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Letter to Shareholders
Dear Fellow Shareowners,
The global economic scenario in FY 2012–13 continued to be fraught with challenges. Major economies witnessed slower growth and the Eurozone was full of uncertainty. As the year progressed, business environment remained difficult and operating in such a testing environment proved challenging.
Despite the global challenges, we saw constructive demand growth in most of our businesses. Global oil demand was up by 0.9 million barrels per day in 2012. The demand for polymers and polyester products in India grew by 12% and 5%, respectively. We combined the strength of our portfolio and integrated business model with prudent management to realise revenue growth of 9% and net profit growth of 5%.
Reliance achieved a record turnover of Rs. 371,119 crore ($ 68.4 billion) and net profit of Rs. 21,003 crore ($ 3.9 billion). RIL also achieved highest ever exports of Rs. 239,226 crore ($ 44.1 billion) during the year. The growth in earnings was largely driven by strong and improved refining margins during the year. We maintained high operating rates at all our manufacturing locations. Our businesses have delivered industry leading performances. This is a reflection of the quality of our assets and growing demand for our products and services across the world.
Our Jamnagar refinery complex operated at over 110% of design capacity. The refineries achieved record crude processing of 68.5 MMT, surpassing its previous record. Refining margin environment remained volatile throughout the year. Despite that we achieved GRMs of $ 9.2/bbl for the year, which was highest in the last four years. RIL's Jamnagar refinery continues to benefit by processing advantaged crude sourced from diverse markets and produce clean fuels at low operating costs. We have been successful in placing our products globally in the markets with most stringent specifications. Our Company also received the International Refiner of the Year Award from HART Energy, USA, which is a true testimony of our world–class assets and operations. Reliance is the only Asian refiner to have been conferred this award twice.
Reliance's petrochemicals business saw a mixed trend last year. The domestic demand for petrochemical products remained strong although margins were impacted by regional market conditions. The ethylene chain margins remained stable while polyester chain margins came under pressure due to excess supply, high inventory levels and slower demand growth in some key markets. We believe urbanisation and rising aspirations of the Indian consumer will continue to drive demand across all end uses, in particular apparel, housing, automobiles, organised retailing and communication. Per capita consumption of plastics in India is expected to rise from 7 kg to 20 kg over the next decade and our planned expansion is well timed to participate in this growth opportunity.
In our domestic upstream business, we have rationalised our portfolio in terms of prospectivity and risk profile. Production from the KG–D6 block continued to decline during the year. To augment the production from the current fields, we have planned various activities including work–overs, side tracks and compressor addition to maximise recovery. Additionally, both RIL and BP have submitted the KG–D6 block enhancement plan using existing infrastructure to increase production from the block. Under this plan, we are planning to invest in a series of projects to develop around 4 trillion cubic feet of discovered natural gas resources from the block. The field development plan for the R–Series project has been submitted to the Government of India for approval. This along with other projects is expected to add incremental production in the next four to five years. We believe gas from these projects will deliver energy to millions of Indians and would significantly help India in reducing import dependence.
Reliance has made significant investments in the US shale gas ventures over the last two years. Production growth from our investments in unconventional liquids–rich resource plays in North America has reinforced our confidence in creating long term value for our shareholders from this diversification. US shale gas business achieved record revenues and EBITDA for the year 2012. Revenues and EBITDA more than doubled to $ 545 million and $ 422 million respectively in 2012. Our share of production in 2012 was at 101 BCFe, an increase of 166% in comparison to the previous year. With improvement in the US gas prices and continued focus on the liquids–rich acreage in the Eagle Ford area, Reliance is expected to grow this business sustainably over the next few years.
Our major investments during the year were mainly concentrated on expanding capacity and boosting production capability. Our focus is to maximise the benefit of being an integrated energy Company. Integration with the refinery at Jamnagar provides us with a unique advantage in sourcing feedstock for further value addition into petrochemicals. Reliance made a significant progress in its proposed expansion plan in the petrochemicals business. Our new cracker will source the feedstock from complex refineries and build world–scale globally competitive cracker capacity. We have completed technology selection and engineering contractor selection for most projects. We have already commenced the order placement for some of the long lead equipments. We are confident of meeting our stated time lines in terms of all project executions and will see commencement of capacity additions starting this financial year.
We are also setting up the world's largest petcoke gasification facility at Jamnagar. On completion of this project, it will provide us long–term sustainable energy security for the entire Jamnagar complex at a globally competitive cost. This will help us in reducing our overall energy bill significantly. Effectively, these large projects, off–gas cracker and gasification are being implemented without relying on any new externally sourced feedstock.
We are delighted to see our retail business achieving a milestone of annual revenue crossing Rs. 10,000 crore in FY 2012–13. Our revenues have grown by 42% on a year on year basis. More importantly, Reliance Retail has turned EBITDA positive last year. We have added 184 stores during the year, taking total number of stores to 1,466 by the end of the year. Our nationwide footprint, new store additions and strong same store sales growth has certainly strengthened our position in this sector.
We believe India has a unique opportunity to surpass the world and become a leader in delivery of digital content. Reliance Jiolnfocomm Ltd. (RJIL) plans to provide reliable fast internet connectivity on pan India basis. In addition to connectivity, RJIL also plans to enable end–to–end solutions that address the entire value chain across various digital services in key domains of national interest such as education, healthcare, security, financial services, government–citizen interfaces and entertainment. RJIL has finalised key agreements with its technology partners, service providers, infrastructure providers, application partners, device manufacturers and other strategic partners for the project.
Participating and investing in India's growth has been the fundamental principle of Reliance's evolution. Reliance has always maintained its conservative financial profile and investment grade ratings while pursuing future growth opportunities. At Reliance, we have been and continue to remain focused on creating long–term shareholder value.
We are among the top 100 companies in the world and have been globally felicitated consistently for shareholder value creation over the past three decades.
We are committed towards investing in Reliance's future. We are confident that our large capital expenditure programme will enable us to take full advantage of our market leadership positions and achieve our growth ambitions.
I would like to thank all our colleagues in India and around the world for their hard work and valued contribution during 2012–13. Together we have much to look forward to as we strive to make our company even stronger and continue to focus on delivering for our customers.
I am grateful to the Board of Directors for their unwavering support and guidance. I take this opportunity to express my gratitude to all our stakeholders, who have reposed trust in us and extended their constant support.
With best wishes,
Mukesh D. Ambani
Chairman & Managing Director
16 April 2013