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 Companyin FY 2018-19. Our revenue and profit numbers have touched new heights strengthening ourposition as India's largest private sector company by market capitalisation andprofitability.
Mukesh D. Ambani Chairman and Managing Director
We now rank in the top 100 profitable companies in the Fortune Global 500 list ofWorld's Largest Corporations'. We delivered a solid performance in our hydrocarbonsbusinesses despite the volatile oil price environment and incremental capacities in someof our product categories.
Consumer businesses witnessed phenomenal growth in terms of revenues and profitabilitywith Reliance Retail and Jio now collectively contributing nearly 25% of consolidatedsegment EBITDA.
Global economic growth remained healthy at 3.6% in CY 2018 as against 3.8% in CY 2017impacted 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 yearwith trade tensions and higher energy prices.
The Indian economy continued to witness an increase in investments with Gross FixedCapital Formation growth at a six-year high of 10%. Healthy industrial activity continuedand service indicators sustained positive trends. Service exports growth is at aseven-year high of almost 17%. The Indian economy remains the fastest growing majoreconomy in the world.
In a volatile hydrocarbon chain environment Reliance recorded its highest- everconsolidated net profit of र 39588 crore (US$5.7 billion) during the year registering agrowth of 13.1% y-o-y.
The petrochemical business contributed record earnings as the benefits of ourinvestments in capacities and technologies offset weak margins in the polymer chain. Ourrefining business also delivered resilient performance in a challenging global environmentwhere gasoline margins have plummeted to a nine-year low.
The strong financial performance also reflected the increasing contribution of consumerbusinesses in Reliance's earnings.
Retail business continues to scale new heights achieving two important milestonesduring the year-crossing the turnover mark of '100000 crore and the store count of10000. We are witnessing strong traction across consumption baskets achieved on the backof unmatched service and value proposition. The strong improvement in profitabilityreflects our increasing scale and focus on efficiencies.
It is heartening to see India embrace the digital life. Reliance Jio continues to addsubscribers at a rate unprecedented in the telecom world. With over 306.7 million mobiledata subscribers Reliance Jio has propelled India to become the largest mobile dataconsuming market in the world. The whole-hearted acceptance of Jio's digital services isevident from the sheer volume of data carried on its wireless network-an astounding 3exabytes per month. Jio is now ranked #1 among mobile telecom operators in the country interms of Adjusted Gross Revenue (AGR). With the demerger of fiber and tower assets Jiohas emerged as an asset-light digital services company. The demerger has alsosignificantly 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 despitehigher oil prices. Brent the global crude oil benchmark at US$71/bbl in CY 2018 washigher at US$17/bbl y-o-y.
US China and India accounted for almost all of the global oil demand growth with oilconsumption 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 grewby 2.7 mb/d on the back of strong supply growth in the US (2.2 mb/d) and Canada (0.4mb/d). OPEC (Organization of the Petroleum Exporting Countries) supply contracted by 0.1mb/d y-o-y in CY 2018 as a result of sharp production declines in Venezuela and adherenceto 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- amidsta challenging price margin environment and particularly weak gasoline demand in the secondhalf of the year. Gasoline margins have been impacted due to weak demand growth with highpump prices and strong refinery runs leading to rising inventories.
At US$9.2/bbl RIL's refining margin remained relatively strong even in a dynamic andvolatile market.
RIL maintained a significant premium of US$ 4.3/bbl over the benchmark Singaporecomplex margins. RIL's superior refining margins are a result of superior product slaterobust risk management and higher secondary unit throughputs.
All units of the gasification complex including air separation units materialhandling systems gasifier islands syngas shift and processing facilities sulphurrecovery units and associated utilities and off-sites have been started safely.
The complex is currently under stabilisation. On the domestic retail front with acountrywide operational network of 1372 retail fuel outlets RIL is covering all the keyhighways in the country.
Petrochemicals segment demonstrated the earning power of the new plants commissionedover the last investment cycle unmatched integration and feedstock flexibility. Duringthe year we commenced cracking of Ethane at Nagothane. The impressive earnings in thepetrochemicals 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 deliveredby the business this year. The EBIT margins increased by 180 bps this year on the back ofstrong integrated polyester chain margins.
The strong results were achieved in an environment of declining utilisation rates inkey product chains with new supply ramp-up. This demonstrates the resilience of theReliance business model which is based on deep inter-linkages between refining andpetrochemical chains feedstock flexibility and a wide product portfolio.
By leveraging the capabilities in polymer formulations materials engineering productdesign and 3D printing Reliance is strengthening its new business line for AdvancedMaterials & Composites to deliver innovative products and solution offerings to theindustry.
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 fielddevelopment plans for MJ have been approved by the government. These fields are expectedto come on-stream from mid-2020.
We also progressed on the second phase of development activities at our domestic CBMblocks 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% to94.5 Bcfe during FY 2018-19. There has been steady production from the CBM fields inSohagpur.
RELIANCE RETAIL Reliance Retail became the first retailer in India to cross theर 100000 crore turnover milestone and is now ranked 94th in Deloitte'sGlobal Powers of Retailing 2019 list. Reliance Retail also crossed the 10000 store countmilestone. It has cemented its position as India's largest retailer by revenue andprofitability delivering superior value to its customers suppliers and otherstakeholders.
Reliance Retail's revenue growth in FY 2018-19 was primarily driven by aggressive storeaddition and spurt in same-store sales. Growing at a rate of nearly 10 stores per day inthe last two years Reliance Retail witnessed one of the fastest store expansions in theworld.
It added a total of 2829 stores to its tally during FY 2018-19. As on March 31 2019Reliance Retail operated 10415 retail stores in over 6600+ towns and cities covering 22million sq. ft. of area.
Reliance Retail's New Commerce initiative is now in the pilot phase. The differentiatedbusiness model will provide a technology platform for millions of small merchants acrossIndia to strengthen and grow their business. Leveraging technology and connectivity theplatform 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 millionsubscriber milestone this year to become the world's fastest growing digital servicescompany. Jio has not only revolutionised India's telecommunication industry but alsodigitised its hinterlands through its extensive network penetration. Recently
Jio was recognised for its meaningful impact by being ranked #1 globally on Fortune'sर Change the World' list.
The ranking evaluates companies that use the profit motive to help the planet and makean important social impact.
Jio maintained a healthy growth momentum in financial parameters too with its EBITDAand 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 factthat over 3 exabytes per month of data is carried on its wireless network. Every Jiosubscriber consumes on an average 10.9 GB data 823 minutes of voice calls and 17 hours ofvideo 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 Indiaamong 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 GigaFiberservices. 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 thecountry. To accelerate Jio's commitment to connect 50 million homes with Jio's solutionsRIL has made strategic investments in Hathway Cable and Datacom Limited and DEN NetworksLimited.
During the year Jio demerged passive tower and fiber infrastructure into an InvITstructure. 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 consumerbusiness agriculture education and healthcare that will accelerate our growth. Inaddition to its own digital platform in the past year Reliance has partnered with morethan a dozen coming-of-the-age businesses. These are mostly in the Technology Media andTelecom (TMT) and retail sectors along with strategic investments in two majorMSOs-Hathway and Den. Reliance believes that creating an ecosystem with new-ageentrepreneurs 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 र 92656 crore up 26.8% y-o-yand its highest ever net profit of र 39588 crore up 13.1% y-o-y. RIL enjoys primecredit ratings as a result of its fiscal prudence and strong cash flows. We have retainedour domestic credit ratings of CRISIL AAA' from CRISIL and IND AAA' from IndiaRating. For our international debt we have an investment grade Baa2' rating fromMoody's and BBB+' from S&P.
During FY 2018-19 Reliance Jio Infocomm Limited (RJIL) successfully tied up JPY 53.5billion-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 ExportCredit Agency (ECA) financing with door-to-door tenor of over 10 years-the largestfinancing transaction globally in the telecom sector supported by K-Sure.
The demerger of the tower and fiber assets of Jio into separate InvITs has helpedestablish 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 ofthese infrastructure assets through the preference shares that Reliance holds in theseentities.
GOVERNANCE AND SAFETY
Reliance's governance standards are built on the foundation of systems that supporttransparency and ethical business conduct. In an effort to strengthen risk management andinternal controls Reliance instituted the Reliance Management System (RMS) designed tooperationalise a harmonious work culture by codifying and embedding standardised processesinto the DNA of every function. RMS has been further strengthened by leveraging the powerof digitised platforms.
In all our businesses the health and safety of our employees is sacrosanct. This yearmarks a decade of safe operations in the E&P business which is a significantachievement compared to any benchmark. In FY 2018-19 we intensified our efforts on safetyby implementing Competency Assurance System to ensure reliable operation delivery andsafety competence among the frontline staff.
We are committed to making continuous improvements across the triple bottom line andenabling positive change in the society. Our ability to manage utilise and transform thesix capitals-Natural Capital Human Capital Manufactured Capital Intellectual CapitalFinancial and Social and Relationship Capital-is the key to creating value for ourstakeholders. In our continued pursuit of excellence noteworthy capital investments wereundertaken which led to reduction of carbon emissions and enhancement of resourceefficiency. We are committed to becoming a leader in the emerging circular economy andbecoming one of the largest recyclers of plastics in India.
Integral to growing revenue is the ongoing improvement of our social and relationshipcapital. Reliance Foundation is committed to bringing about a positive change in the livesof our stakeholders. Our business objectives are aligned with the Global SustainableDevelopment Goals which is reflected through our work in the areas of ruraltransformation health education sports for development disaster response artsculture and heritage and urban renewal. In FY 2018-19 there was an impressive growth inthe number of beneficiaries of our community outreach programmes.
We are in a rapidly changing world where digital connectivity and abundance of data isreshaping value creation models across verticals. We continue to improve and evolveconsistently fostering an entrepreneurial mindset across the organisation. Overall wedelivered yet another year of robust performance achieving remarkable success across ourbusinesses. I would like to thank the entire team at Reliance for their untiring effortsand 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 theirguidance. I would also like to express my heartiest gratitude to all our stakeholders fortheir enduring faith in Reliance.
With best wishes
Mukesh D. Ambani
Chairman and Managing Director
July 2 2019.