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Industry Structure, Developments and Outlook
The Global Economy - Performance & Prospects
The world economy is estimated to have grown by 3.1% in 2018, as a fiscally induced growth acceleration in the United States of America offset a slower expansion in a few large economies, including Argentina, Canada, China, and Turkey. In many developed countries, growth rates have risen close to their potential, while unemployment rates have dropped to historical lows. Among the developing economies, the East and South Asia regions remain on a relatively strong growth trajectory, amid robust domestic demand conditions.
Growth in global industrial production and merchandise trade volumes has been tapering since early 2018, particularly in the trade-intensive capital and intermediate goods sectors. In several countries, leading indicators point to some softening in economic momentum, amid escalating trade disputes, risks of financial stress and volatility, and an undercurrent of geopolitical tensions. At the same time, a few developed economies are facing capacity constraints, which may weigh on growth in the short term.
As the impulse from fiscal stimulus decreases, the growth momentum in the United States is projected to slow from 2.8% in 2018 to 2.5% in 2019 and 2% in 2020. While the European Union is projected to experience a steady growth of 2.0%, the risks are tilted to the downside, including a potential fallout from Brexit.
In China, growth is expected to moderate from 6.6% in 2018 to 6.3% in 2019, with policy support partly offsetting the negative impact of trade tensions. Several large commodityexporting countries, including Brazil, Nigeria and the Russian Federation, are likely to see a moderate pickup in growth in the outlook period, albeit from a low base.
The India Story
Major reforms were undertaken over the past year. The transformational Goods and Services Tax (GST) was launched on 1st July, 2017. The Indian Bankruptcy Code was introduced to facilitate early resolution of Companies in financial crisis. As a result of these measures, the dissipating effects of earlier policy actions and the export uplift from the global recovery, the economy began to accelerate in the second half of the year. The advance estimates released by the Central Statistics Office anticipates GDP growth for 2018-19 to be 7.2% as compared to the 6.75% growth achieved in 2017-18, thereby re-instating India as the worlds fastest growing major economy. This growth has been achieved in a milieu of lower inflation, improved current account balance and notable reduction in the fiscal deficit to GDP ratios.
Travel & Tourism
The global Travel & Tourism industry generated US$8.8 trillion (10.4% of global GDP) in 2018 and is expected to grow by 3.6% to US$9.1 trillion continuing to be 10.4% of GDP in 2019.
Travel & Tourism generated 122 million jobs directly in 2018 (3.8% of total employment) and this is forecast to grow by 2.2% in 2019 to 125 million. This includes employment by hotels, travel agents, airlines and other passenger transportation services.
The Travel & Tourism Industry has been a major growth engine for the Indian economy. Over the past few years, tourism has witnessed steady growth, aided by the shift from foreign to domestic tourism, coupled with the rising purchasing power of the expanding middle class. The 2019 edition of the WTTCs Economic Impact - India states that the Travel & Tourism industrys total contribution to the countrys GDP equalled 10.4% of the total GDP or INR 16.9 trillion (US$247 billion). Additionally, the industry is fundamental in generating employment for the skilled and unskilled alike. In 2018, 8.1% of total jobs (42.6 million) were supported by the Travel & Tourism industry.
Foreign Exchange Earnings have witnessed a significant growth in 2017, registering an estimated growth rate of 19.1% over 2016 to reach US$27 billion, as per the Indian Tourism Statistics. 2017 saw 16.3 million visitor arrivals to the country, a growth of 14.0% over 2016. On the domestic front, domestic tourist visits (DTVs) to the States/Union Territories (UTs) grew by 2.3% to reach 1.65 billion during 2017.
INR 13 billion of Indias direct Travel & Tourism GDP was generated by leisure travel spending, both international and domestic, which represents 95% of the direct Travel & Tourism GDP of the country. This is anticipated to rise by 7.6% in 2018 and 7.0% annually thereafter, to reach INR 28 trillion in 2028. Similarly, business travel spending (which represents 5.4% of GDP) is anticipated to grow by 6.7% in 2018 and 7.0% annually thereafter, to reach INR 1.6 trillion by 2028.
There is still significant opportunity for inbound tourism to India. The CAPA India inbound tourism report highlights that in 2017, only 2.5 million international visitors were holidaymakers. This is significantly less than many destinations in the region and should be seen as an opportunity given the enormous employment and foreign exchange potential from increased international holidaymakers to India. In contrast, Thailand and Indonesia received 31 million and 7.6 million international holidaymakers respectively in 2017 and even the island country of Sri Lanka received 1.8 million holidaymakers.
In addition to improving Indias image internationally on womens safety, addressing poor air quality during the winter months in particular and the cleanliness of many of our cities, more can also be done to promote India, its history, culture, geographic diversity and cuisine especially in important source markets like Europe and North America. The highest slab of 28% on the Goods & Services Tax for hotels is also a deterrent for holidaymakers to visit as this tax is considerably higher than any other country in the region. The World Travel and Tourism Council, the Hotel Association of India and other associations have made a number of representations to the Government to reduce this tax and to make it competitive with other countries in the region where taxes on hotel accommodation are 7-11%.
Tourism & Hospitality - Trends and Opportunities for Growth
Indias tourism sector attracted capital investments of US$ 48 billion in 2017 and expected to reach US$95 billion by 2028. The collective government spending in India on travel and tourism is expected to reach INR 368 billion (US$5.85 billion) in 2028 from INR 170 billion (US$2.81 billion) in 2017.
The year 2017-18 marked the third year of the up cycle for the Indian Hospitality Industry. The nationwide occupancy of 67% in 2017-18 was the highest the industry has witnessed in a decade and was a key driver of the Rev PAR clocking its best performance since 2010-11, to reach INR 3,837. Despite the addition of close to 9,000 rooms last year, the sustained growth in occupancy was expected to encourage hotels to push up room rates significantly, but instead at INR 5,759, the weighted average rate appreciated by a mere 1.5% over the previous fiscal.
Steady demand and diminishing supply coupled with the governments commitment to strengthening the Travel & Tourism Industry is likely to have a positive impact on the industry. We believe that this is the time operators, lenders and advisors will all jointly appreciate the opportunity ahead and make decisive plans to capitalize on it.
Financial and Operating Performance
The Companys Total Revenue was Rs. 2,737 Million in 2018-19 as compared to Rs. 2,693 Million in the previous year.
Earnings before Interest, Depreciation, Taxes and Amortizations (EBIDTA) was Rs. 730 Million as compared to Rs. 731 Million in the previous year.
Profit before Tax was Rs. 583 Million as compared to Rs. 587 Million in the previous year.
The Profit after Tax for the year was Rs. 379 Million as compared to Rs. 378 Million in the previous year.
Total Comprehensive Income was Rs. 378 Million as compared to Rs. 377 Million in the previous year.
Subject to the approval of Shareholders, the Board has recommended a dividend of Rs. 4.50 per share of face value Rs. 10.
The Companys business activity is limited to hotels.
Internal Control Mechanism and Adequacy
The organizations commitment to internal control mechanism itself flows from The Oberoi Dharma which states that we as members of The Oberoi Group, are committed to a conduct which is of the highest standards - ethical, intellectual, financial and moral. Adequate internal control processes have been laid down to provide an assurance on the orderly and efficient conduct of operations, safeguarding of assets, prevention and detection of frauds and errors, accurate and timely completion of accounting records and timely preparation of reliable financial information.
Appropriate checks and balances have been built in the internal control mechanisms to reflect its necessary concomitance to the principle of governance without affecting the ease of operations and their management.
Internal Financial Controls (IFC)
The Directors have devised a framework for internal financial controls to be followed by the Company that conforms to the requirements of Section 134(5)(e) of the Companies Act, 2013, and incorporates measures that ensure the adequacy and continuing operating effectiveness of such internal financial controls. Furthermore, in accordance with Section 149(8), read with the Code for Independent Directors laid down under Schedule IV, Clause II (4) of the Companies Act, 2013, the Independent Directors have satisfied themselves on the integrity of financial information and ensured that financial controls and systems of risk management are robust and defensible.
In order to enable the Directors meet these responsibilities, the Board has devised the necessary systems, frameworks and mechanisms within the Company and empowered the Audit Committee to periodically review and confirm that the mechanism remains effective and fit for purpose.
In line with global best practices applicable to organizations of a similar size, nature and complexity, the Companys internal control framework has been designed through structured control risk assessments by way of Standard Operating Procedures (SOPs), Risk and Control Matrices (RACM), Information Technology (IT) Policies, ERP-based Information Systems including MIS and automated system controls inbuilt within the ERP and other IT Systems. RACMs control effectiveness is ensured through self-certification mechanism in ERP by respective process owners. Management testing which is done by Internal Audit is now being implemented to be processed through data analytics tool.
With increased instances of information security breaches and data leakages being reported from across the globe, the Company has a policy of reviewing its information technology security infrastructure. Commensurate actions are taken to scale up infrastructure, wherever required.
A system based continuous audit monitoring tool has been implemented through the Internal Audit team, to observe the deviations from the standard. The exceptions are then reported back to the functional/unit heads with the responsibility of rectifying such exceptions within a definitive time frame.
The Audit team has been entrusted to devise adequate monitoring mechanisms and procedures to ensure prevention and detection of failures and faults in processes and report their observations along with mitigating actions within defined target dates to the Audit Committee of the Board of Directors in every quarter.
Internal Audit Mechanism and Review Systems
The Internal Audit Department is headed by the Internal Auditor and comprises of a strong internal workforce of ERP-trained Chartered Accountants with specialized skillsets in areas of Information Security, Financial, Business, Legal, Statutory, Projects and Process Audits.
The Department works on matured Computer Assisted Audit Techniques (CAATs) and deploys online monitoring mechanisms across the IT systems of all functions and units of the Company. Focus areas for specific audits are determined based on structured assessment of risk and the yearly Internal Audit Plan as approved by the Audit Committee. All reported observations of audits are maintained in online databases for comprehensiveness, ease of accessibility and structured follow up.
Periodically, IT Security Audits are conducted by joint team of Internal Audit and IT Department. Vulnerability assessment and penetration testing, etc., audits are also done by specialized external agencies.
The Company has a structured follow-up team of Senior Executives who meet periodically under the aegis of the Managing Director to address and resolve pending audit issues. The Internal Auditor is responsible to and presents the findings to the Audit Committee every quarter, in the order of the impact of risks involved and probabilities of their occurrence, and the pendency of issues in various units together with the periodicity and status thereof.
The Audit Committee takes cognizance of the presentation and provides its directions and guidance for further action. Besides, the Internal Auditor has also been entrusted with the responsibility to report to the Audit Committee on the adequacy of Internal Financial Controls (IFC) in accordance with Section 177 (4) (vii) of the Companies Act, 2013.
During the Financial Year 2018-19, separate presentations on internal audit findings and internal financial controls were shared with the Audit Committee in its meetings on four occasions. The Audit Committee was satisfied with the adequacy of the internal control systems and procedures of the Company and the performance of the Internal Audit Department in respect of monitoring of such systems.
Risk Management is an integral and important component of Corporate Governance. Robust risk management ensures adequate controls and monitoring mechanisms for the smooth and efficient running of the business.
The policy framework enables the Company to identify and evaluate Risk and Opportunities. The cornerstones of the Companys Risk Management Framework are:
Periodic assessment and prioritisation of risks that affect the business of the Company;
Development and deployment of risk mitigation plans to reduce vulnerability to the prioritised risks;
Focus on both the results and efforts required to mitigate the risks;
Defined review and monitoring mechanism wherein the functional teams, the top management and the Board review the progress of the mitigation plans;
Wherever applicable and feasible, defining the risk appetite and installing adequate internal controls to ensure that the limits are adhered to.
The Risk Management Committee comprising the Managing Director and Senior Executives of the Company presented to the Board of Directors, Risk Reports in October 2018 and in March 2019. The potential risks associated with the Companys business are assigned as responsibility to various Risk Owners who are responsible for monitoring and addressing the risks with commensurate mitigating plans. Based on data received from Risk Owners, the organisational criteria of Critical, Good and Watch were applied to each Risk. The Board was apprised of the performance of the Company against each risk parameter and the measures taken to mitigate these risks. On the whole, the Board was satisfied with the Companys performance against each identified risk parameter.
Major recognition received by The Oberoi Group during the previous two years have been:
Oberoi Hotels & Resorts has been voted the best Hotel Group for the second consecutive year by Telegraph Travel Awards 2018, UK.
Oberoi Hotels & Resorts has won Best Business Hotel Brand in India by Business Traveller UK Reader Awards, 2018.
Oberoi Hotels & Resorts has been voted as the Worlds Leading Luxury Hotel Brand for the sixth consecutive year by World Travel Awards, 2017.
|The Oberoi Rajvilas,||Top 25 Hotels - India (Ranked 1st)||Trip Advisor Travelers Choice Awards 2019|
|Jaipur,Rajasthan, India||Top 25 Luxury Hotels - Asia (Ranked 2nd)||Trip Advisor Travelers Choice Awards 2019|
|Top 25 Luxury Hotels - India (Ranked 1st)||Trip Advisor Travelers Choice Awards 2019|
|Top 25 Hotels for Service - India (Ranked 1st)||Trip Advisor Travelers Choice Awards 2019|
|5 Best Resort Hotels in India (Ranked 2nd)||Travel + Leisure, USA Worlds Best Awards, Readers Survey 2018|
|Indias Leading Resort (4th consecutive year)||World Travel Awards, 2017|
Development in Human Resources and Industrial Relations
The Oberoi Group continues to place a great deal of importance on creating the best teams possible who are aligned with the Companys values and The Oberoi Dharma. Our values guide and inspire us to do what is the right and not what is the easiest by placing guest first, company second and self, last. We continuously review and realign our people practices and policies with an aim to provide our employees with the best working environment.
The Oberoi Group has been recognized as one of the best employers in the Aon Best Employers India - 2018 survey.
Belief of "people being our biggest asset" has always guided the Company to continuously strive to improve upon our people practices. Several of these practices have been instrumental in making The Oberoi Group an employer of choice. Some of these initiatives are listed below:
1. The Oberoi Group Employee Engagement Survey - Employee engagement has always been a strong focus at The Oberoi Group. We conduct People Pulse Survey to understand engagement levels of our employees during the year. In year 2019, the Company scores of Aon People Pulse was 81%.
2. The Oberoi Group Performance Management system has been further strengthened by creating an Organisational Balance Score Card and score cards for the entire leadership team.
3. The Company continues to focus on its policy of zero tolerance of any non-compliance with labour and other statutory requirements. We have created standard policies for third party manpower engaged in the group companies and streamlined practices related to them. Additionally, to ensure compliances related to third party manpower, Team Lease has been engaged to conduct independent audits on third party compliances in the Hotels/ Business Units.
4. With people being our biggest asset, we continue to look at high performers and create individual three year career plan for them. This is monitored at Corporate Human Resources.
Learning & Development
In keeping with The Oberoi Groups philosophy of training and developing people, its hotels and training center, The Oberoi Centre of Learning and Development (OCLD) continue to invest time, effort and money in comprehensive training interventions. These include:
1. The Oberoi Centre of Learning and Development (OCLD) continued to be focused on its core programmes. These are the Post Graduate Management Programmes in Guest Service, Housekeeping and Kitchen Management and the three-year Undergraduate Systematic Training and Education Programme (STEP).
2. OCLD had its first batch of Sales Management Programme graduate in January 2019.
3. As part of the Corporate Learning and Development initiatives, several programs were organised in the Financial Year 2018-19 for team members and executives across all levels. These Management Development Programs were based on individual needs identified during the appraisal process.
4. As part of our re-branding exercise OCLD developed a series of training modules to enable team members provide remarkable experiences to our guests. These training modules were delivered in a Train-the-Trainer format which were then cascaded by Training Managers to every team member.
Industrial Relations remained stable throughout the year.
As on 31st March, 2019, the number of people employed by the Group was 9270.
The Board takes this opportunity to thank all employees for their unwavering commitment to guests and the organisation and for their dedication and co-operation.
For and on behalf of the Board
|Gurugram||VIKRAM OBEROI||SUDIPTO SARKAR|
|28th May, 2019||Managing Director||Chairperson, Audit Committee|