Welspun Global Brands Ltd Merged Management Discussions

WELSPUN GLOBAL BRANDS LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS The Management Discussion and Analysis (MD&A) should be read in conjunction with the Audited Consolidated Financial Statement of Welspun Global Brands Ltd. (Welspun or the Company), and the notes there to for the year ended March 31, 2011. This MD&A covers Welspuns financial position and operations for the year ended March 31, 2011. Amounts are stated in Indian Rupees unless otherwise indicated. The numbers used in the analysis are on a consolidated basis, the corresponding number for the previous year have been regrouped and reclassified wherever necessary. Forward-Looking Statements: This report contains forward-looking statements, which may be identified by their use of words like plans, expects, will,anticipates, believes, intends, projects, estimates or other words of similar meaning. All statements that address expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market position, expenditures, and financial results, are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events BUSINESS ORGANIZATION / BACKGROUND: Welspun Global Brands Limited (WGBL), created through the demerger from WIL in 2009, has now completed its second year of operation. As the sales and marketing arm of Welspun India Limited (WIL), WGBL continue to retain its position as a strategic vendor to more than 12 of the top 30 retailers in the world. WGBLs sales and distribution network is spread across 32 countries. In addition to being vendors to international retail chains, WGBL also have its own retail operations in UK, Portugal and India through its subsidiaries. In addition to its existing operations in USA, UK and Portugal, WGBL acquired Koni Corporation in 2010. Koni Corporation is a company focused on providing end-to-end solutions for the hospitality business. WGBL also purchased a manufacturing facility for bedding at Rosarito in Mexico from KOJO Worldwide Inc. With this acquisition WGBL, is expecting to rapidly expand its presence in the hospitality segment at a faster pace across US. As a vendor to top retailers, a major portion of WGBLs revenues continues to come from private label business. This is a high volume-low margin business. Despite the challenges posed by the cotton scenario in 2010, WGBL have been able to pass on a portion of the price increases to its customers through aggressive sales push and innovation. WGBL is also aggressively focusing on innovation in its existing product categories. In addition to the private label business, WGBL also have its branded business which includes owned and licensed brands. WGBLs owned brands include both product and retail brands across USA, Europe and India. This business accounts for nearly 25% of WGBLs revenues. GLOBAL OVERVIEW: Global Economic Environment: 2010 witnessed a slow recovery from the financial crisis of 2009. The initial quarters saw recovery and consumer spend growing marginally. This picked up towards the latter half of the year. The risks of double-dip recession are now fading and economic recovery seems well under control. Private demand is now taking control of economic growth. Despite reports of a continued challenged economic scenario in 2011, advanced economies are expected to grow by 2.4% while the emerging economies will grow at around 6.5% this year. While this growth is marginally lower than the growth witnessed in 2010, it is a positive sign for international business. Commodity prices also continue to grow reflecting stronger demand and supply shock. This trend is expected to continue though the impact on growth will be limited. This may fuel inflation in developing economies but will not impact overall growth. The positive impact of this has been the improvement in the industrial production which is now also broadening and covering the services sector. As employment recovers and job-losses reduce, economic growth will further improve. Economic Environment in USA: The US economic growth was relatively slow in the initial part of 2010. However, the second half of 2010 saw higher growth with rising private consumption. 4Q2010 saw the highest growth in consumer spending in the last 5 years. The employment situation, however, remains stressed with only 1.5 million jobs added over 2010 as against 8.5 million job losses during the crisis. The US economy is expected to continue to grow in 2011 and 2012. It is expected that it will grow at 2.75% and 3% respectively in 2011 and 2012 due to improved private spending off-setting the reduced support from fiscal policy. Economic Environment in UK: The economy in UK continues to see slow growth in demand. Post the crisis, the recovery has been measured with consumer spending remaining slow. With looming economic uncertainty in part of Europe, the UK economy is projected to increase only by 1.75% in 2011 and 2.3% in 2012. This slow pace of growth is primarily being driven by fiscal consolidation in the country. High levels of taxes on individual incomes will reduce disposable income leading to continued slow pace of growth in private consumption. Economic Environment in Europe: Recover in Europe has been relatively modest due to continued financial challenges in some of the smaller economies of the euro area. While unemployment remains high and there has been quick and sustained policy response in the area to control the situation and boost recovery. Growth in the area is expected to remain uneven with advanced Europe growing at 1.75% in 2011 and 2% in 2012 and emerging Europe growing at 3.25% in 2011 and 4% in 2012. The 2011 GDP growth in the key markets of Portugal, Spain and Germany is expected to be -1.5%, 0.8% and 2.5% respectively. Portugal remains a cause of concern. However, these challenges have been built into WGBLs business plan and it is poised to achieve its targeted revenues in 2011-12. Economic Environment in India: Asia is expected to continue to grow rapidly. In the meantime, India continued to grow at over 8% in 2010. In 2011 and 2012, Indias GDP growth is expected to be 8.25% and 7.75% respectively. With Asia and India continuing to grow rapidly, output is nearly close to potential levels. Accommodative policies and rising global oil and commodity prices are increasing inflation. Inflation is expected to remain high in India averaging nearly 7.5% in 2011. Infrastructure development will remain the key to foster this growth. Export growth is expected to moderate as compared to last years very rapid pace but is expected to remain robust. The demand from advanced economies is likely to remain relatively weak. However, domestic demand and demand from emerging economies is likely to ensure high market share from exports. As personal disposable income increases, an increase in discretionary spending especially on home is seen. Global Textile Market Update: The global textile and apparel industry is expected to grow to $1 trillion by 2020 from the current levels of $510 billion. The growth in trade will continue to be driven by increased outsourcing or shift in manufacturing from developed countries to lower cost countries. Asian economies are likely to benefit significantly from this shift given availability of raw material as well as relatively cheap labor. The demand for textile industries is primarily dependent on the consumer spending. Given that home textiles is a discretionary spend item, economic downturns typically have an adverse impact on demand. The home textile industry also went through a scenario of reduced demand over the 2009 and the first half of 2010. As consumer confidence in the recovery improved, an improvement in demand for home textiles was seen in the latter half of the year. Consumers and hence retailers in advanced economies continue to remain highly sensitive to price. Textile exports from India have also growth and were estimated to be $23.5 billion in 2009-10, a share of 4.5%. This share is expected to go up to $80 billion or 8% by 2020. Despite stiff competition from China and other Asian economies, India can expect continued growth as global players look for alternatives to China. In the first quarter of 2011, there was a reduction in import of towels into the US in volume terms primarily due to the rise in unit prices. There has also been a significant surge in imports from Bangladesh into the US signaling a continued pricing pressure. There has also been a similar drop in import of cotton sheets into the US given the huge increase in cotton prices in the last 12-15 months. The key trend that emerged in 2010-11 across all advanced economies is the shift to lower cost products. Brands have also lost their sheen and consumers prefer private label products. Additionally, as unit prices have been going up due to a huge jump in cotton prices, there has been a significant drop in volumes and a shift towards blended products. Retail Industry Update: WGBLs business is significantly impacted by howglobal retailers respond to change in consumer trends and economic conditions. The home textile retail follows the overall retail trends and hence retail growth is a good indicator for us to plan and forecast business for the future. WGBL keeps track of its key markets of USA, UK, Eurozone and India on regular basis. USA Retail Industry Update: Post a negative trend in FY09-10, the Redbook Index, which measures trends in retail sales, has shown a positive growth over the last 12 months. The average growth in retail sales in FY 10-11 over FY 09-10 was nearly 2.75% in the US. The home textiles market has seen a similar trend and not registered significant growth. Given that home is a discretionary purchase, WGBL view this as a positive trend going forward. In response to the reduction in volumes due to higher average unit prices, WGBL is looking at innovative solutions across all categories to work around this trend. UK Retail Industry Update: The UK retail industry has been going through a lot of volatility over the last year (see figure 4). While there were positive signs till November 2010, the last 5-6 months have been very volatile. Due to uncertainties of stability of the economy, weather conditions, etc. the retail demand has fluctuated wildly. With rising taxes in the country, the disposable incomes have also reduced putting further pressure on demand. Euro zone Retail Industry Update: The Euro zone has seen a relatively positive retail growth expect for March 2011 as you can see from the table below. Despite the economic recovery not being uniform across the various countries of the EU, the retail industry has seen some growth. Demand in some of the constituent countries will be depressed and others will be robust. WGBL is looking at addressing this market accordingly Year on Year Month on Month Apr 10 -1.6% -0.9% May 10 0.5% 0.4% Jun 10 1-5% 0.4% Jul 10 1-4% 0.1% Aug 10 1.6% -0.1% Sep 10 1-7% -0.1% Oct 10 1-2% 0% Nov 10 0.1% -0.8% Dec 10 -0.9% -0.6% Jan 11 07% 0.4% Feb 11 1.3% 0.3% Mar 11 -1.7% -1.0% Apr 11 1.1% 0.9% With manufacturing, especially in home textiles in EU countries picking up, overall demand is expected to improve. Going forward countries like Turkey and Portugal are now relatively cost competitive in the environment of rising cotton prices. This may also boost employment and demand. Indian Retail Industry Update: Indian retail industry, especially modern retail, continues to grow aggressively. Modern retail is expected to grow at nearly 30-35% p.a. over the next 5 years from current levels. The overall retail market is nearly $400 billion with modern retail accounting for only 5% of the same. While organized retail in the home category is a relatively new in India, WGBL has many established retailers entering the fray through the big-box model. Home linen, the segment that WGBL is present in, ranks number 6 in consumer discretionary spending. The share of consumer spending on this category to account for 8% of the wallet share by 2013. In case the FDI policy on retail is changed, opening up of the FDI in multi-brand retail will further add to the competition in this sector. WGBL is working on its retail business with this eventuality in mind and gearing itself to face international competition in the coming years. India Advantage: As a manufacturing destination, India remains fairly competitive. As you can see from the chart below, WGBLs biggest challenges are rising labor costs and lack of proximity to its key markets. There has been an upward correction in labor costs in most other low cost countries like China and Brazil. However, Pakistan, Bangladesh and Vietnam continue to enjoy extremely cheap labor. The economic and political stability of each of these destinations will definitely determine business volumes and market share. India continues to enjoy pride of place in exports into USA in towels and bed linen. In the EU, WGBL face stiff competition from China and Pakistan primarily due to its inability to cater to low thread count sheets market and small volume orders. WGBL has also distinguished itself in the key markets through its ability to read trends and respond effectively and quickly to the cotton crisis. WGBL has offered various comprehensive solutions to its customers to tide over this situation which has helped grow its revenues. WGBLs key competitors are manufacturers from India, China and Pakistan and large sourcing houses. WGBL is structured towards addressing both these types of competitors through a solutions based approach to home textiles products rather than offering only a low-cost option to the customer. The current industry structure is also seeing increased longer term partnerships with customers across the board as well as the need for retailers to reduce their vendor base to control costs. This is acting as a positive trend for Welspuns textile business as a whole as this will provide us with longer terms contracts and revenue visibility. In addition to this, many retailers are looking at the financial health of their vendors before finalizing the business which is also favorable for WGBL. WGBLS KEY STRENGTHS: In an environment of high cost and stiff global competition, WGBL offers the following advantages to its customers: 1. Manufacturing-outsourcing mix: WGBL purchases all the products manufactured by WIL and its subsidiaries. WGBL has a world-class manufacturing facility in India strategically located near the Kandla port. It also has a facility in Mexico for top of bed products to leverage the advantages of NAFTA. In addition to its own manufacturing, WGBL also has a strong sourcing team that is capable of outsourcing requirements to meet quality and price targets of customers. 2. Strong market presence: WGBL has local offices across USA, UK and Europe to ensure quick service to its customers. In addition to a sales office, it also has distribution centers in these countries which provide vendor managed inventory. 3. Strong SCM support: WGBL has a strong SCM support which it extends to all its customers. This provides valuable analysis to customers on sales trends and helps WGBL adjust order bookings and manufacturing to suit demand trends. 4. Design support: WGBL has a multi-locational design team that develops world class designs for its customers. It is able to quickly develop new designs for customers based on emerging trends in the market and also execute them with ease. 5. Customer Insights and Product Development: WGBL has a highly motivated marketing and merchandising team that is continuously researching the market to find out what consumers need and offering solutions to the customers accordingly. WGBL is able to offer new product solutions at various price points by focusing on Innovation to address customer needs. WGBL therefore is a one-stop shop solutions provider to all its customers. With the flex-PLM software being currently implemented, which will be on par with the best practices in the retail industry and the first to adopt this in the textile manufacturing industry. WGBLS ACHIEVEMENTS AND AWARDS: WGBL has been recognized for its performance over the last year. Some of the awards presented to WGBL include: * Sheridan Ultra-Light Towel chosen as Winning Product in Favorite Home & Outdoor category- Australian Womens Weekly, 2011. * Sustainability award for Process Innovation- Indian Carbon Outlook, 2011. * Outstanding CSR in Textile sector- India Shining Star CSR awards, 2011. * Value award-Tesco, 2010 * 5 Star award-Macys, 2010 * Best co-planning award for Supply Chain-Wal Mart, 2010 * Texprocil awards 2009-10 - Highest global exports - Special Gold - Top Terry towel exports-Gold - Merchant exports- Gold * Vendor excellence award-Target, 2009-10 These awards are a testimonial of our superior performance in delivering value added services to our customers. FACTORS AFFECTING OUR OPERATIONS: In addition to the general economic environment and retail industry, WGBLs business is impacted by the following factors: 1. Performance of the textile industry: Capacity and manufacturing cost trends of the global textile industry impacts WGBLs competitiveness as well as ability to sell in the international markets. Raw material prices as well as other input costs also impact the way we do business. 2. Demand for the products: Home textiles being a discretionary purchase, is often impacted by economic conditions and consumer confidence. The consumer may trade down on quality and price of the product thereby putting pressure on our margins. 3. Exchange rate fluctuations: Though most of our expenses are incurred in Indian rupees, we face exchange rate risk as our revenues are primarily in US dollars. 4. Changes in policies of government: Changes in policies of governments both in India and WGBLs key markets may have an impact on its business through changes in competitiveness of its products. FY 2011-12: STRATEGIES TO IMPROVE OUR COMPETITIVE ADVANTAGE: In addition to WGBLs target to increase its presence across all product categories currently present in, .i.e., towels, sheets, rugs, top of bed and bath robes, WGBL is looking at the following to improve its competitiveness: 1. Consolidation of International Operations: WGBL aims to consolidate our North American operations and European operations under its US and UK based subsidiaries respectively to leverage on its relationship and market position in those markets. 2. Innovation Culture: WGBL is looking at inculcating a culture of innovation within its organization. This culture will not be limited to product innovations alone but will also touch various aspects of the key business processes to improve customer experience. 3. Managing Costs: The economic crisis brought about a focus on cost reduction. Though the economic situation is improved, Welspun will remain committed to managing costs to ensure that the benefits of the cost reduction measures adopted are sustainable over the long-term. 4. Focus on Hospitality Business: In FY11-12, WGBL will focus on consolidating its position in hospitality business in the US. The acquisition of Kojo is also expected to aid us in this process. HUMAN RESOURCES POLICY: Our HR policies cover our objectives, eligibility and coverage, policy and procedures. We review, revise and update our Human Resource policies from time to time to make them relevant, effective and useful to its employees. OUTLOOK: WGBL is already a strategic vendor to major retailers in the USA. It has been able to sustain its growth even in the current economic scenario where the retail sales in its key market of US dropped since Sept08. As a result of reduced consumer spending, the retailers also corrected the inventory in the entire supply chain leading to low orders. In 2008-09, WGBL signed a License for a leading brand for North America for Fashion Bedding, Fashion Bath, Blankets/Throws and Area Rugs in addition to the earlier license of Bath, Solid Sheets and rugs. The new license has helped Welspun in becoming a key player in the Fashion Bedding segment through the manufacturing facility at Mexico. WGBL today differentiates itself from the other manufacturers by focusing on Consumer Research driven innovations, use of new technologies, a global manufacturing & sales footprint and ability to offer a comprehensive end to end solution to the customers. A recent example of a consumer research driven innovation has been the Quick Dry Towel and the Perfect Sheet. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY: At Welspun, the internal control system encompasses the policies, processes, tasks, behaviors and other aspects of Welspun that taken together, facilitate effective and efficient operation, quality of internal and external reporting, compliance with applicable laws and regulations. Welspuns objectives, its internal organization and the environment in which it operates are continually evolving and, as a result, the risks it faces are continually changing. In order to make its internal control effective and sound, Welspun thoroughly and regularly evaluates the nature and extent of the risks to which the Company is exposed. The operation and monitoring of the system of internal control has been taken by individuals who collectively possess the necessary skills, technical knowledge, objectivity and understanding of the Company and the industries and markets in which it operates. Welspun also outsources management auditors to periodically check the adequacy of its systems and processes so as to make it more responsive in this volatile environment. The qualified, experienced and independent Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal controls systems and suggests improvements for strengthening them. Welspun has a strong Management Information System which is an integral part of the control mechanism. Welspun has successfully implemented an enterprise wide solution (ERP) in its textile plants. The system is improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements. DISCUSSION OF FINANCIAL PERFORMANCE: The discussion of the Financial Performance and Analysis below relates to the consolidated audited financial statements of Welspun Global Brands Ltd. (WGBL). The discussion should be read in conjunction with the consolidated financial statements and the related Notes to the Accounts for the year ended March 31st, 2011. WGBL was created pursuant to a demerger from WIL as on April 1, 2009 and operates as the international sales and marketing company. The Company has shown robust performance during the year. The significant developments which have major impact on financial numbers were: KEY FINANCIAL DATA - Consolidated: (Rs. million) Particulars FY 10-11 % FY09-10 % Change Change % Sales 25167.52 100.00% 21537.88 100.00% 3629.64 16.85% Other Income 59.85 0.24% 187.17 0.87% (127.32) -68.02% Cost of Goods Sold 20797.57 82.64% 17548.82 81.48% 3248.75 18.51% Employee Cost 1425.95 5.67% 1189.65 5.52% 236.30 19.86% Selling Administration and Other 2691.00 10.69% 2445.18 11.35% 245.82 10.05% Expenses Reported EBIDTA 312.85 1.24% 541.39 2.51% (228.55) -42.21% Depreciation 164.73 0.65% 154.85 0.72% 9.88 6.38% PBIT 148.12 0.59% 386.54 1.79% (238.42) -61.68% Financial Expenses (net) 381.71 1.52% 363.17 1.69% 18.54 5.11% Profit Before Tax (233.59) -0.93% 23.37 0.11% (256.97) Taxes (41.01) -0.16% 162.44 0.75% (203.45) -125.25% Net Profit (Loss) (192.58) -0.77% (139.06) -0.65% (53.52) Share of Associates Net Loss - 0.00% (21.38) -0.10% 21.38 Minoritys Share of Loss in Certain (50.17) -0.20% (45.86) -0.21% (4.31) 9.40% Subsidiary Companies Profit (Loss) After Tax (142.41) -0.57% (114.58) -0.53% (27.83) EPS (Basic and Diluted) (13.59) -0.05% (11.63) (1.96) Products (Sales Volume) Unit FY 11 FY 10 Change % Terry Towels MT 33,756 31,974 5.57% Bed Lenin Products 000 Mtrs 35,665 36,007 -0.95% Rugs MT 4,878 2,650 84.08% 1. REVENUE: a. Net Sales: The Company has shown strong performance during the year in a difficult market scenario. The Company achieved Net Sales of Rs 25,167.52 mn at consolidated level during the FY11 as compared to Rs. 21,537.88 mn in FY10 showing a growth of 16.85% YoY. * Sales growth of 16.85%, is backed by - Higher Sales volume of Rugs by 84.08% - Higher Sales volume of Bed Linen Products by 5.57%. b. Other income: Income from other sources stands at Rs. 59.85 mn in FY 11. This was primarily on account of exchange gain during FY11. 2. EXPENDITURE: a. Cost of Goods sold: The Cost of goods sold grew by 18.51% from Rs. 17,548.82 mn in FY 10 to Rs.20,797.57 mn in FY 11. This was mainly on account of steep rise in cotton prices, the primary raw material for our products. Against the revenue growth of 16.85% the cost of material has increased by 18.51% indicating the fact that only part of increase in costs have been passed to customers and improved product mix has been a contributor as well. b. Employee Cost: The employee cost was 5.67% of sales amounting to Rs 1,425.95 mn, in FY 11 showing an increase by 19.86% over FY 10. This was higher due to high manpower cost in subsidiaries on account of marketing employees and sales people in retail business. c. Selling, Administration and Other Expenses: The selling administration and other expenses were 10.69% of sales amounting to Rs. 2,691 mn in FY 11. This includes Commission of Rs. 377.83 mn, Freight and Forwarding expenses of Rs. 404.88, Rent of Rs. 337.70 mn, Royalty of Rs. 215.07 mn, Job work expenses Rs. 335.16 mn and Advertising and Sales promotion of Rs. 86.72 mn. This was higher by 10.05% as compared to FY 10. d. Finance Expenses (Net): The interest cost in FY11 was 1.52% of Sales amounting to Rs 381.71 mn. which largely includes interest on working capital loan of Rs 175.23 mn. This was higher by 5.11% as compared to FY 10. e. Depreciation: Depreciation was higher by 6.38% at Rs. 164.73 mn in FY 11 as against Rs.154.85 mn in FY10 primarily on account of of high fixed assets base in subsidiaries. f. Taxes: In the current year, total tax provisions were Rs. (41.01) mn in FY 11 due to loss incurred in the Company. 3. MARGINS: a. EBIDTA: The EBIDTA margin was 1.24% of sales amounting to Rs 312.85 mn in FY 11. It is to be noted that the company is in business of sales and marketing and purchases goods for forward sale. Therefore COGS share is large and EBITDA margins are in these range. b. Profit Before Tax: The Profit Before Tax (PBT) was Rs. (233.59) mn in FY11. c. Profit (Loss) After Tax: The Net Profit (Loss) after tax was Rs (142.41) mn after adjustment of Minoritys share of loss in certain subsidiaries of Rs.(50.17) mn in FY 11. TABLE: BALANCE SHEET (Rs. million) Particulars Consolidated Consolidated As at As at Change March 31, 2011 March 31, 2010 SOURCES OF FUNDS SHAREHOLDERS FUNDS Share Capital 104.75 104.75 - Reserves and Surplus 915.91 911.93 3.98 Total 1,020.66 1,016.68 3.98 Minority Interest 350.31 396.85 (46.54) LOAN FUNDS Secured Loans 1,524.15 802.78 721.36 Unsecured Loans 2,247.07 2,006.25 290.82 Total 3,771.22 2,809.03 962.19 TOTAL 5,142.19 4,222.56 919.63 APPLICATION OF FUNDS FIXED ASSETS Gross Block 2,385.31 2,232.82 152.49 Less: Depreciation 945.36 839.41 105.95 Net Block 1,439.95 1,393.41 46.55 Capital Work-in-progress 22.41 1.22 21.19 Total 1,462.36 1,394.63 67.73 INVESTMENTS 2.23 - 2.23 DEFERRED TAX ASSETS (NET) 147.79 85.70 62.09 CURRENT ASSETS, LOANS AND ADVANCES Inventories 2,776.62 2,510.25 266.37 Sundry Debtors 1,996.09 1,966.40 29.69 Cash and Bank Balances 237.56 245.84 (8.28) Loans, Advances and Other Current Assets 1,944.93 1,921.75 23.18 Total 6,955.20 6,644.24 310.96 Less: Current Liabilities and Provisions Liabilities 3,644.88 3,989.91 (345.03) Provisions 26.34 15.52 10.81 Total 3,671.22 4,005.43 (334.21) NET CURRENT ASSETS 3,283.98 2,638.81 645.17 PROFIT AND LOSS ACCOUNT (debit balance) 245.83 103.42 142.41 TOTAL 5,142.19 4,222.56 919.63 4. Networth: The Consolidated Networth of the Company stands at Rs. 774.83 mn (Shareholders Fund (-) P&L account Debit Balance) as at March 31, 2011. The details of various heads of consolidated Net worth as at March 312011 are as under: a. Share Capital: The Issued, Subscribed and Paid-up Share Capital stands at Rs. 104.75 mn comprising of: * 10,475,496 Equity Shares of Rs. 10 each fully paid up. b. Reserves and Surplus: i) Securities Premium account: The Securities Premium account stands at Rs.223.33 mn. ii) Capital Reserve: The Capital Reserve account stands at Rs 471.66 mn largely includes Rs.438.56 mn on account of transfer of assets and liabilities of marketing division of WIL. Pursuant to demerger scheme and Rs 33.10 mn on acquisition of Welspun Retail Limited as a Subsidiary. iii) Hedging Reserve: The Hedging reserve stands at Rs. 374.43 mn as on 31st March 2011 as compared to Rs. 413.76 mn in FY 10. c. Profit and Loss account: The consolidated Profit and Loss Account as on 31st March, 2011 has balance of Rs. (245.83) mn as compared to Rs. (103.42) mn in 31st March 2010. The Net Sales to Networth ratio was 32.48. The Consolidated Book Value of equity shares stands at Rs 73.97 per equity share as at 31st March 2011. 5. Loan Funds: The consolidated Gross Debt as on March 31,2011 stands at Rs. 3,771.22 mn as compared to Rs 2,809.03 mn in FY 10. Major movements during FY 11 are as follows: * Secured Term loan from bank decreased by Rs. 28.91 mn due to repayment of loans during the year. * Working Capital Loans from banks has increased by Rs. 750.28 mn. * Unsecured loan from banks decreased by Rs.101.28 mn due to repayment of loans during the year. Loans from others stand at Rs. 34.61 mn in FY 11. * New Unsecured Working Capital loan taken from bank of Rs. 491.23 mn for catering the working capital needs of the Company. * Inter corporate loan received from Welspun India Ltd. decreased by Rs.150.77 mn due to full repayment during the year. The consolidated Net Debts as on March 31, 2011 stands at Rs. 3,533.66 mn as at 31st March 2011 after reducing the cash of Rs. 237.56 mn as at 31st March 2011. 6. Fixed Assets: Consolidated Gross Block of Assets shows an increase of Rs. 152.49 mn, at Rs. 2,385.31 mn as at March 31,2011 as compared to FY 10. The net block stands at Rs. 1,439.95 mn after taking effect of accumulated depreciation for the year of Rs. 945.36 mn in FY 11. 7. Inventory: Consolidated Inventory as on March 31, 2011 stands at Rs. 2,776.62 mn as compared to Rs. 2,510.25 mn in FY 10. The companys inventory comprises inventory from traded goods .The inventory turnover days stands at 40 days in FY 11 as compared to 43 days in FY 10, reflecting the better inventory management during the year. 8. Debtors: Consolidated Sundry debtors as on March 31,2011 stand at Rs. 1,996.09 mn as compared to Rs 1966.40 mn in FY 10. The debtors turnover days have improved from 33 days in FY 10 to 29 days in FY11. 9. Cash and Bank Balances: Consolidated Cash and Bank balances as at 31st March 2011 stands at Rs.237.56 mn as compared to Rs.245.84 mn in FY 10. 10. Loans and Advances: The consolidated loans and advances as at 31st March 2011 stands at Rs.1,944.93 mn as compared to Rs 1,921.75 mn in FY 10. 11. Current Liabilities: The Consolidated current liabilities as at 31st March 2011 decreased to Rs.3,671.22 mn from Rs 4,005.43 in FY 10, mainly on account of the decrease in balance outstanding with sundry creditors of Rs 3,146.00 mn in FY 11 from Rs. 3,778.59 mn in FY 10. Current liabilities are at 53 days (68 days in FY 10) of Net Sales in FY 11. KEY FINANCIAL INDICATORS: Particulars Units Consolidated Consolidated As at 31-Mar-2011 As at 31-Mar-2010 Net Sales Rs. mn 25,168 21,538 EBITDA Rs. mn 313 541 EBIT Rs. mn 148 387 Net Profit (Loss) after Tax Rs. mn (142) (115) Net Worth Rs. mn 775 913 Total Loans Rs. mn 3,771 2,809 Net Debt/Equity Ratio Times 5 3 Current Ratio Times 1.89 1.66 Return on Capital Employed % 3.47% 9.98% Inventory Days Days 40 43 Debtors Days Days 29 33 Creditors Days Days 53 68 Net Operating Cycle Days 16 8 (Inventory Days + Debtors Days - Creditors Days) Cautionary Statement: Statements in the Management Discussion and Analysis describing Welspuns objectives, projections and estimates are forward looking statements and progressive, within the meaning of applicable security laws and regulations. Actual results may vary from those expressed or implied, depending upon economic condition, Government policies and other incidental factors. Corporate Social Responsibility: Welspun is committed to conduct business in a socially responsible and ethical manner. Our company is in sync with mutually accountable and responsible synergies which help us to serve with passion to our Customers, Shareholders, Employees & Society at large. To meet our commitment we seek to respect the rule of law, adopt appropriate international standards and strictly follow our 3 Guiding Principles i.e. The 3 Es - EDUCATION, EMPOWERMENT and Health and ENVIRONMENT. In addition to our guiding principles, we at Welspun, strictly follow Ethical Business Conduct and practice the principles of accountability, honesty and integrity in all aspects of our businesses. Besides this, we also adhere to all the laws that regulate and apply to the company, its systems and the conduct of its businesses. At Welspun we work with governments and agencies (including the Universal Declaration of Human Rights by the UN) to support and respect Human Rights within our sphere of influence. We promote universal respect for observance of human rights and fundamental freedom - particularly those of our employees, the communities within which we operate and parties with whom we do business, without distinction as to ethnicity, origin, religion, gender, language or disability. Continuing with our pledge to reach out to the larger society Welspun has established Welspun Foundation for Health and Knowledge. The foundation is instrumental in creating impact wherever we have business presence. In our endeavor to social development we adhere to our 3 guiding principles i.e. Education, Empowerment and Health and Environment. Education Initiative: To improve and enhance the quality of education system Welspun has collaborated with government and non-profit organizations that have positively impacted 3000 tribal, rural and urban children. Collaboration with Non-Profit Organizations: Naandi Foundation: (Quality Education Program at Primary School level) Welspun Foundation for Health and Knowledge signed an agreement with Naandi Foundation to initiate quality education based project for three Municipal Corporation of Greater Mumbai (MCGM) schools in Mumbai. With our financial support Naandi Foundation reached out to 230 school going children. The project will be expanded in the year 2011-12 to reach out to the more children to provide quality education. Light of Life Trust: Project Anando: (Quality Education at Secondary School Level) at Salav, Alibaug, Maharashtra. Light of Life Trust to initiate quality education based project at Salav in Sanjay Nagar. With Welspuns financial support Light of Life Trust is running center for 65 Katakari tribal children. The project is being executed on pilot basis and then will be scaled up in other needy communities nearby Welspun Maxsteel business location. Environment Initiative: Bombay Natural History Society: (Hornbill Club Project) at Salav, Alibaug, Maharashtra. Hornbill Club Project on Environment and Conservation program initiated in Welspun Vidya Mandir Salav, and Welspun Vidya Mandir Anjar-program covers around four hundred and ninety students from standard 5th to 8th and 15 teachers. Welspuns environment based initiatives are to improve the standard of operations and have successfully managed net reduction of C02 emission. In addition, Welspun transformed once devastated deserts to green-belt by planting - program covers around four hundred and ninety students from standard 5th to 8th and 15 teachers. Welspuns environment based initiatives are to improve the standard of operations and have successfully managed net reduction of C02 emission. In addition, Welspun transformed once devastated deserts to green-belt by planting 100,000 saplings in and around Anjar. Welspun has collaborated with non-profit organization to create environment awareness and conservation amongst communities. Empowerment and Health Projects at Anjar-Kutch and Salav-Maharashtra: * Health Initiative: Welspuns health centers are providing health facilities for underprivileged population from the neighboring villages, particularly on general health, mother and child health care and also by sponsoring major health expenditure. * Women Empowerment initiative at Varsamedi, Anjar: Empowerment is one of the important principles Welspun foundation work on. Welspun pioneered Mission Mangalam Scheme with Gujarat Government. This initiative brings livelihood options by building capacities and providing trainings to the rural women. Approximately 125 women are trained under this scheme. The same project has been replicated in Bhadreshwaras Public Private Partnership. * Skill development and livelihood project at Welspun Grams for women: Two centers for women are being run to develop cutting and stitching skills and to bring livelihood to them. Approximately 75 women from both the centers have been trained and given jobs. * Self Help Groups at Salav: Ten self help groups have been formed in villages to empower women by providing various skills and building their capacities. Approximately 250 women are participating enthusiastically in activities and training being provided to them. The main aim behind forming SHGs is to mobilize women for their own development as well as communities. * Computer center at Salav: With the growing need to computer skills and the availability of jobs a computer training center is started in Salav village for the basic computer literacy. In last three months 120 students have been benefited with this initiative. Along with the computer skills other soft skills sessions have also been organized for the students by Maxsteel employee volunteers. * Adoption of Industrial Training Institute at Vansda in Navsari District: Welspun India Ltd., (WIL) Vapi has adopted an ITI in Vansda, District, and Navsari under the Central Govt. Scheme of ITI upgradation by Public- Private Partnership where three new trades i.e. Spinning, Weaving and Cut & Sew are being introduced. The theoretical classes are taken care of by MS University Professors and On-Job Training is imparted by WIL, Vapi unit. The successful student of these trades will be given opportunity to be absorbed in WIL. Tie up with MPSTME College, Sirpur, Vapi: WIL has tied up with MPSTME College, Sirpur and Vapi where students belong mainly to rural background. Around 13 students are being provided opportunity of six months practical training in WIL. The boarding, lodging & transportation for these students are extended by WIL free of cost and are being trained to be made fit for the industry as soon as they complete their academics. Job opportunity will be provided by Welspun to them on completion of their course. Volunteerism at Welspun: Volunteerism is one of the crucial elements in all our CSR initiatives at all our locations. Our employees volunteers participate enthusiastically and consistently. Their participation is strategically planned that helps to get different set of skills. Joy of Giving Week with Light of Life Trust: As part of Joy of Giving Week the Light of Life Trust organized Spandan program to raise funds wherein children from their Alibaug and Karjat performed. This performance was supported by Welspun with buying tickets for our Welspun Vidya Mandir community club members and teachers. Charitable Donations: Partnered with Save The Children India to support victims of cloud burst in Ladakh. Donation of desks and benches to Government run primary school, Korlai village in Alibaug benefiting around 350 students. Supported orphanage/homes with donations like bed sheets and towels. Creating awareness and employee participation: * Organized Blood donation Camp at Welspun Head Office: 123 employees donated blood in the blood donation camp organized in Welspun HO on 27th May 2011. Employees have been provided with the blood donation card to avail blood in emergency. * World Environment Day: World environment day organized at Welspun HO in order to bring about awareness on environment related issues through the competition. Overwhelming response received by Welspunites. Three best ideas to protect the environment were awarded. * School Material Distribution Drive: Welspun employees donated school material like text books, stationary that was Vatsalya foundation working for street children organization. * Corporate Yoga Sessions for Welspun Employees: Corporate Yoga Sessions by Mrs. Preeti Mandawewala is organized at Anjar, Vapi, Silvassa, Zagadia, Dahej and Welspun Vidya Mandir Anjar. In all 700 employees benefited from the sessions. * Special Achievement: Welspun is honored with India Shining CSR Award -Outstanding CSR in Textile Sector hosted by Wockhardt. The award ceremony was presided by Noble Peace Laureate - The Dalal Lama, Noble Peace Laureate -Prof. Muhammad Younis and Union Cabinet Minister Dr. Salman Khurshid. At the Wockhardt Foundations first CSR Thought Leadership Conclave 2011 Industry Leaders emphasized the need for focusing on social development for economic growth.