LETTER TO SHAREHOLDERS
A robust foundation for the golden decade
Dear Fellow Shareowners,
It gives me great pleasure to share with you the exceptional performance of our Company in FY 2018-19. Our revenue and profit numbers have touched new heights, strengthening our position as India’s largest private sector company by market capitalisation and profitability.
We now rank in the top 100 profitable companies in the Fortune Global 500 list of ‘World’s Largest Corporations’. We delivered a solid performance in our hydrocarbons businesses despite the volatile oil price environment and incremental capacities in some of our product categories.
Consumer businesses witnessed phenomenal growth in terms of revenues and profitability, with Reliance Retail and Jio now collectively contributing nearly 25% of consolidated segment EBITDA.
Global economic growth remained healthy at 3.6% in CY 2018, as against 3.8% in CY 2017, impacted by weaker performance in the European Union and China.
Economic activity was driven by a boost in spending due to tax cuts by the US.
Global trade growth was robust in the first half of 2018, but tapered later in the year with trade tensions and higher energy prices.
The Indian economy continued to witness an increase in investments, with Gross Fixed Capital Formation growth at a six-year high of 10%. Healthy industrial activity continued and service indicators sustained positive trends. Service exports growth is at a seven-year high of almost 17%. The Indian economy remains the fastest growing major economy in the world.
In a volatile hydrocarbon chain environment, Reliance recorded its highest-ever consolidated net profit of Rs.39,588 crore (US$5.7 billion) during the year, registering a growth of 13.1% y-o-y.
The petrochemical business contributed record earnings, as the benefits of our investments in capacities and technologies offset weak margins in the polymer chain. Our refining business also delivered resilient performance in a challenging global environment where gasoline margins have plummeted to a nine-year low.
The strong financial performance also reflected the increasing contribution of consumer businesses in Reliance’s earnings.
Retail business continues to scale new heights, achieving two important milestones during the year - crossing the turnover mark of Rs.1,00,000 crore and the store count of 10,000. We are witnessing strong traction across consumption baskets, achieved on the back of unmatched service and value proposition. The strong improvement in profitability reflects our increasing scale and focus on efficiencies.
It is heartening to see India embrace the digital life. Reliance Jio continues to add subscribers at a rate unprecedented in the telecom world. With over 306.7 million mobile data subscribers, Reliance Jio has propelled India to become the largest mobile data consuming market in the world. The whole-hearted acceptance of Jio’s digital services is evident from the sheer volume of data carried on its wireless network - an astounding 3 exabytes per month. Jio is now ranked #1 among mobile telecom operators in the country, in terms of Adjusted Gross Revenue (AGR). With the demerger of fiber and tower assets, Jio has emerged as an asset-light digital services company. The demerger has also significantly reduced our leverage and strengthened our Balance Sheet.
REFINING & MARKETING
Global oil demand growth at 1.2 mb/d in CY 2018 was around the 10-year average despite higher oil prices. Brent, the global crude oil benchmark, at US$71/bbl in CY 2018 was higher at US$17/bbl y-o-y.
US, China and India accounted for almost all of the global oil demand growth, with oil consumption in these economies rising by 1.1 mb/d.
On the other hand, global oil supply grew by 2.6 mb/d in CY 2018. Non-OPEC supply grew by 2.7 mb/d, on the back of strong supply growth in the US (2.2 mb/d) and Canada (0.4 mb/d). OPEC (Organization of the Petroleum Exporting Countries) supply contracted by 0.1 mb/d y-o-y in CY 2018 as a result of sharp production declines in Venezuela and adherence to the supply restraint deal between OPEC and non-OPEC producers.
The Refining & Marketing segment reported a decrease of 19.8% y-o-y in EBIT- amidst a challenging price margin environment and particularly weak gasoline demand in the second half of the year. Gasoline margins have been impacted due to weak demand growth, with high pump prices and strong refinery runs leading to rising inventories.
At US$9.2/bbl, RIL’s refining margin remained relatively strong even in a dynamic and volatile market.
RIL maintained a significant premium of US$ 4.3/bbl over the benchmark Singapore complex margins. RIL’s superior refining margins are a result of superior product slate, robust risk management and higher secondary unit throughputs.
All units of the gasification complex, including air separation units, material handling systems, gasifier islands, syngas shift and processing facilities, sulphur recovery units, and associated utilities and off-sites, have been started safely.
The complex is currently under stabilisation. On the domestic retail front, with a countrywide operational network of 1,372 retail fuel outlets, RIL is covering all the key highways in the country.
Petrochemicals segment demonstrated the earning power of the new plants commissioned over the last investment cycle, unmatched integration and feedstock flexibility. During the year, we commenced cracking of Ethane at Nagothane. The impressive earnings in the petrochemicals business is a result of Reliance’s investments over the last few years. This is reflected in the record production of 37.7 MMT and highest ever earnings delivered by the business this year. The EBIT margins increased by 180 bps this year on the back of strong integrated polyester chain margins.
The strong results were achieved in an environment of declining utilisation rates in key product chains with new supply ramp-up. This demonstrates the resilience of the Reliance business model, which is based on deep inter-linkages between refining and petrochemical chains, feedstock flexibility and a wide product portfolio.
By leveraging the capabilities in polymer formulations, materials engineering, product design and 3D printing, Reliance is strengthening its new business line for Advanced Materials & Composites to deliver innovative products and solution offerings to the industry.
OIL & GAS
FY 2018-19 marked progress on plans to monetise our discovered deepwater resources. Development work for R-Cluster and Satellite Cluster fields has commenced, while field development plans for MJ have been approved by the government. These fields are expected to come on-stream from mid-2020.
We also progressed on the second phase of development activities at our domestic CBM blocks to enhance production from these fields.
Our ongoing upstream business continues to be impacted by a natural decline in volumes. Domestic production was down 25.4% at 58.9 Bcfe, while the US Shale volume fell 32.4% to 94.5 Bcfe during FY 2018-19. There has been steady production from the CBM fields in Sohagpur.
Reliance Retail became the first retailer in India to cross the Rs.1,00,000 crore turnover milestone and is now ranked 94th in Deloitte’s Global Powers of Retailing 2019 list. Reliance Retail also crossed the 10,000 store count milestone. It has cemented its position as India’s largest retailer by revenue and profitability, delivering superior value to its customers, suppliers and other stakeholders.
Reliance Retail’s revenue growth in FY 2018-19 was primarily driven by aggressive store addition and spurt in same-store sales. Growing at a rate of nearly 10 stores per day in the last two years, Reliance Retail witnessed one of the fastest store expansions in the world.
It added a total of 2,829 stores to its tally during FY 2018-19. As on March 31, 2019, Reliance Retail operated 10,415 retail stores in over 6,600 towns and cities, covering 22 million sq. ft. of area.
Reliance Retail’s New Commerce initiative is now in the pilot phase. The differentiated business model will provide a technology platform for millions of small merchants across India to strengthen and grow their business. Leveraging technology and connectivity, the platform will drive efficiency and value creation for all players in India’s retail market -principally the producers / brand owners, supply chain, merchants and customers.
Jio added an average 10 million subscribers a month and crossed the 300 million subscriber milestone this year to become the world’s fastest growing digital services company. Jio has not only revolutionised India’s telecommunication industry but also digitised its hinterlands through its extensive network penetration. Recently,
Jio was recognised for its meaningful impact by being ranked #1 globally on Fortune’s ‘Change the World’ list.
The ranking evaluates companies that use the profit motive to help the planet and make an important social impact.
Jio maintained a healthy growth momentum in financial parameters too, with its EBITDA and net profit witnessing a sharp growth of 124% y-o-y and 310% y-o-y, respectively.
The phenomenal level of customer engagement on Jio’s platform is evident from the fact that over 3 exabytes per month of data is carried on its wireless network. Every Jio subscriber consumes on an average 10.9 GB data, 823 minutes of voice calls and 17 hours of video per month. In CY 2018, Jio carried close to 71% of the total 4G traffic of India.
It has also entered into a series of content partnerships with Disney and Star India, among others, to provide best-in-class content to its subscribers.
Wireline network connectivity in India continues to remain underserved.
Jio is working towards serving the need for better connectivity with its GigaFiber services. This would include home broadband, entertainment and smart home IoT solutions. Jio, with its FTTH services, has set a target to connect 50 million homes across the country. To accelerate Jio’s commitment to connect 50 million homes with Jio’s solutions, RIL has made strategic investments in Hathway Cable and Datacom Limited and DEN Networks Limited.
During the year, Jio demerged passive tower and fiber infrastructure into an InvIT structure. Jio has now emerged as an asset-light, focussed digital services company.
CREATING AN INDIAN DIGITAL ECOSYSTEM
We are making a strategic transition by creating multiple platforms across consumer business, agriculture, education and healthcare that will accelerate our growth. In addition to its own digital platform, in the past year, Reliance has partnered with more than a dozen coming-of-the-age businesses. These are mostly in the Technology, Media and Telecom (TMT) and retail sectors, along with strategic investments in two major MSOs - Hathway and Den. Reliance believes that creating an ecosystem with new-age entrepreneurs will help unleash the potential of India’s vast human capital.
ROBUST CASH FLOWS AND BALANCE SHEET
During the year, Reliance generated a record PBDIT of Rs.92,656 crore, up 26.8% y-o-y, and its highest ever net profit of Rs.39,588 crore, up 13.1% y-o-y. RIL enjoys prime credit ratings as a result of its fiscal prudence and strong cash flows. We have retained our domestic credit ratings of ‘CRISIL AAA’ from CRISIL and ‘IND AAA’ from India Rating. For our international debt, we have an investment grade ‘Baa2’ rating from Moody’s and ‘BBB ’ from S&P.
During FY 2018-19, Reliance Jio Infocomm Limited (RJIL) successfully tied up JPY 53.5 billion - the largest Samurai loan for an Asian corporate and also for a telecom company. Additionally, RJIL tied up US$825 million and EUR 150 million K-Sure-supported Export Credit Agency (ECA) financing with door-to-door tenor of over 10 years - the largest financing transaction globally in the telecom sector supported by K-Sure.
The demerger of the tower and fiber assets of Jio into separate InvITs has helped establish Jio franchise as an asset-light digital services company.
The transaction has resulted in a significant liability reduction for Reliance.
Reliance will also get to participate in value-unlocking through third-party use of these infrastructure assets through the preference shares that Reliance holds in these entities.
GOVERNANCE AND SAFETY
Reliance’s governance standards are built on the foundation of systems that support transparency and ethical business conduct. In an effort to strengthen risk management and internal controls, Reliance instituted the Reliance Management System (RMS), designed to operationalise a harmonious work culture by codifying and embedding standardised processes into the DNA of every function. RMS has been further strengthened by leveraging the power of digitised platforms.
In all our businesses, the health and safety of our employees is sacrosanct. This year marks a decade of safe operations in the E&P business, which is a significant achievement compared to any benchmark. In FY 2018-19, we intensified our efforts on safety by implementing Competency Assurance System to ensure reliable operation delivery and safety competence among the frontline staff.
We are committed to making continuous improvements across the triple bottom line and enabling positive change in the society. Our ability to manage, utilise and transform the six capitals - Natural Capital, Human Capital, Manufactured Capital, Intellectual Capital, Financial and Social and Relationship Capital - is the key to creating value for our stakeholders. In our continued pursuit of excellence, noteworthy capital investments were undertaken, which led to reduction of carbon emissions and enhancement of resource efficiency. We are committed to becoming a leader in the emerging circular economy and becoming one of the largest recyclers of plastics in India.
Integral to growing revenue is the ongoing improvement of our social and relationship capital. Reliance Foundation is committed to bringing about a positive change in the lives of our stakeholders. Our business objectives are aligned with the Global Sustainable Development Goals, which is reflected through our work in the areas of rural transformation, health, education, sports for development, disaster response, arts, culture and heritage, and urban renewal. In FY 2018-19, there was an impressive growth in the number of beneficiaries of our community outreach programmes.
We are in a rapidly changing world where digital connectivity and abundance of data is reshaping value creation models across verticals. We continue to improve and evolve consistently, fostering an entrepreneurial mindset across the organisation. Overall, we delivered yet another year of robust performance, achieving remarkable success across our businesses. I would like to thank the entire team at Reliance for their untiring efforts and unflinching commitment to achieve the lofty goals we have set for our golden decade.
I would like to convey my sincere appreciation to the Board of Directors for their guidance. I would also like to express my heartiest gratitude to all our stakeholders for their enduring faith in Reliance.
With best wishes,
Mukesh D. Ambani
Chairman and Managing Director
July 2, 2019