Towards a More Socially Secure and Resilient Future
The Global Economy
The world has been fighting the COVID-19 pandemic for more than a year now and thestruggle has had deleterious economic effects. In 2020 the global economy contracted by3.3% the largest contraction on record at least since World War II. Much of it wasconcentrated in the first half of our fiscal year FY21 as several countries enforcedstrict lockdowns. Economies bounced back - albeit at differentiated speeds - in subsequentquarters on the back of large fiscal stimulus packages especially in the developedcountries restocking demand after dilution of lockdowns and improved confidence levelsfollowing the start of vaccination programmes. As per the recent forecasts fromInternational Monetary Fund (IMF) the US and China are expected to record a strongrecovery in 2021 resulting in a net positive expansion of their economies over the 2019levels. These two engines of growth are expected to boost demand for exports from othercountries. Even the other two large economies the EU and Japan are expected to expand.
In response to the pandemic central banks resorted to strongly supportive monetarypolicies in most developed economies causing interest rates to go down to record lows. Atthe same time another consequence of this policy has been a surfeit of liquidity. Thathas led to a strong rally in prices of many industrial commodities which has also beensupported by the evolving economic recovery stimulus-related demand expectations andcertain supply-side disruptions.
This has caused inflationary pressures on the cost dynamic of several manufacturingindustries.
The latest IMF forecast suggests a strong 6% growth in global GDP in 2021. But theoccurrence of second and third waves of COVID in different parts of the world and reportsof virus mutations have created downside risks to the outlook of a strong growth rebound.Recovery remains uneven and uncertain with the extent of fiscal support and level ofvaccination being key differentiators of the short-term economic outlook across countries.
Indian economy which was firmly on the path of recovery in the second half of FY21was hit by a rather unexpectedly virulent second wave of COVID-19. That caused a severestrain on healthcare facilities in many parts of the country leading to localisedlockdowns and a fall in mobility to levels seen a year ago. This may lead to somereassessment of growth estimates for FY22.
As a silver lining disruptions to production and supply chains have been far lesssevere during the second wave than during the first wave.
Vaccinations are picking up pace which would support faster normalisation of mobilitylevels and of related economic activities. Continued accommodative monetary policy of theRBI and the expected increase in capex from the Government are factors that will supportgrowth recovery. In addition global growth prospects provide us with exports as anadditional strong driver of growth.
The longer-term prospects for the Indian economy continue to be robust. Variousinitiatives including privatisation of public sector enterprises monetisation of assetsimplementation of National Infrastructure Pipeline targeted investment incentives throughthe Production-Linked Incentives Scheme and the new Labour Code are likely to spur avirtuous cycle of investments and growth in the medium-term.
ABG in Perspective
Like for many other organisations the COVID crisis brought out challenges of manyforms. Economic impact and business disruptions apart many members of our extended family- our employees and their near ones our value chain partners our neighbourhoods - facedhealth emergencies. The pandemic also caused deep psychological scars as people had toadjust to new ways of living and working. Notwithstanding these challenges our employeeshave displayed the highest possible resilience in coping with personal concerns and yetstaying focused on the customers and the business. Our business results convey only asmall part of the story of our employee courage compassion community spirit and culturalstrength.
As the lockdowns took a firm grip on people's lives and constraints mounted in theearly part of the financial year our leadership teams rose to the occasion with robustplanning and continuous communication with people at all levels through the organisation.Personally it was energising for me to engage at scale with employees globally through aseries of digital townhalls that instilled confidence in employees and reinforced thepower of 'One ABG'. The 'Respond Recover and Re-imagine' framework underpinned severalnew initiatives.
These included close coordination among HR teams across the Group units to respond tolocal-level challenges by leveraging the organisational resources and a thrust ondisseminating relevant information through all digital channels about the resources linedup to help the extended ABG family deal with the emergencies.
COVID warriors were trained and voluntary networks were formed to assist our employeesand their families in need. Preferential tie-ups with local hospitals and a centralcoordination centre with an external party were set up to provide special assistance toour employees through Doctors' network telemedicine and other COVID related Healthassistance. Workplace health hygiene and COVID-appropriate behaviour remained the focusof our managers at all levels helping the organisation to stay ever vigilant. 'Test Treatand Trace' was the mantra of protection and well-being followed scrupulously.
Apart from focusing on health emergencies initiatives for mental agility andcontinuous learning were taken to maintain organisational morale. A learning programmechristened as 'Chairman's Invitation Series' was curated to bring the best insights on achanging world from the world's leading thought leaders. There was an increased thrust ononline education recognition and knowledge sharing sessions. These well-roundedinitiatives on the people front also helped our Business performance to bounce backstrongly. The focus on customers and costs remained undiminished through the year.Critical business processes such as new line commissioning new product launches newsystem and technology implementation-all happened seamlessly and presented a unique humanstory of innovation and fortitude bringing alive the values of commitment and passion.People learnt new skills and new behaviour at work while not being at office or at theworkplace as one knows. People engagement team trust and Group values proved to be theenergy and the glue for our performance.
In the spirit of not letting a crisis go to waste our HR Teams globally collaboratedto create a long-term HR Strategy for the Group and individual businesses. This wasachieved even while working remotely; 150 of the HR leaders came together digitally over afour-month period to craft a coherent HR strategy to reflect both Group aspirations andthe business needs. Premised on creating an Avant Garde HR strategy the work focused onemployee experience and business productivity in a balanced mix with growth technologyand talent as other critical pillars. This HR strategy is under dissemination to variousstakeholders and an annual action agenda is being rolled out at all levels. This has beena signature example of collaboration thought leadership and determined action -ingredients that usually make up most successful organisations.
The experience of the past year reinforces the criticality and importance ofsustainable businesses. At Aditya Birla Group sustainable business model needs to havethree pillars - responsible stewardship stakeholder engagement and future proofing. Weuse four dimensions of Business sector Geography of operation Value chain and Timehorizons to identify issues that are material for the sustainability of our businesses;and then create approaches to balance risks and opportunities for all those materialissues. For example on environment energy conservation initiatives help us to mitigaterisks while solar energy and climate- resilient products help us to pursue opportunities.Since transparency is fundamental to our approach on Sustainability most of the ABGcompanies have consciously begun their journey to 'mainstream' ESG reporting. Thisintegrated report is a telling example.
Your Company delivered yet another strong consolidated performance in FY 2020-21reflecting its resilience to withstand external shocks and commodity market cycles.
This resilient and spirited show was driven by a continued record performance fromNovelis and a stable performance by the Indian Aluminium business supported by strongmarket revival and lower input costs. Your Company registered a consolidated businessEBITDA of Rs 18896 Crore on a turnover of Rs 131985 Crore in FY2021-21.
Your Company's Aluminium business in India and Novelis continued to deliver steadyoperational performance despite tough market conditions due to COVID in the earlier partof the year. The major enablers were stable operations lower input prices better costefficiencies and a strong revival of demand. All the plants operated at their designedcapacities during the year except for some impact in Q1 due to the COVID- inducedlockdowns in India. In FY2020-21 more than 80% of Hindalco's consolidated EBITDA wasdelinked from the volatility of the global Aluminium prices taking together the EBITDA ofNovelis Copper and India Aluminium downstream VAP.
As a step towards the downstream expansion plans in India your Company announced itsplans to set up a 34000-tonne extrusion plant at Silvassa. This new plant will servicethe fast-growing market for extruded Aluminium products in India's western and southernregions. Your Company intends to build a larger
value-added product portfolio over the next few years. This investment indicatesconfidence in the economic revival which will grow the demand for downstream value-addedproducts. In the Copper business cathode production was 262 Kt lower than theyear-earlier due to loss of production on account of plant shutdown in the first quarterof FY2020-21. The Continuous Cast Rod production was at 235 Kt in FY2020-21 a littlelower than the previous year.
Novelis including Aleris reported yet another remarkable performance this year with arecord shipment of 3613 Kt adjusted EBITDA of $1.714 Billion. The adjusted EBITDA/tonneof $474 was also the highest ever. Novelis continues to diversify its product mix with theshare of beverage can sheet at 60% Automotive body sheets at 16% Specialties at 22% andAero at 2% in FY2020-21. Novelis reported the share of recycled contents at 61% in FY2020-21 and this has been continuously rising as the World's largest recycler ofAluminium.
On 14th April 2020 your Company completed the acquisition of Aleris at an enterprisevalue of $2.8 Billion reinforcing its position as the World's leading Aluminiumvalue-added player. The Aleris deal enables the further diversification of our metalsportfolio into other premium market segments most notably aerospace. Novelis is nowpoised to serve the growing Asia market more efficiently by integrating complementaryassets in the region.
This deal also further insulates Hindalco- Novelis from global price volatility.
Your Company continues to focus on strengthening the balance sheet with theconsolidated Net Debt-to-EBITDA at
2.59 times at the end of the financial year 2020-21 from the peak of 3.83 times at theend of June 2020 post the closure of the Aleris acquisition.
During the year Your Company received credit rating upgrades to Novelis and overallHindalco. Novelis received credit rating upgrades on its unsecured notes by both S&PGlobal Ratings and Moody's Investor Services in March 2021 while Hindalco's Credit RatingOutlook upgraded from 'Stable' to 'Positive' while reaffirming the rating at 'AA' byCRISIL in April 2021.
During FY2020-21 Your Company was recognised as the World's most Sustainable AluminiumCompany by the S&P Dow Jones Sustainability Indices 2020. This sustainability-ledapproach to business has enabled your company to strengthen its balance sheet and setglobal benchmarks on sustainable business practices.
The year-long response to the pandemic across the globe exhibited all that is nobleand uplifting in the human spirit.
A spirit that was also in display in your company's actions and performance during theyear.
Through this pandemic your Company's people and systems have been battle tested andeven better prepared to face any competitive challenge or serious external disruption. Ithas strengthened the bonds within opened better vistas of co-operation and convinced ourstakeholders that our people deliver - no matter what! That is our best assurance ofsustainability and continued collective prosperity.
|Kumar Mangalam Birla |