration of Measuring Instruments, conducting of audit ( Product audit , Manufacturing process audit & dock audit ) , Product Qualification and Supplier Quality Assurance Activity.
In 1993, your Company became the first connector manufacturer in India to be certified to ISO 9002.Quality System.  Quality System was upgraded to QS9000 Certification in year 1998 and to  ISO/TS 16949 :2002 from 2003. As part of commitment towards the environment, FCI OEN got certified to Environmental Management System ISO14001.

DEMATERIALIZATION OF SHARES        

1507384 equity shares  of the Company in NSDL and 212223 equity shares of  the Company in CDSL  comprising 23.93% and 3.37% respectively of the  equity  capital have been dematerialised as on 31st December 2006.   Other than FCI’s shareholding, only 4.39% equity shares remain to be dematerialised.

DIVIDEND

The Board  of Directors has recommended payment of dividend at the rate of 22.5% for the year ended 31 December 2006.

The Board has also agreed to declare an interim dividend of 50% for the current year, subject to the sale of the automotive connectors business being completed.  This would be a special one-time interim dividend for the current year to recognise the profits arising out of the sale of the automotive connectors business.  This dividend  will be declared by the Board as soon as possible after the said sale is complete in all respects. 

SUBSIDIARIES

OCL Infomatics Ltd, an 85% subsidiary had been engaged in the business of software training.  The said business was sold “as a going concern”  to  M/s.  Ideonic Systems (P) Ltd. on 4th August 2005.  Thereafter the Company was functioning as a Shell Company.   The shareholders of the Company at its meeting dated  29th June 2006 resolved to wind up the Company under “Members voluntary winding up”.  The process of winding up is on.  Hence information as required under section 212(1)(a),(b),(c), (d) and (f) of the Companies Act 1956 are not attaching herewith.

DIRECTORS

Dr. M.V. Pylee  and Ms. Sylvie Richard retire by rotation at the forthcoming Annual General Meeting and being eligible offer themselves for re-election.

Dr. M.V. Pylee, Director, was awarded the "Padmabhusan" from Government of India to civilians, for the year 2006. This is  one of the highest civilian awards in India.  Mr. P.K. Kurian, Director received Management Leadership Award instituted by Kerala Management Association.  

DIRECTOR'S RESPONSIBILITY STATEMENT

As per the provisions of Section 217 (2AA) of the Companies Act 1956, the Board confirms that

1. The financial statements are in full conformity with the requirements of the Companies Act 1956  and         applicable accounting standards had been followed along with proper explanation relating to material      departures.

2. The Directors have selected such accounting policies and applied them consistently and made judgements      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 profit or loss of the Company for that period.

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

4.  The Directors have prepared the annual accounts on a going concern basis.

EMPLOYEES

Your Directors wish to acknowledge the support and valuable contributions on the part of all employees.

Information pursuant to Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 is given in the annexure to the Annual Report.   In terms of Section  219 (1)(b) (iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid annexure.  Any shareholder interested in obtaining copy of the same may write to the Company Secretary at the Registered Office.  None of the employees listed in the annexure, other than Managing Director, is related to any Director of the Company.

CORPORATE GOVERNANCE

Your Company has complied with corporate governance requirements and the details as required under the listing agreement appear below. The auditor's certificate on compliance with the mandatory recommendations of the committee is annexed to this report.

AUDITORS

M/s. Deloitte Haskins & Sells, Chartered Accountants, statutory auditors of the Company retire at the ensuing AGM.  The said auditors intimated the Company of their inability to continue as statutory auditor of the Company for the ensuing year.  Company received consent letter from M/s. Lovelock & Lewes, Chartered Accountants, Chennai, for accepting the position of statutory auditor, if the same is approved by the shareholders.

FIXED DEPOSITS

18 deposits amounting to Rs.294,000/- due for repayment before 31 December 2006, were not claimed as on that day.  Notices have been sent to the depositors concerned to renew or close the account.

APPRECIATION

Your Directors wish to place on record their appreciation for the continued support received from Shareholders and Banks.  The unstinted support of FCI has greatly contributed to the Company’s performance and growth.  Your Directors are also grateful to the Company's business partners and customers for their support and patronage.