Dear Fellow Shareowners
I am happy to report that we have delivered superior financial performance capitalefficiency and execution. Our focus on delivery and growth continued to yield results inwhat was a difficult year for many of our peers globally. Our financial and operationalperformance in FY 2016-17 was outstanding reflecting in record net profit. I would liketo express my gratitude to everyone at Reliance for the hard work they have put in toachieve this.
Global economic growth in 2016 was stable aided by a recovery in commodity prices andincreased global trade. Global oil prices were supported by co-operation between OPEC andnon-OPEC producers for cutting production. While underlying demand trends are encouragingtightening rates in US and possible end of accommodative monetary policy in otherdeveloped countries could impact emerging economies.
GDP growth in India was robust at 7.1% supported by strong consumption growth andgovernment spending. The introduction of GST is a significant reform measure and willovertime help India in simplifying tax structure and compliance aligning it withpractices in developed countries.
Reliance delivered robust operational and financial performance during the yearresulting in net profit of Rs.29901 crore (US$ 4.6 billion) growth of 18.8% y-o-y. Themost significant factors affecting year-to-year comparisons of earnings and cash flowgenerated by our operating activities are improvement in the petrochemicals and refiningmargins. Refining and petrochemicals businesses achieved record levels of profitabilityunderpinned by our ability to access feedstock competitively from global markets maintainhigh operating rates and place products in growth markets. The refining business delivereddouble-digit GRMs for the second year in a row benefiting from the global demand fortransportation fuels and stable product cracks.
Lower oil price environment continues to drive strong demand growth across key markets.Global oil demand for 2016 grew by 1.6 mb/d led by China and India. India has now becomea major force in driving global oil demand growth and is now the world's third largest oilconsumer. India's oil demand grew 5.2% during the year led by strong growth in gasolineand jet fuel. Diesel demand growth in India however remained muted as industrial cyclelagged consumption. The pace of petrochemical product demand growth was lower compared toprevious years. Polymer demand in India was up 7% y-o-y while polyester demand grew by 3%y-o-y.
Refining and Marketing
Refining and Marketing segment EBIT increased by 6.5% y-o-y to a record level of Rs.25056 crore (US$ 3.9 billion) supported by higher GRM and crude throughput. GRM for theyear stood at eight year high level of US$ 11.0/bbl as against US$ 10.8/ bbl in theprevious year. RIL's GRM outperformed Singapore complex margins by US$ 5.2/bbl thehighest premium achieved in the last eight years.
Though regional refining margins trended downwards our high-conversion refining systemwas able to take advantage of firm margins on middle distillates and wider discounts ondifficult-to-process crudes in a well-supplied market. During the year our refineriesprocessed 65 different grades of crude including five new grades. This illustrates theflexibility and complexity of our refining assets at Jamnagar which can process heavy andsour crudes to produce high value transportation fuels.
During the year light products mainly gasoline and naphtha witnessed a sharp declinein cracks. This was partially offset by firm middle distillate cracks and efficient yieldshift management in our refineries to capture higher margins.
Our petroleum retail operations continued to gather momentum with 1221 fuel outletsoperational at the end of the year. These outlets are registering industry leading pumpthroughputs which were as high as twice the industry average in March 2017. Our success inpetroleum retail is testimony to our superior value proposition to consumers and ourability to leverage technology for ensuring consistent delivery. These attributes havealso helped us ramp-up our bulk marketing business leading to market share gains.
Our petcoke gasification initiative is aimed at reducing the energy cost for theJamnagar complex on a sustainable basis. We have achieved the installation and mechanicalcompletion for the gasification project linked to our DTA refinery and thepre-commissioning activities are ongoing. On completion this will make Jamnagar complexhighly energy efficient with the lowest energy cost for any integrated Refinery andPetrochemicals facility globally.
Petrochemicals segment EBIT increased sharply by 27.5% to a record level of Rs.12990crore ($ 2.0 billion) supported by favorable product margins and growth in volumes.Favorable naphtha cracking economics firm domestic demand and higher volumes in thepolyester chain were the key factors driving profitability. EBIT margin of 14% is at afive year high level reflecting strong polymer margins and recovery in polyester chaineconomics.
Our company continues to benefit from integrated business model wide product portfolioand scale economics which provides us a high degree of earnings stability. India remains akey growth market for petrochemical products in the global context and our new capacityadditions are poised to capture growing domestic demand.
We successfully commissioned our new Paraxylene (PX) capacity at Jamnagar. This plantis built with state-of-the-art crystallisation technology from BP which is highly energyefficient. With the commissioning of this plant our PX capacity has doubled and Reliancehas emerged as the world's second largest producer of PX with about 11% of globalproduction.
In order to provide feedstock security and flexibility to our cracker portfolio on thewest coast of India we have created a virtual floating ethane pipeline between NorthAmerica and Dahej in Gujarat. The ethane receipt and handling facilities at Dahej has beencommissioned in a record time of less than three years and ethane cracking has commencedat our crackers. Ethane sourcing from North America will improve the cost competitivenessof our existing crackers and enable us to optimise the portfolio in a volatile marketenvironment.
At Jamnagar we are in the process of starting up the largest refinery off-gas cracker(ROGC) in the world along with related downstream capacities. This is a pioneeringinitiative and a unique opportunity available at Jamnagar due to the scale of our refineryoperations. The cracker is tightly integrated with our refineries and will use refineryoff-gases as feedstock. This cracker will have one of the lowest cost positions globally.The incremental volumes will target a deficit Indian market which also continues to beamong the fastest growth market for petrochemical products.
Oil & Gas
Our upstream business in India continued to be impacted by weak gas prices anddeclining volumes. Production volumes across our domestic as well as US Shale operationswere lower by 23% and 14% respectively. Weak upstream price environment and lower volumesimpacted the segment EBIT for the year.
I am happy to share that Reliance is on its way to become the largest unconventionalnatural gas producer in India with the commencement of commercial production from our CBMfields at Sohagpur. Gas from CBM fields will be delivered to customers on Indian Gas Gridthrough our new 302 kilometer long Shahdol-Phulpur pipeline. Government has notifiedmarketing and pricing freedom as a reform measure to develop alternate sources of naturalgas including CBM.
In our consumer business it is gratifying to see an unprecedented growth trajectorycontinuing. Reliance Retail revenues increased by 60% on y-o-y basis to Rs. 33765 crore.With this Reliance Retail has become the first organised retail Company in India to crossthe milestone of US$ 5.0 billion revenue. Reliance Retail also sustained its profitabilitywith EBITDA crossing Rs. 1000 crore mark. Reliance Retail has created the widest reach inthe organised retail segment in India with 3616 stores operational in 702 cities. It hasestablished leadership position in all key categories including food & groceryfashion & lifestyle and digital products. It has also created the largest cash &carry chain in the country.
Reliance Retail has adopted multi-channel strategy and has integrated"offline-online" models to truly differentiate the customer experience. RelianceRetail also became the first organised retail chain in India to support UPI-basedpayments.
I am delighted to report on the achievements of our newest business Jio. Jio has been apath breaker on multiple parameters not only in India but even on global stage. Jioadded 100 million subscribers in 170 days the fastest achieved by any technology companyin the world. Jio has built a world-class all-IP data strong future proof network with thelatest 4G LTE technology. Jio has revolutionised the Indian telecom landscape by makingvoice calls for Jio customers absolutely free across India to any network. Jio makesIndia the highest quality most affordable data market in the world. Today dataconsumption on Jio network is higher than the total mobile data consumption in the US andtwice that in China. It is the first Exabyte network in the world. Our investments andtechnology innovations have created a data strong network that delivers unmatched quantityand quality of data. Jio has led the digital transformation of India by providing data atprices that are affordable to all Indians. Our Jio team is customer obsessed and has thepassion to deliver a superior experience to all our customers.
Jio customers have access to an eco-system of digital services and apps created toenrich their user experience. The suite of services include live TV on demand moviesmusic magazines and news among others.
The compelling value proposition and high quality of Jio services has led the largestand the fastest migration from free to paid services in the digital services domain. TheJIO PRIME membership program has been a resounding success with 72 million plus customersubscription by 31st March 2017.
Jio is present in all 29 states of India with direct physical presence in more than18000 urban and rural towns and over 200000 villages. We are committed to provide Jioservices in nearly all the cities towns and villages of India covering over 95% of ourcountry's population.
Strong Cash Flows and Balance Sheet
Our Company generated PBDIT of Rs. 55529 crore (US$ 8.6 billion) for the year. Duringthe year we invested Rs. 114742 crore (US$ 17.7 billion) the highest ever not only forour Company but in the corporate history of India. This capex has been funded whilemaintaining investment grade ratings. Our strong balance sheet and conservative financialprofile are reflected through the strong credit ratings. We have maintained two notchesabove India's sovereign rating for our international debt at BBB+ by S&P. This capexacross energy and materials businesses and digital services will significantly enhanceReliance's cash flows and reduce volatility in earnings in the coming years.
During the year our Company has successfully refinanced long-term financing of US$1.75 billion syndicated loan and US$ 550 million club loan aggregating to US$ 2.3 billionresulting in substantial interest savings over the remaining life of these loans. This wasthe largest amount syndicated by RIL since 2007.
We have tied up for ~US$ 572 million financing to purchase six state-of-the-art VeryLarge Ethane Carriers (VLECs). This financing deal carries a tenure of 12 years andcomprises of US$286 million tranche insured by Korea Trade Insurance Corporation (K-Sure).This deal got a "Better than Sovereign Rating" and is one of the mostwell-structured and innovative financing deal done by the Company. This deal has beenglobally recognised and has won five global awards.
Commitment to Health and Safety
We are committed towards providing a healthy and safe work environment to ouremployees contractors and all the visitors to our sites. We have successfully implementedOperating Management Systems for reduction in Health Safety Security and Environment(HSSE) risks.
We had started the Change Agents for Safety Health and Environment' (CASHe)programme more than a decade ago. Over the years the CASHe programme has evolved into amovement encompassing the entire enterprise with thousands of improvement projects. Theprogramme has been instrumental in creating a culture of implementing health safety andenvironment projects on a priority basis. The program has helped in reducing health andsafety risks across the Company and over 1500 projects have been identified and controlmeasures implemented till date.
True to our vision to be a "Cloud First Mobile First" organisation ouremployees can access transactional analytical and informational capability on theirmobile devices thus improving productivity response times safety and operationalreliability.
Safety is an integral part of our culture and we will be launching several SmartWorkforce initiatives which explore the use of sensor-equipped wearables like goggleshelmets and suits to ensure worker safety and improve labour efficiency and utilisation.
Sustainability at Reliance embraces environmental and social responsibility by creatingvalue for its stakeholders. We are working to maximise the use of clean energy in ouroperations. During the year Reliance contributed Rs. 674 crore towards various communitydevelopment initiatives focused in the areas of rural transformation health educationsports for development disaster response urban renewal and arts culture and heritage.Through these initiatives Reliance has positively impacted 12 million lives across thenation including the vulnerable and marginalised communities. We work incessantly toinclude all stakeholders in our growth journey and the organisational value dependsgreatly on the value it creates for the society at large.
I would like to thank all my colleagues across the country and the globe for their uninching dedication commitment and contribution to strengthening Reliance. During theyear the Reliance team shaped the contours of future growth platforms in the Consumer andthe Energy and Materials businesses. I am proud to be part of this gifted team that hasstrived tirelessly over the last few years to create unparalleled hydrocarbon assetswhile ushering in the digital age to the remotest parts of our country.
We are looking forward to continue on our mission of generating sustainable value forour stakeholders and India. I would like to place on record my sincere appreciation to theBoard of Directors for their guidance. I would like to express my gratitude to all ourstakeholders for their continuing faith in Reliance.
With best wishes Sincerely
Mukesh D. Ambani
Chairman and Managing Director
June 14 2017