Midfield Industries Ltd Management Discussions

MIDFIELD INDUSTRIES LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS GLOBAL SCENARIO Global packaging industry is worth US$ 424 billion and out of this Europe has US$127 billion, Asia has US$114 billion, North America has US$ 118 billion, Latin America has US$ 30 billion, and other countries have $US 30 billion. In terms of global market percentage, Europe is 30%, North America is 28%, Latin America is 7%, Asia is 27% and other is 8% of global packaging industry. According to the materials used in packaging industry throughout the globe, paper shares the most, 36%, metal is 17%, plastic takes 34%, glass takes 10% and other occupies 3%. According to the type of packaged products, Beverages take 18%, food take 38%, pharmaceutical products take 5%, cosmetic products take 3% and other products take 36% of overall packaging industry. Global market value on food packaging is 161 US$ billion, beverage packaging is 76 US$ billion, Pharmaceutical packaging is 21 US$ billion, cosmetic packaging is 13.3 US$ billion and other is 153 US$ billion. The global packaging industry will swell to almost US$820 bln by 2016 predicts Pira International. Driven mainly by increasing demand for packaging in emerging and transitional economies, a 3% pa growth rate will focus on board products and rigid plastics, with US$40 bln and US$33 bln in cumulative predicted growth respectively to 2016. This growth is being driven by a number of broad trends such as growing urbanisation, investment in housing and construction, a burgeoning healthcare sector and the rapid development still evident in the emerging economies, including China, India, Brazil and some eastern European countries. An increase in personal disposable income in the developing regions fuels consumption across a broad range of products, with consequential growth in demand for the packaging of these goods. For instance, increased demand for white goods, like washing machines and dishwashers, driven also by growing time pressure on consumer lifestyles, leads not just to a growing demand for packaging for the machines themselves, but also for associated products such as the household care products needed to operate these machines, thus stimulating demand across a range of packaging media. INDIAN PACKAGING INDUSTRY: The Indian packaging industry is growing at the rate of more than 15% pa and expected to touch US$14 billion (Rs. 11.2 billion) in the present financial year (2011-2012). Further, the growth is expected to double in the coming two years, one of the reasons being the thriving retail sector in India. The growth of the packaging industry in India can be seen mostly in the second-tier cities where packaging plays an important role in the launch of new products. Big giants like Hindustan Unilever Ltd, Nestle India Ltd, ITC Ltd, Procter & Gamble India Ltd, PepsiCo India Ltd, Coca-Cola India Ltd and Dabur India Ltd have also become quiet aggressive in this form of advertisement. Also the growth in the packaging industry in India is attributed to the increase in the number of joint ventures and partnerships with foreign companies. The total demand of F&B packaging segment stands at around $16.2 billion and accounts for around 85% market shares followed by pharmaceuticals and other market segments. At present, flexible, rigid and metallic food packaging materials account for around 55% of the total food packaging material market, while printed cartons and rigid packaging segments together represent 28% market shares in value terms. Flexible materials such as food packaging laminates, flexible packaging foils, cookies packaging etc. constitute close to 24% of the overall packaging material market, followed by rigid food packaging material segment. The packaging industry in India has been registering a constant growth rate of 15%. The Corrugated packaging industry is however finding itself at the crossroads. Increasing prices of kraft paper, non availability of international standard papers at affordable prices, resistance of corrugated box user industry to offer sustainable prices, increasing competition, non viability ofautomatic plants are proving to be hurdles in the growth path. Despite these adverse circumstances, the industry is all set to take on the challenges and look at the future opportunities. As global companies set up their manufacturing bases in India to meet the growing demand for consumer and white goods - the need for high quality boxes is appearing evident. Progressive Corrugators are setting up automatic board/box making plants to increase production and enhance performance of boxes. In house printing on corrugated is becoming imperative. Emerging and transitional economies, a 3% pa growth rate will focus on board products and rigid plastics, with US$40 bln and US$33 bln in cumulative predicted growth respectively to 2016. This growth is being driven by a number of broad trends such as growing urbanisation, investment in housing and construction, a burgeoning healthcare sector and the rapid development still evident in the emerging economies, including China, India, Brazil and some eastern European countries. An increase in personal disposable income in the developing regions fuels consumption across a broad range of products, with consequential growth in demand for the packaging of these goods. For instance, increased demand for white goods, like washing machines and dishwashers, driven also by growing time pressure on consumer lifestyles, leads not just to a growing demand for packaging for the machines themselves, but also for associated products such as the household care products needed to operate these machines, thus stimulating demand across a range of packaging media. SWOT Analysis of Midfield Industries Strengths: Weakness: Niche segment of Capacity constraints industrial packaging Lack of infrastructure Established brands development Operational contracts: one stop solution Diverse clients Adherence to stringent quality parameters Incessant focus on Opportunities: Threats: Surge in packaging Peer competition demand Fluctuating prices of Untapped international raw materials and export markets Interest rates and Global Economy Risk Management Risk management is essential for sustainable stakeholder value creation. Effective risk governance will result in achievement of business objectives, protection of people, assets and reputation. We run or business by identifying, assessing and managing risks. Risk: Health and safety Management: One of the most important pre-requisites for the smooth functioning of our business operations and well being of workers we have a comprehensive and well audited safety practice standards. This tremendously in reduction of accidents at the factories. Risk: Raw material price fluctuations Management: In line with the strategic priority Midfield Industries manages its inventory very well. Maximization of available resources and all the goods are manufactured in house. Backward integration is helping the Company to overcome raw material price fluctuations. Risk: Changes in consumer behavior Management: We incessantly monitor the market and carefully observe the consumer trends. The political developments and varying needs are mapped by our market research team and this helps us in serving the diverse sectors with customized packaging solutions. Risk: Cost management Management: Midfield has a sound economic objective and a good corporate practice. The funding requirements are negotiated in a timely manner so that there is enough room to mitigate the risk related to foreign currency, interest rate and commodity prices rates. Financial performance Midfields growing list of clientele and attractive book order has enabled it to report attractive numbers. Particular 2011-2012 2010-2011 Groeth (%) Revenue 1681.76 1291.63 30.20 EBIDTA 347.36 266.12 30.53 PAT 143.07 125.57 13.94 Human Resources (HR) The company recognizes the importance of the Human Resources team to achieve its goals. Midfield Industries Limited has an experienced and a dynamic HR team that ensures the implementation of significant HR policies for the companys growth and credibility. The recruitment cell focuses on hiring new talent and implements the retainment policy for the existing employees. There is a lot of emphasis on training and development so that there are emerging leaders and creation of extensive talent pool. Health and safety measures We have a policy in place to for the health and safety for our workmen which have the following salient features: 1. Compliance with relevant safety and statutory regulations and rules both in letter and in spirit. 2. Maintenance of safe, healthy and congenial working atmosphere by constant monitoring of work place environment. 3. Ensuring cleanliness and proper lighting system at the work place 4. Providing helmets, gloves, appropriate tools, and other safety precautions to the workers. 5. Conducting workshops on safety, first-aid, firefighting, safety audit and risk analysis studies. We comply with applicable health and safety legislations to ensure that the workers enjoy a safe and a healthy work environment. Outlook Indian packaging industry with a growth of more than 15% p.a. is expected to continue recording high growth for a prolonged period in the wake of low current percapita consumption. Packaging today has grown in importance and the large growing middle class, liberalisation and organised retail sector are the catalysts to growth in packaging. Internal Control system Midfield Industries Limited has a comprehensive and consolidated internal control system to ensure authorized business transactions. Internal audit function is an independent, which is carried out by internal auditors through intensive audits. Regular internal audits determine the operational and financial efficiencies of the Company. The Audit Committee of the Board of Directors conduct periodic reviews of pan-organizational effectiveness and recommends improvement whenever required. The internal control system also formulates well documented policies, guidelines, authorizations and approval procedures and ensures compliance with applicable policies and statues.