WELSPUN GLOBAL BRANDS LTD.

Transcription

1 WELSPUN GLOBAL BRANDS LTD. CORPORATE INFORMATION Board Of Directors: Mr. B. K. Goenka Ms. Dipali Goenka Mr. R.R. Mandawewala Mr. Arun Todarwal Company Secretary: Mr. Devendra Patil Statutory Auditors Price Waterhouse & Co. Mr. Atul Desai Mr. K.H. Viswanathan Mr. Arvind Singhal Ms. Revathy Ashok Audit Committee: Mr. K.H. Viswanathan Mr. Atul Desai Mr. Arun Todarwal Shareholders / Investors Grievance Committee : Remuneration Committee : Mr. Atul Desai Mr. K.H. Viswanathan Mr. B.K. Goenka Mr. Arun Todarwal Mr. R.R. Mandawewala Mr. Atul Desai Mr. Arun Todarwal Registered Office: Welspun City, Major Subsidiaries : Village Versamedi, Tal : Anjar, (i) Sorema: R. Limites No.145, Dist. Kutch, Apt. 195, , Espinho, Portugal Gujarat Tel: (ii) Christy : Carrfied Mills, Newton Street, Fax : Hyde, Cheshire SK14,4NR, UK Corporate Office: Welspun House, (iii) Welspun USA Inc. 6th Floor, 295, Fifth Avenue, Suite 1118, Kamala City, New York Senapati Bapat Marg, Lower Parel, Mumbai (iv) Welspun Retail Limited Tel : Corp Office : B-9, Trade World,Kamala Mills, Fax : Senapati Bapat Marg,Lower Parel, Mumbai - 13 Registrar and Transfer Agents: Link Intime India Private Limited C-13, Pannalal Silk Mills Compound, L.B.S. Marg, Bhandup (West) Mumbai Bankers: State Bank of Bikaner & Jaipur Punjab National Bank Canara Bank State Bank of Patiala Oriental Bank of Commerce Bank of India State Bank of India Andhra Bank Exim Bank Ltd. Bank of Baroda IDBI Bank

2 Annual Report Key Management Team Mr. B.K. Goenka *Chairman, WGBL Mr. R. R. Mandawewala Director, WGBL Ms. Dipali Goenka Managing Director, WGBL Mr. Robert Walker Director, Christy Mr. Duarte Relvas CEO, Sorema Mr. J Barry Leonard CEO, Welspun USA * Member of the Board of Directors 2

3 WELSPUN GLOBAL BRANDS LTD. Message from Chairman My dear fellow Stakeholders, It gives me immense pride to inform you all that Welspun Global Brands Ltd (WGBL), the sales, marketing and distribution company of Welspun have been successfully listed in Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) on July 25, With this listing we have embarked on a new journey for WGBL. Going forward, WGBL will be a separate entity handling all the sales and marketing of Welspun India Ltd. It was in 2009 that WGBL was demerged from WIL, and it is very heartening to say that WGBL has now completed its second year of operation. We continue to retain our position as strategic vendor to more than 12 of the top 30 retailers in the world. Our sales and distribution network is spread across 32 countries. Apart from that we are vendors to the top retail chains and we also have our own retail operations in UK, Portugal and India through our subsidiaries. In addition to our existing operations in USA, UK and Portugal, we acquired Koni Corporation in Koni Corporation is a company focused on providing end-to-end solutions for the hospitality business and also has a manufacturing facility for bedding at Rosarito in Mexico. With the acquisition of this business, we expect to rapidly expand our presence in the hospitality segment as well. As a vendor to top retailers, a major portion of our revenues continues to come from private label business. This is a high volume low margin business. Despite the challenges posed by the cotton scenario in 2010, we have been able to pass on a portion of the price increase to our customers through aggressive sales push and innovation. The global textile and apparel industry is expected to grow to $1 trillion by 2020 from the current levels of $510 billion. The growth in trade will continue to be driven by increased outsourcing or shift in manufacturing from developed countries to lower cost countries. Asian economies are likely to benefit significantly from this shift given the availability of raw material as well as relatively cheap labour. Textile exports from India have also grown and were estimated to be $23.5 billion in , a share of 4.5%. This share is expected to go up to $80 billion or 8% by Despite stiff competition from China and other Asian economies, India can expect continued growth, as global players are looking for alternatives to China. WGBL has distinguished itself in the key markets through its ability to read trends and respond effectively and quickly to the cotton crisis. We have offered various comprehensive solutions to our customers to tide over this situation which has helped us grow our revenues. WGBL s key competitors are manufacturers from India, China and Pakistan and large sourcing houses. Our organization is structured towards addressing both these types of competitors through a solutions based approach to home textiles products rather than offering only a low-cost option to the customer. The current industry structure is also seeing increased longer term partnerships with customers across the board as well as the need for retailers to reduce their vendor base to control costs. We see this as a positive trend for Welspun s textile business as a whole as this will provide us with longer terms contracts and revenue visibility. With a strong market presence across USA, UK and Europe, we have a multi-location design team that develops world class designs for our customers. We are able to quickly develop new designs for customers based on the emerging trends in the market and also execute them with ease. Our highly motivated marketing and merchandising team are continuously researching the markets to find out what consumers want and offering solutions accordingly. We are able to offer new products solutions at various price pints by focusing on innovation. WGBL therefore is a one-stop shop solution provider to all our customers. With the flex-plm software being currently 3

4 Annual Report implemented, we will be on par with the best practices in the retail industry and the first to adopt this in the textile manufacturing industry. Another feat worth mentioning is the unveiling of the new range of Wimbledon Towels This is the second time in a row that these iconic towels have been manufactured by us. In fact, the demand was six percent higher than last time. This clearly implies that our distinct brand of excellence has been the driving force behind our every successful venture. Apart from this we were ranked third in the Top 15 Supplier Giants (USA) in a survey conducted by Home Textiles Today magazine. The ranking was done based on the sales of 2009 home textiles. All home textiles categories, bed, bath, kitchen, table linen and window coverings, including alternative window coverings, custom decorating and accessories that are generally sold with textile items, are included in the sales estimates. This was not all even in Bath Towels category Welspun USA were ranked number one. While in the comforters and sheets & pillowcases category Welspun USA was ranked fourth respectively. It was a year of recognition for WGBL when it won various awards for their superior performance in delivering value added services to the customers. Some of the accolades that we have won are Sustainability award for Process Innovation- Indian Carbon Outlook, 2011, Outstanding CSR in Textile sector- India Shining Star CSR awards, 2011, Value award- Tesco, 2010 amongst others. Going forward, we aim to consolidate our North American and European operations under our US and UK based subsidiaries respectively to leverage on our market position. Another focus area is consolidating our position in the hospitality business in the US. Finally, on behalf of the Board of Directors, I take this opportunity to thank all our shareholders for their confidence and faith in the company, our bankers, customers and vendors for their continued co-operation and support. I would also like to thank all the employees of the Company, for their dedicated services. B. K. Goenka Chairman

5 WELSPUN GLOBAL BRANDS LTD. DIRECTORS' REPORT To, The Members, WELSPUN GLOBAL BRANDS LIMITED th Your directors have pleasure in presenting their 11 Annual Report together with Audited Statement of Accounts for the period ended March 31, FINANCIAL RESULTS (Standalone) (Rs. in million) (Rs. in million) Income 18, , Expenditure 18, , Profit Before taxation Provision for taxation Current Tax Short Provision for Tax in Earlier Year Deferred Tax (4.98) (3.56) Profit After Taxation Profit and Loss Account Balance B/F Balance Carried to Balance Sheet During the financial year under review, the total income from operations registered growth of 15.81% over the previous year, whereas Profit Before Tax has declined by 29.33% mainly due to the fact that there was a significant amount of other income (mainly from Foreign Exchange Valuation difference) in the previous year which did not occur in the financial year under report an increase in selling and administration cost compelled by tough market conditions. DIVIDEND Keeping in view the overall performance and the need to conserve resources to meet the challenges ahead, your directors do not recommend any dividend for the period ended March 31, Your directors believe this to be in the long term interest of the Company as well as its stakeholders. LISTING OF EQUITY SHARES In response to the Company s application for getting the required permission for getting relaxation from applicability of Rule 19 (2) (b) under the Securities Contract (Regulations) Rules, 1957, Securities and Exchange Board of India (SEBI) vide its letter dated March 31, 2011 granted the desired relaxation. The Company is now in the process complying the necessary formalities to get the Company s equity shares listed on the stock exchanges. As apprised in the last annual 8

6 Annual Report report these equity shares were allotted pursuant to the Composite Scheme of Arrangement in the nature of Demerger for transfer of Marketing Division of Welspun India Limited (WIL) to Welspun Global Brands Limited. PUBLIC DEPOSITS The Company does not accept any deposit from public and hence has not contravened provisions of section 58A of the Companies Act, 1956 and Companies (Acceptance of Deposits) Rules, 1975 and Reserve Bank of India Rules, if any. DIRECTORS The Board of Directors of the Company at its meeting held on April 01, 2011, had appointed Ms. Revathy Ashok as an additional director of your Company. As per the provisions of Section 260 of the Companies Act, 1956 she will hold office until the conclusion of the forthcoming Annual General Meeting of the Company. The Company has received notice under Section 257 of the Companies Act, 1956 along with requisite deposit in respect of Ms. Revathy Ashok, proposing her appointment as director of the Company. Further, in the same board meeting the Board of Directors appointed Ms. Dipali Goenka, as an additional director of the Company. The Company has received notice under Section 257 of the Companies Act, 1956 along with the requisite deposit in respect of Ms. Dipali Goenka, proposing her appointment as director of the Company. She was also appointed as the Managing Director of the Company w.e.f April 1, 2011, subject to the approval of the shareholders in general meeting. Mr. Rajesh Mandawewala in view of his expanded role across the Welspun Group resigned as the Managing Director w.e.f April 1, 2011 but would continue as a non- executive director of the Company. Your directors place on record their appreciation of the valuable service rendered by Mr. Rajesh Mandawewala during his tenure as the Managing Director of the Company. In term of the provisions of the Companies Act, 1956 and as per the Articles of Association of the Company, Mr. K. H. Viswanathan, Director of the company retires by rotation and being eligible offers himself for re-appointment. Brief resume of the directors proposed to be appointed/re-appointed are provided in the Notice for convening the Annual General Meeting. AUDITORS The Auditors of the Company, M/s Price Waterhouse & Co. Chartered Accountants, firm registration No S will retire at the conclusion of the ensuing Annual General Meeting of the Company and are eligible for re- appointment. M/s. Price Waterhouse & Co. Chartered Accountants, firm registration no S have expressed their unwillingness to get re-appointed as the Statutory Auditors of the Company. Your Board, recommends the appointment of M/s. Price Waterhouse, Chartered Accountants, New Delhi having firm registration no. FRN N as the Statutory Auditors of the Company. M/s Price Waterhouse, Chartered Accountants, New Delhi have confirmed that their appointment, if made, shall be within the limits of Section 224(1B) of the Companies Act,

7 WELSPUN GLOBAL BRANDS LTD. AUDITORS REPORT With respect to the qualification contained in the Auditors Report on standalone financial statements, Note number 4 (a) of the Notes to Accounts in Schedule 19 is self explanatory and hence does not call for any further explanation. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO Your Company has no activity relating to Conservation of Energy and Technology Absorption as stipulated in the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, During the year under review, the expenditure of your company in foreign currency was Rs million (previous year Rs million) and income in foreign currency was Rs million (previous year :Rs million) PARTICULARS OF EMPLOYEES No employees has drawn salary in excess of the limits specified under Section 217 (2A) of the Companies Act, 1956 read with rules made there under. PARTICULARS OF SUBSIDIARIES The Statement pursuant to Section 212 of the Companies Act, 1956 containing details of subsidiaries of the Company, forms part of the Annual Report Ministry of Corporate Affairs vide its circular No. 51/12/2007- CL III dated February 08, 2011 has granted general exemption to the Companies from applicability of Section 212 of the Companies Act, The individual Annual Reports of its subsidiary companies has not been attached with the Annual Report of the Company. These documents would be made available upon request in writing by any member of the Company interested in obtaining the same. MANAGEMENT DISCUSSION AND ANALYSIS REPORT The Management Discussion and Analysis forms part of this Annual Report DIRECTORS RESPONSIBILITY STATEMENT The Directors confirm that they had: a. followed in the preparation of annual accounts, the applicable accounting standards and given proper explanation relating to material departures, if any; b. 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 at the end of the financial year and of the profit and loss of the company for that period; c. taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act so as to safeguard the assets of the company and to prevent and detect fraud and other irregularities; and 10

8 Annual Report d. Prepared the accounts on a going concern basis. ACKNOWLEDGEMENTS Your directors wish to place on record their appreciation for the valuable support and assistance received by your Company from Banks, Government and their departments. The Board also thanks the employees at all levels for their dedication, commitment and hard work put in by them for the Company s achievements. For and on behalf of the Board June 21, 2011 B. K. Goenka Mumbai Chairman 11

9 WELSPUN GLOBAL BRANDS LTD. CORPORATE GOVERNANCE REPORT I. Philosophy on Corporate Governance: The Company is committed to good corporate governance with accountability and transparency in all its dealing, and places emphasis on business ethics to achieve fairness to all stakeholders. The Company continuously strives to attain higher levels of accountability, transparency, responsibility and fairness in all aspects of its operations. Board of Directors supports the broad principles of Corporate Governance. In order to attain the highest level of good Corporate Governance practice, Board of Directors lays strong emphasis on transparency, accountability and integrity. The basic philosophy of Corporate Governance in the Company is to achieve business excellence and dedicate itself for increasing long term shareholder value, keeping in view the needs and interest of all its stakeholders. II. Board of Directors Your Company is managed and controlled by the professional Board of Directors. The Board comprises of a balanced combination of executive / non- executive and independent directors. Your Company s Board consists of eminent persons with considerable professional expertise and experience. Composition and category of directors; attendance of each director at the board meetings and the last AGM; as also the number of directorships and committee memberships held by them in other companies and number of board meetings, dates on which held, are as under: Name of Director Category Board Meetings Attendance at the No. of Directorships in No. of Chairmanship(s)/ Attended Last AGM other Indian Membership(s) during Public Limited of Committees in the Year Companies other Public Ltd Cos.@ Mr. B. K. Goenka Chairman P, NE, C, S 2 No 14 5 Mr. R. R. Mandawewala P, E, S 4 No Director (ceased to be the MD w.e.f April 01, 2011) Mr. Arun Todarwal- Chairman ships Nominee Director, Dunearn NE, S 4 No Mr. K.H. Viswanathan NE, I 4 Yes Mr. Atul Desai NE, I 4 No Mr. Arvind Singhal NE, I 2 No Ms. Dipali Goenka* MD, S Ms. Revathy Ashok* NE, I Member Only two Committees, namely, Audit Committee and Shareholders /Investors Grievance Committee have been considered Abbreviations: P = Promoter, E = Executive, NE = Non-Executive, I = Independent, S = Shareholder, C = Chairman, MD= Managing Director *- Inducted in the Board on April 1,

10 Annual Report Four meetings of the Board of Directors were held during the financial year Dates of those meetings were May 27, 2010, September 21, 2010, November 02, 2010, and January 20, The information as required under Annexure IA to Clause 49 is being made available to the Board. III. AUDIT COMMITTEE a. Terms of Reference: The terms of reference stipulated by the Board of Directors to the Audit Committee are as contained under clause 49 of the Listing Agreement with stock exchanges read with Section 292A of the Companies Act, The Committee acts as a link between the management, external and internal auditors and the Board of Directors of the Company. b. Composition: The Chairman of the Committee is an independent director. Three meetings of the Committee were held during the year on May 27, 2010, January 06, 2011, January 20, The composition of the Committee and attendance of the members is given hereunder: Name of Member Member/ Chairman Category Number of Meeting Attended Mr. K. H. Viswanathan Chairman Non-Executive 3 Independent Mr. Arun Todarwal Member Non-Executive 3 Mr. Atul Desai Member Non-Executive 3 Independent The Company Secretary of the Company, Mr. Devendra Patil is the Secretary of the Committee. Finance Head and Accounts Head, Internal Auditors and Statutory Auditors attended the meeting as per the provisions of section 292A of the Companies Act, The Committee invites senior executives as it considers appropriate to attend the meetings of the Committee. IV. REMUNERATION COMMITTEE: The Remuneration Committee also functions as the Compensation Committee as per SEBI guidelines on the Employees Stock Option Scheme. a. Terms of reference: To evaluate and recommend the composition of the Board of Directors, to recommend appointment and remuneration of Whole-time Directors, Managing Directors and other senior Managerial Personnel. b. Composition: Name of Member Mr. K. H. Viswanathan Mr. Arun Todarwal Mr. Atul Desai Member/ Chairman Chairman Member Member 15

11 WELSPUN GLOBAL BRANDS LTD. c. Remuneration to Managing Director: The details of remuneration paid/ payable to the Managing Director for the Financial Year are as under: 1) Mr. R. R. Mandawewala - Director (Managing Director till March 31, 2011) Salary & Allowances 2.00 Perquisites 0.25 Commission 2.47 Tenure Notice Period Severance Fees Stock Options d. Remuneration to Non Executive Directors: 5 years 6 months (Rs. in million) The Non Executive Directors do not draw any remuneration from the Company. Non Executive directors (except Promoter Directors) are entitled to the sitting fees for every meeting of the Board, Audit Committee and Remuneration Committee meeting attended. Non Executive Directors (except Promoter Directors) are paid Rs. 5,000 for attending a Board Meeting, Rs. 3,000 for Audit Committee Meeting. The details of sitting fees paid are as under: Name of the Director Sitting Fees paid (Rs.) Mr. K. H. Viswanathan 29000/- Mr. Arun Todarwal 29000/- Mr. Atul Desai 29000/- Mr. Arvind Singhal 10000/- e. Directors Shareholding: As on March 31, 2011, Mr. B. K. Goenka held 4469 equity shares, Mr. R. R. Mandawewala held 3 equity shares. None of the other directors as on March 31, 2011 holds any equity shares of the Company. f. Code of Conduct: The Board of Directors has laid down a code of conduct for all Board Members and identified senior management of the Company. The same has also been posted on the website of the Company. V. SHAREHOLDERS' /INVESTORS' GRIEVANCE COMMITTEE The Shareholders /Investors Grievance Committee was constituted by the Board of Directors to specifically look into the redressal of Investors complaints related to transfer of shares, non receipt of Annual Reports and to review the functioning of the investors grievance redressal system. The Chairman of the Committee Mr. Atul Desai is a Non Executive Independent Director. This Committee has been authorised to approve the transfer/transmission/transposition of shares. Mr. Devendra Patil, President Legal and Company Secretary is the Compliance Officer of the Company. 16

12 Annual Report a. Constitution of the Shareholders /Investors Grievance Committee Name of Member Mr. Atul Desai Mr. B. K. Goenka Mr. R. R. Mandawewala Mr. Arun Todarwal Member/ Chairman Chairman Member Member Member b. Number of Shareholders complaints received during the year: During the Year under review, total 04 Investor complaints/requests were received and were processed. All the complaints received during the year under review were processed/solved within the time limit to the satisfaction of the investors/shareholders and no complaint was pending as at March 31, 2011 for a period over 30 days. VI. MANAGEMENT a. Management Discussion and Analysis Management Discussion and Analysis of various businesses of the Company is separately given in the Annual Report. b. Disclosures by Management to the Board All details relating to financial and commercial transactions where directors may have a pecuniary interest are provided to the Board, and the interested directors neither participated in the discussion, nor do they vote on such matters. VII. GENERAL BODY MEETINGS (i) The details of Annual General Meetings held in the last three years are given hereunder: Meeting Day & Date of Meeting Time Place 8th Annual Monday, September 8, a.m. Survey No.76, Village Morai, Vapi, General Meeting Dist. Valsad, Gujarat th Annual Thursday, June 11, p.m. Survey No.76, Village Morai, Vapi, General Meeting Dist. Valsad, Gujarat th Annual Tuesday, September 28, p.m. Welspun City, Village Versamedi, Tal. General Meeting Anjar,Dist. Kutch,Gujarat (ii) Special Resolutions passed in the previous Annual General Meetings: (a) To confirm the Corporate Guarantees given by the Company in accordance with the approval of the Board of Directors for Rs crores in favour of bankers led by State Bank of Bikaner and Jaipur on behalf of Welspun India Limited, a Welspun Group Company (b) To confirm the Corporate Guarantees given by the Company in accordance with the approval of the Board of Directors for Rs.33 crores in favour of IDBI Bank Ltd on behalf of Welspun Retail Limited, a Welspun Group Company (c) To seek approval pursuant to Section 149 (2A) of the Companies Act, 1956 to commence the business specified in the Clause III (C) 70 of the Memorandum of Association. (d) To alter the Article 177 of the Articles of Association of the Company. 17

13 WELSPUN GLOBAL BRANDS LTD. VIII. DISCLOSURE a. Details of related party transactions Refer Note No. 18 to the Accounts for list of related party transactions. b. Details of information on appointment of new directors Name of the director, nature of expertise in specific functional areas, names of companies in which the person already holds directorship and membership of committees of the Board and his shareholdings in the Company forms part of the Notice of General Meeting, annexed to this Annual Report. c. Details of non-compliance There was no non compliance by the Company, nor there was any penalty or stricture imposed on the Company by the Stock Exchange or SEBI or any authority on any matter related to capital market during the last 3 years. IX. MEANS OF COMMUNICATION The Company s has filed an application for listing of the Equity Shares with Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE) and awaiting listing. Once the Equity Shares gets listed on BSE and NSE, the Company will publish the quarterly/half- yearly /annual financial results after the same are approved / taken on record by the Board of Directors in newspapers as required under the Listing Agreements entered into with the Stock Exchanges. The Financial results will also be placed on the Company s website: www. welspunglobalbrands.com Management Discussion and Analysis form part of this Annual Report. X. GENERAL SHAREHOLDER INFORMATION Annual general Meeting will be held on Thursday, September 29, 2011 at a.m. at the Registered Office of the Company at Welspun City, Village Versamedi, Taluka Anjar, District Kutch, Gujarat Financial Year of the Company is April 1 to March 31. Date of Book Closure: Thursday, September 22, 2011 to Thursday, September 29, 2011 (Both days inclusive) for the purpose of Annual General Meeting. Dividend payment date: Not applicable. The Company s Equity Shares are proposed to get listed on Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE). Market Price Data and Performance in comparison BSE Sensex and NSE Nifty is not available as the Company s shares are not listed as on date. Registrar and Transfer Agent: The Company has appointed Registrar and Transfer agent to handle the share transfer work and to solve the complaints of Shareholders. Name, Address and telephone number of Registrar and Transfer Agent is given hereunder: M/s. Link Intime India Private Limited Unit: Welspun Global Brands Limited C-13, Pannalal Silk Mills Compound, LBS Marg, Bhandup (West), Mumbai Tel : rnt.helpdesk@linkintime.co.in Contact person: Mr. Joy Verghese Share Transfer System: Share Transfers in physical form can be lodged with Link Intime India Private Limited at the above mentioned address. The transfer requests are normally processed within days of receipt of the documents, if documents are found in order. Shares under objection are returned within two weeks. 18

14 Annual Report Distribution of Shareholding: No. of Equity No. of Percentage of Total No. of Percentage of Shares held shareholders Shareholders shares held Shares held Upto above Total Dematerialisation of shares and liquidity: Around 99% of the Company s share capital is dematerialised as on March 31, Equity Shareholding of Welspun Global Brands Limited 8% 1% 91% Physical Form NSDL CDSL The Equity shares of the Company are available under dematerialised form with National Securities Depository Limited (NSDL) and Central Depositary Services (India ) Limited (CDSL). The International Securities Identification Number (ISIN) allotted to the Company is: INE390K There are no Outstanding GDR s/adr s/convertible as at March 31, Address for correspondence: Company Secretary Welspun Global Brands Limited Welspun House, 7th Floor, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai Tel: , Fax: CompanySecretary_Wgbl@welspun.com For and on behalf of the Board Date : June 21, 2011 B. K. Goenka Place : Mumbai Chairman 19

15 MANAGEMENT DISCUSSION AND ANALYSIS The Management Discussion and Analysis (MD&A) should be read in conjunction with the Audited Consolidated Financial Statement of Welspun Global Brands Ltd ( Welspun or the Company ), and the notes thereto for the year ended March 31, This MD&A covers Welspun's financial position and operations for the year ended March 31, Amounts are stated in Indian Rupees unless otherwise indicated. The numbers used in the analysis are on a consolidated basis, the corresponding number for the previous year have been regrouped and reclassified wherever necessary. Forward-Looking Statements This report contains forward-looking statements, which may be identified by their use of words like 'plans', 'expects', 'will','anticipates', 'believes', 'intends', 'projects', 'estimates' or other words of similar meaning. All statements that address expectations or projections about the future, including but not limited to statements about the Company's strategy for growth, product development, market position, expenditures, and financial results, are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events BUSINESS ORGANIZATION / BACKGROUND Welspun Global Brands Limited (WGBL), created through the demerger from WIL in 2009, has now completed its second year of operation. As the sales and marketing arm of Welspun India Limited (WIL), WGBL continue to retain its position as a strategic vendor to more than 12 of the top 30 retailers in the world. WGBL s sales and distribution network is spread across 32 countries. In addition to being vendors to international retail chains, WGBL also have its own retail operations in UK, Portugal and India through its subsidiaries. In addition to its existing operations in USA, UK and Portugal, WGBL acquired Koni Corporation in Koni Corporation is a company focused on providing end-to-end solutions for the hospitality business. WGBL also purchased a manufacturing facility for bedding at Rosarito in Mexico from KOJO Worldwide Inc. With this acquisition WGBL, is expecting to rapidly expand its presence in the hospitality segment at a faster pace across US. Our textile business operation through WGBL is as given in Figure1 below: figure1 Welspun Global Brands Ltd Welspun Holding Private Limited (Cyprus) Welspun USA Inc. Welspun Mauritius Enterprises Limited Welpsun Retail Ltd. (India) Welspun Sorema Europe SA (Portugal) Welspun Decorative Hospitality LLC (USA) Novelty Home Textiles SA de CV (Mexico) Welspun Home Textiles UK Ltd. (UK) Kojo Canada Inc. (Canada) Koni Corp Inc. (USA) As a vendor to top retailers, a major portion of WGBL s revenues continues to come from private label business. This is a high volume low margin business. Despite the challenges posed by the cotton scenario in 2010, WGBL have been able to pass on a portion of the price increases to its customers through aggressive sales push and innovation. WGBL is also aggressively focusing on innovation in its existing product categories. In addition to the private label business, WGBL also have its branded business which includes owned and licensed brands. WGBL s owned brands include both product and retail brands across USA, Europe and India. This business accounts for nearly 25% of WGBL s revenues. 22

16 GLOBAL OVERVIEW Global Economic Environment 2010 witnessed a slow recovery from the financial crisis of The initial quarters saw recovery and consumer spend growing marginally. This picked up towards the latter half of the year. The risks of double-dip recession are now fading and economic recovery seems well under control. Private demand is now taking control of economic growth. Despite reports of a continued challenged economic scenario in 2011, advanced economies are expected to grow by 2.4% while the emerging economies will grow at around 6.5% this year. (see Figure 2) figure 2 5.0% 4.4% 3.0% 2.4% 7.2% 9.5% 8.4% -0.5% -3.4% World Advanced Economies Developing Asian Economies F While this growth is marginally lower than the growth witnessed in 2010, it is a positive sign for international business. Commodity prices also continue to grow reflecting stronger demand and supply shock. This trend is expected to continue though the impact on growth will be limited. This may fuel inflation in developing economies but will not impact overall growth. The positive impact of this has been the improvement in the industrial production which is now also broadening and covering the services sector. As employment recovers and job-losses reduce, economic growth will further improve. Economic Environment in USA The US economic growth was relatively slow in the initial part of However, the second half of 2010 saw higher growth with rising private consumption. 4Q 2010 saw the highest growth in consumer spending in the last 5 years. The employment situation, however, remains stressed with only 1.5 million jobs added over 2010 as against 8.5 million job losses during the crisis. The US economy is expected to continue to grow in 2011 and It is expected that it will grow at 2.75% and 3% respectively in 2011 and 2012 due to improved private spending off-setting the reduced support from fiscal policy. Economic Environment in UK The economy in UK continues to see slow growth in demand. Post the crisis, the recovery has been measured with consumer spending remaining slow. With looming economic uncertainty in part of Europe, the UK economy is projected to increase only by 1.75% in 2011 and 2.3% in This slow pace of growth is primarily being driven by fiscal consolidation in the country. High levels of taxes on individual incomes will reduce disposable income leading to continued slow pace of growth in private consumption. Economic Environment in Europe Recover in Europe has been relatively modest due to continued financial challenges in some of the smaller economies of the euro area. While unemployment remains high and there has been quick and sustained policy response in the area to control the situation and boost recovery. Growth in the area is expected to remain uneven with advanced Europe growing at 1.75% in 2011 and 2% in 2012 and emerging Europe growing at 3.25% in 2011 and 4% in The 2011 GDP growth in the key markets of Portugal, Spain and Germany is expected to be -1.5%, 0.8% and 2.5% respectively. Portugal remains a cause of concern. However, these challenges have been built into WGBL s business plan and it is poised to achieve its targeted revenues in Economic Environment in India Asia is expected to continue to grow rapidly. In the meantime, India continued to grow at over 8% in In 2011 and 2012, India s GDP growth is expected to be 8.25% and 7.75% respectively. With Asia and India continuing to grow rapidly, output is nearly close to potential levels. Accommodative policies and rising global oil and commodity prices are increasing inflation. Inflation is expected to remain high in India averaging nearly 7.5% in Infrastructure development will remain the key to foster this growth. 23

17 Export growth is expected to moderate as compared to last year s very rapid pace but is expected to remain robust. The demand from advanced economies is likely to remain relatively weak. However, domestic demand and demand from emerging economies is likely to ensure high market share from exports. As personal disposable income increases, an increase in discretionary spending especially on home is seen. Global Textile Market Update The global textile and apparel industry is expected to grow to $1 trillion by 2020 from the current levels of $510 billion. The growth in trade will continue to be driven by increased outsourcing or shift in manufacturing from developed countries to lower cost countries. Asian economies are likely to benefit significantly from this shift given availability of raw material as well as relatively cheap labour. The demand for textile industries is primarily dependent on the consumer spending. Given that home textiles is a discretionary spend item, economic downturns typically have an adverse impact on demand. The home textile industry also went through a scenario of reduced demand over the 2009 and the first half of As consumer confidence in the recovery improved, an improvement in demand for home textiles was seen in the latter half of the year. Consumers and hence retailers in advanced economies continue to remain highly sensitive to price. Textile exports from India have also growth and were estimated to be $23.5 billion in , a share of 4.5%. This share is expected to go up to $80 billion or 8% by Despite stiff competition from China and other Asian economies, India can expect continued growth as global players look for alternatives to China. In the first quarter of 2011, there was a reduction in import of towels into the US in volume terms primarily due to the rise in unit prices. There has also been a significant surge in imports from Bangladesh into the US signaling a continued pricing pressure. There has also been a similar drop in import of cotton sheets into the US given the huge increase in cotton prices in the last months. The key trend that emerged in across all advanced economies is the shift to lower cost products. Brands have also lost their sheen and consumers prefer private label products. Additionally, as unit prices have been going up due to a huge jump in cotton prices, there has been a significant drop in volumes and a shift towards blended products. Retail Industry Update WGBL s business is significantly impacted by how global retailers respond to change in consumer trends and economic conditions. The home textile retail follows the overall retail trends and hence retail growth is a good indicator for us to plan and forecast business for the future. WGBL keeps track of its key markets of USA, UK, Eurozone and India on regular basis. USA Retail Industry Update Post a negative trend in FY09-10, the Redbook Index, which measures trends in retail sales, has shown a positive growth over the last 12 months. The average growth in retail sales in FY over FY was nearly 2.75% in the US. The home textiles market has seen a similar trend and not registered significant growth. Given that home is a discretionary purchase, WGBL view this as a positive trend going forward. (see Figure 3) figure % change Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Department Discounters Redbook Index In response to the reduction in volumes due to higher average unit prices, WGBL is looking at innovative solutions across all categories to work around this trend. 24

18 UK Retail Industry Update The UK retail industry has been going through a lot of volatility over the last year (see figure 4). While there were positive signs till November 2010, the last 5-6 months have been very volatile. Due to uncertainties of stability of the economy, weather conditions, etc. the retail demand has fluctuated wildly. With rising taxes in the country, the disposable incomes have also reduced putting further pressure on demand. figure 4 6.0% 5.0% 4.0% 4.4% 5.2% % change 3.0% 2.0% 1.0% 0.0% -1.0% 1.2% 2.2% 0.8% 1.2% 1.0% 0.5% 0.5% 0.8% 0.7% 2.3% -0.3% -0.4% -2.0% -3.0% -4.0% Jan-10 Feb-10 Mar % Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb % Mar-11 Apr % May-11 Eurozone Retail Industry Update The Eurozone has seen a relatively positive retail growth expect for March 2011 as you can see from the table below. Despite the economic recovery not being uniform across the various countries of the EU, the retail industry has seen some growth. Demand in some of the constituent countries will be depressed and others will be robust. WGBL is looking at addressing this market accordingly. (see figure 5) figure 5 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 Year on Year Month on Month -1.6% -0.9% 0.5% 0.4% 1.5% 0.4% 1.4% 0.1% 1.6% -0.1% 1.7% -0.1% 1.2% 0% 0.1% -0.8% -0.9% -0.6% 0.7% 0.4% 1.3% 0.3% -1.7% -1.0% 1.1% 0.9% With manufacturing, especially in home textiles in EU countries picking up, overall demand is expected to improve. Going forward countries like Turkey and Portugal are now relatively cost competitive in the environment of rising cotton prices. This may also boost employment and demand. Indian Retail Industry Update Indian retail industry, especially modern retail, continues to grow aggressively. Modern retail is expected to grow at nearly 30-35% p.a. over the next 5 years from current levels. The overall retail market is nearly $400 billion with modern retail accounting for only 5% of the same. While organized retail in the home category is a relatively new in India, WGBL has many established retailers entering the fray through the big-box model. Home linen, the segment that WGBL is present in, ranks number 6 in consumer discretionary spending. The share of consumer spending on this category to account for 8% of the wallet share by

19 In case the FDI policy on retail is changed, opening up of the FDI in multi-brand retail will further add to the competition in this sector. WGBL is working on its retail business with this eventuality in mind and gearing itself to face international competition in the coming years. India Advantage As a manufacturing destination, India remains fairly competitive. As you can see from the chart below, WGBL s biggest challenges are rising labour costs and lack of proximity to its key markets. There has been an upward correction in labour costs in most other low cost countries like China and Brazil. However, Pakistan, Bangladesh and Vietnam continue to enjoy extremely cheap labour. The economic and political stability of each of these destinations will definitely determine business volumes and market share. (see figure 6) figure 6 Skilled Labour Force India China Indonesia Turkey Brazil Highest wage levels in Asia Available, but costs have tripled in last 3 years Available at lower costs High minimum wages Minimum wages to rise 9% in 2010 Cotton Availability Second largest exporter of cotton, net exporter Largest and Net importer Dependent on imports Production declining, imports have peaked Net exporter of cotton Infrastructure Investments in ports and power Good Needs improvement Railways and Energy sectors struggling Lags behind most other cotton producing countries Scale Economies and R&D Economic Environment Proximity to customers Currency Other strengths Govt. focus on textile parks 40 approved Strong and growing economy Investments in consolidation and modernization begun, no R&D High inflation levels Outdated machinery and limited investment in R&D Domestic demand driving economic growth Mostly medium scale industries. Good R&D investment Controlled inflation, high domestic demand Low Low Low Proximity to European markets Capital subsidy via TUFS Undervalued currency boosting exports Currency appreciation expected over next 2 years 3rd largest apparel exporter to US Turkish Lira has shown strong depreciation against the Dollar Liberal trade policies, FTAs with many countries Controlled inflation, high domestic demand Proximity to American market The Real continues to appreciate against the Dollar US has a trade and investment agreement with Mercosul India continues to enjoy pride of place in exports into USA in towels and bed linen. In the EU, WGBL face stiff competition from China and Pakistan primarily due to its inability to cater to low thread count sheets market and small volume orders. WGBL has also distinguished itself in the key markets through its ability to read trends and respond effectively and quickly to the cotton crisis. WGBL has offered various comprehensive solutions to its customers to tide over this situation which has helped grow its revenues. WGBL s key competitors are manufacturers from India, China and Pakistan and large sourcing houses. WGBL is structured towards addressing both these types of competitors through a solutions based approach to home textiles products rather than offering only a low-cost option to the customer. The current industry structure is also seeing increased longer term partnerships with customers across the board as well as the need for retailers to reduce their vendor base to control costs. This is acting as a positive trend for Welspun s textile business as a whole as this will provide us with longer terms contracts and revenue visibility. In addition to this, many retailers are looking at the financial health of their vendors before finalizing the business which is also favourable for WGBL. 26

20 WGBL S KEY STRENGTHS In an environment of high cost and stiff global competition, WGBL offers the following advantages to its customers: 1. Manufacturing-outsourcing mix: WGBL purchases all the products manufactured by WIL and its subsidiaries. WGBL has a worldclass manufacturing facility in India strategically located near the Kandla port. It also has a facility in Mexico for top of bed products to leverage the advantages of NAFTA. In addition to its own manufacturing, WGBL also has a strong sourcing team that is capable of outsourcing requirements to meet quality and price targets of customers. 2. Strong market presence: WGBL has local offices across USA, UK and Europe to ensure quick service to its customers. In addition to a sales office, it also has distribution centres in these countries which provide vendor managed inventory. 3. Strong SCM support: WGBL has a strong SCM support which it extends to all its customers. This provides valuable analysis to customers on sales trends and helps WGBL adjust order bookings and manufacturing to suit demand trends. 4. Design support: WGBL has a multi-locational design team that develops world class designs for its customers. It is able to quickly develop new designs for customers based on emerging trends in the market and also execute them with ease. 5. Customer Insights and Product Development: WGBL has a highly motivated marketing and merchandising team that is continuously researching the market to find out what consumers need and offering solutions to the customers accordingly. WGBL is able to offer new product solutions at various price points by focusing on Innovation to address customer needs. WGBL therefore is a one-stop shop solutions provider to all its customers. With the flex-plm software being currently implemented, which will be on par with the best practices in the retail industry and the first to adopt this in the textile manufacturing industry. WGBL S ACHIEVEMENTS AND AWARDS WGBL has been recognized for its performance over the last year. Some of the awards presented to WGBL include: Sheridan Ultra-Light Towel chosen as Winning Product in Favorite Home & Outdoor category- Australian Women s Weekly, 2011 Sustainability award for Process Innovation- Indian Carbon Outlook, 2011 Outstanding CSR in Textile sector- India Shining Star CSR awards, 2011 Value award- Tesco, Star award- Macy s, 2010 Best co-planning award for Supply Chain- Wal Mart, 2010 Texprocil awards Highest global exports- Special Gold - Top Terry towel exports- Gold - Merchant exports- Gold Vendor excellence award- Target, These awards are a testimonial of our superior performance in delivering value added services to our customers. FACTORS AFFECTING OUR OPERATIONS In addition to the general economic environment and retail industry, WGBL s business is impacted by the following factors: 1. Performance of the textile industry: Capacity and manufacturing cost trends of the global textile industry impacts WGBL s competitiveness as well as ability to sell in the international markets. Raw material prices as well as other input costs also impact 27

21 the way we do business 2. Demand for the products: Home textiles being a discretionary purchase, is often impacted by economic conditions and consumer confidence. The consumer may trade down on quality and price of the product thereby putting pressure on our margins 3. Exchange rate fluctuations: Though most of our expenses are incurred in Indian rupees, we face exchange rate risk as our revenues are primarily in US dollars. 4. Changes in policies of government: Changes in policies of governments both in India and WGBL s key markets may have an impact on its business through changes in competitiveness of its products FY : STRATEGIES TO IMPROVE OUR COMPETITIVE ADVANTAGE In addition to WGBL s target to increase its presence across all product categories currently present in,.i.e, towels, sheets, rugs, top of bed and bath robes, WGBL is looking at the following to improve its competitiveness: 1. Consolidation of International Operations: WGBL aims to consolidate our North American operations and European operations under its US and UK based subsidiaries respectively to leverage on its relationship and market position in those markets. 2. Innovation Culture: WGBL is looking at inculcating a culture of innovation within its organization. This culture will not be limited to product innovations alone but will also touch various aspects of the key business processes to improve customer experience. 3. Managing Costs: The economic crisis brought about a focus on cost reduction. Though the economic situation is improved, Welspun will remain committed to managing costs to ensure that the benefits of the cost reduction measures adopted are sustainable over the long term. 4. Focus on Hospitality Business: In FY11-12, WGBL will focus on consolidating its position in hospitality business in the US. The acquisition of Kojo is also expected to aid us in this process. HUMAN RESOURCES POLICY Our HR policies cover our objectives, eligibility and coverage, policy and procedures. We review, revise and update our Human Resource policies from time to time to make them relevant, effective and useful to its employees. OUTLOOK WGBL is already a strategic vendor to major retailers in the USA. It has been able to sustain its growth even in the current economic scenario where the retail sales in its key market of US dropped since Sept 08. As a result of reduced consumer spending, the retailers also corrected the inventory in the entire supply chain leading to low orders. In , WGBL signed a License for a leading brand for North America for Fashion Bedding, Fashion Bath, Blankets/ Throws and Area Rugs in addition to the earlier license of Bath, Solid Sheets and rugs. The new license has helped Welspun in becoming a key player in the Fashion Bedding segment through the manufacturing facility at Mexico. WGBL today differentiates itself from the other manufacturers by focusing on Consumer Research driven innovations, use of new technologies, a global manufacturing & sales footprint and ability to offer a comprehensive end to end solution to the customers. A recent example of a consumer research driven innovation has been the Quick Dry Towel and the Perfect Sheet. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY At Welspun, the internal control system encompasses the policies, processes, tasks, behaviours and other aspects of Welspun that taken together, facilitate effective and efficient operation, quality of internal and external reporting, compliance with applicable laws and regulations. Welspun s objectives, its internal organization and the environment in which it operates are continually evolving and, 28