I have always been frank with you. The financial situation of your Company is serious.Let me start by sharing with you the consolidated results; then explain why BILT has gotto where it is today; then describe the plan that we are putting in place to financiallyre-engineer your Company; and conclude by commenting on what I believe should happen oncea more viable financial structure is put in place.
First the results for FY2017. Over the last few years due to both external andinternal factors BILT's revenues have not been sufficient to service the debt that wasincurred to make necessary capital intensive investments in capacity and technology.Consequently your Company has been affected by liquidity constraints. It was difficult inthe previous year; and became severe in FY2017. The effect of these constraints show up inthe consolidated results for FY2017.
Revenue from operations declined by 50.5% to Rs. 2121 crore.
Total income reduced by 49.3% to Rs. 2232 crore.
Finance costs increased by 96.2% to Rs. 901 crore.
As a result of sharply reduced total income and rising finance costs lossbefore tax was Rs. 1570 crore versus a profit of Rs. 44 crore in the previous year.
Loss after tax was Rs. 1862 crore for FY2017 compared to a loss of Rs. 279crore in FY2016.
How did we get to this point? Over the last seven years your Company made significantdebt-financed investments to modernise and scale up capacities across most of its Indianmanufacturing units as well as in Sabah Forest Industries (SFI) the pulp and paperproducing facility acquired in Malaysia. These investments were necessary to make BILTglobally competitive in a scenario of growing competition from paper manufacturers inChina the ASEAN and South Korea.
Some of these investments took longer than targeted to come on stream. In addition thedomestic paper market became far more competitive and price sensitive than before thanksto India's free trade agreements with the ASEAN and South Korea which have brought downcustoms duty on paper
and paperboard to zero. Moreover as I had mentioned in my last year's letter to youSFI has not been able to generate sufficient returns largely on account of anunrealistically strong Malaysian Ringgit. The consequences are what you see today: severeliquidity constraints that have come in the way of increasing production and revenues;and given the high finance costs profits turning into losses.
What are we doing about it? We had earlier tried to access equity capital marketstwice; unfortunately without success due to the prolonged after-effects of the globalfinancial crash.
This time around for the standalone entity - BILT your Company's Board of Directorsauthorised a Committee of Directors to consider and recommend a financial restructuringplan under the Strategic Debt Restructuring (SDR) scheme of the Reserve Bank of India.Based on the Committee's work the Board recommended:
Reclassification of the Company's authorised share capital by which it (a)doubled the number of ordinary equity shares having a face value of Rs. 2 each from 75crore shares to 150 crore shares; and (b) reduced preference shares having a face value ofRs. 100 each from 2.5 crore shares to 1 crore shares.
Converting a significant part of the outstanding debt to equity by issuingequity shares through preferential allotment to the accepting parties comprising the JointLenders Forum under the SDR scheme.
On 31 May 2017 these conditions were recommended to the shareholders for approvalthrough a postal ballot. Over 99% of the shareholders who voted approved the financialrestructuring scheme.
Consequently your Company is now empowered to create and issue up to 68.23 croreequity shares each with a face value of Rs. 2 at Rs. 15.83 per share which is the pricedetermined in the SDR scheme. These shares will be allotted to banks and financialinstitutions according to the proportion of their outstanding loan exposure to BILT. Afterthe allotment the Joint Lenders Forum will collectively own 51% of the fully paid upequity share capital of your Company.
While this debt-to-equity conversion sharply reduces the shareholding percentage of thepromoter group it is the correct thing to do to resuscitate the health of your Company.By significantly reducing the debt overhang even at the standalone level BILT benefitsfrom lower debt-servicing costs. All else being equal it gets the necessary additionalliquidity to ramp up production and revenues which it could not earlier because of cashconstraints.
I should also mention that your Company's step-down subsidiary BILT Graphic PaperProducts Limited also has a large debt position. The Management is presently formulatinga deep debt recasting plan which includes working with an asset restructuring company. AsI write a process is actively being pursued to restructure the loan and infuse additionalcapital to turn around the business.
Once both these schemes go through your Company will have financial headroom to getback to normal operations which ought to generate higher sales and better results in theyears to come. In addition the Board remains on the lookout to sell SFI a non-core assetthat is now financially classified as a 'discontinued operation'. The Board will also becarefully looking at the financial viability of some other Units burden. If these remainquestionable even under an environment of a lower debt-servicing the Board will takenecessary steps to divest them as well.
I look forward to a financially viable and leaner BILT one which can earngreater revenues despite tight competitive conditions and do so with lower unit costs. Thebreathing room has been given. It is now up to your Company's management to deliver as Ihope it shall in FY2018 and thereafter.
Thank you for your support in the last few challenging years. Let us hope that withyour support and the Management's best efforts your Company will profitably stride forthyet again.
With best wishes