MANAGEMENT DISCUSSION AND ANALYSIS Industry Structure, Developments and Outlook The Global Economy - Performance & Prospects World GDP is estimated to have grown at 2.4% in 2015 as compared to 3.3% in the brvious year and further strengthen over the next two years to 2.9% in 2016 and 3.2% in 2017. The United States economy also witnessed a slowdown, growing at 2.0% in 2015 from 2.4% in 2014. However, the Country is expected to recuperate, given lower energy costs, rising household wealth and an accommodative monetary policy. The growth rate of the Chinese economy is expected to reduce from 7.4% in 2014 to 6.8% in 2015 as the country shifts to a service orientated nation from an export driven economy. The apbrciation of the US dollar against most world currencies has realigned global demand towards Europe, Japan and a few emerging markets. GDP growth rates for both the Euro region (0.9% in 2014 to 1.4% in 2015) and Japan (-0.1% in 2014 to 0.7% in 2015) display a marginal increase and are projected to continue on the road to recovery. The India Story Emerging as one of the best performing economies globally, India's economy expanded by 7.2% in 2014-15 and is estimated to grow to 7.6% in 2015-16, as per the Economic Survey 2015-16. The Union Budget for 2016-17 laid emphasis on nine areas integral to the country's progress; a simpler taxation model, investment in infrastructure, fiscal discipline, ease of doing business, job creation, agriculture, social sector, education and rural sector. Going forward, the Economist Intelligence Unit forecasts the GDP growth to average 7.3% from 2016-17 to 2020-21, driven by growth in employment, an expanding middle class, a gradual shift towards services from the low-yielding agricultural sector and the notably high saving and investments rates. Travel & Tourism Global scenario Surpassing the growth of the global economy (2.4%), the Travel & Tourism sector grew at 2.8% in 2015. The industry's total contribution to GDP is 9.8% (US$7.2 trillion) of the world's GDP and its total contribution to employment of 9.5% (284 million) of the total jobs in the global economy. Business and Leisure Spending crossed US$4,700 billion within the year. While the united States of America and China remain the largest Travel and Tourism markets, the World Travel & Tourism Council estimates the South Asian region has the highest growth rate at 6.9%. The Travel & Tourism sector has remained resilient in 2015 and the sector is projected to continue thriving in the coming year. The strength of the US dollar will affect the price sensitive travelers' decisions. Nevertheless, the current oil prices, at their lowest in the past decade, have reduced travel costs and led to an increase in demand. India The Indian Travel & Tourism Industry is a significant source of foreign exchange, a major employment generator, and an integral part of the India growth story. The sector has registered prominent growth in recent years due to an expanding Indian middle class, increase in foreign tourist arrivals, a growing airline sector, and momentum from Government-led initiatives. In 2015, the total contribution of Travel & Tourism to GDP was Rs. 8,309 billion (6.3% of GDP) and is forecasted to reach Rs. 18,362 billion (7.2% of GDP) by 2026, as per the WTTC's Economic Impact 2016 Report. The Government has continually displayed a commitment towards augmenting the Indian tourism sector. The 2016-17 Union Budget allocated Rs. 15.9 billion to infrastructural development and promotion which is a 70% hike over the brvious year. The "Clean India" campaign and development of inland waterways for transport and tourism are projects that have gained momentum over the brvious year. Additionally, programmes such as "Make in India" and the "Smart Cities" initiative have highlighted the Government's support to skill development and investments in Hospitality and Tourism. Tourism & Hospitality - Trends and Opportunities for Growth In addition to the initiatives stated above, the Prime Minister has proactively sought foreign investment from countries such as China, the United States and Japan, leading to an increase of business related travel to the country. With a compounded annual growth rate (CAGR) of 6.2% between 2010 and 2015, the International Visitor Arrivals grew by 9.1% for the period of January-March 2016 over that of the same period last year. The e-Tourist Visa now is available for 150 nations as of February 2016 expediting travel to India from all destinations. Domestic travel spending has also witnessed impetus, attributing 82.5% to the direct Travel & Tourism GDP. Although a large portion of domestic travel has historically been for business purposes, an increasing number of Indian are now travelling for leisure. The apbrciation of the US dollar has made international travel unattractive to many who are now seeking to travel within the country for holidays. Domestic tourism, therefore, is likely to gain traction, given the rising disposable incomes and abundance of low cost flights. With reference to the Hospitality Industry, the supply of branded rooms has grown at a CAGR of 15.5% over the past five (2011-12 to 2014-15) years, with the demand for these rooms growing at a similar pace of 15.3% for the same period. The nationwide occupancies surpassed the 60% mark but were accompanied by a correction in average rates. The Food and Beverage department continued to be a major revenue generator for the Indian Hotel Industry. The positive outlook for the Indian economy, coupled with the favourable external environment and emphasis on Travel & Tourism as well as related industries by the Government, points towards a steady upswing in the hospitality sector. As future supply dwindles concurrent with the increase in demand for quality branded accommodation, the Company is optimistic about the opportunities ahead. Internal Control Mechanism and Adequacy The organization is committed to ensuring an effective internal control environment that provides, inter alia, an assurance on the orderly and efficient conduct of operations, security of assets, brvention and detection of frauds and errors, accurate and timely completion of accounting records and timely brparation of reliable financial information. Internal control systems have accordingly been designed to reflect its necessary concomitance to the principle of governance where the freedom of operations and their management is exercised within a framework of appropriate checks and balances. Internal Controls on Financial Reporting (ICFR) - In accordance with Section 134(5)(e) of the Companies Act, 2013, the Directors have been entrusted with the overall responsibility of ensuring that the Company has implemented a robust framework of internal financial controls. In order to enable the Directors to meet these responsibilities, the Board has devised the necessary systems, frameworks and mechanisms within the Company and has 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 Company's 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. The Company's Internal Audit Department with its multidisciplinary skillsets has been entrusted with the responsibility of devising adequate monitoring mechanisms and procedures to ensure brvention and detection of failures and faults in the system 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 Chief 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 combrhensiveness, ease of accessibility and structured follow up. The Company has a structured follow-up team of Senior Executives who meet periodically under the aegis of the Managing Director and Chief Executive Officer to address and resolve pending audit issues. The Chief Internal Auditor is responsible to and brsents 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 brsentation and provides its directions and guidance for further action. Besides, the Chief Internal Auditor has also been entrusted with the responsibility to report to the Audit Committee on the adequacy of 'Internal Controls over Financial Reporting' (ICFR) in accordance with Section 177 (4) (vii) of the Companies Act, 2013. During the Financial Year 2015-16, Internal Audit findings were shared in Audit Committee meetings on four occasions and brsentations on ICFR on two 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 Systems The Company has a Risk Management Committee comprising of Managing Director & CEO and Senior Executives of the Company. The Risk Management Committee identifies potential risks associated with the Company's business and assigns responsibility to various Risk Owners who are responsible for monitoring and addressing the risks with commensurate mitigating plans. The Company's performance is measured against each risk parameter on a periodic basis. Based on performance data received from Risk Owners, the organizational criteria is applied for Critical, Watch and Good for each Risk. The Risk Management Committee brsents a summary of the status of performance of the Company against each risk parameter to the Board of Directors and the measures taken to mitigate these risks. During the Financial Year 2015-16, the Risk Management Committee shared brsentations on risk management twice with the Board. The Board was satisfied with the Company's performance against each of the identified risks. Financial and Operating Performance During the Financial Year 2015-16, in spite of the adverse market conditions and weak demand compounded by the excess supply of rooms, the Company has not only increased its Revenue, but has also increased the EBIDTA and the Net Profit. During the Financial Year 2015-16, the Company's Total Revenue was Rs. 14,637 million as compared to Rs. 13,730 million in the brvious year, rebrsenting an increase of approximately 7 %. The Profit Before Exceptional Items and Tax was Rs. 1,720 million as compared to Rs. 1,512 million in the brvious year. This rebrsents an increase of approximately 14% . Profit Before Tax was Rs. 1,537 million as compared to Rs. 1,512 million in the brvious year which is an increase of approximately 2 %. The Net Profit for the year was Rs.1,015 million as compared to Rs. 966 million in the brvious year which is an increase of approximately 5%. The Company continues to be largely engaged in hospitality and related services Business consolidation and expansion The Oberoi Al Zorah located in the United Arab Emirates is in the final phase of construction. The ocean front site is part of a brstigious real estate venture incorporating a luxury residential and retail development and an 18 hole Jack Nicklaus designed Golf Course. The Hotel is expected to open in the last quarter of 2016. The Oberoi, Marrakech is under construction. In addition to the luxury hotel consisting of 109 keys, some with private swimming pools, The Oberoi branded villas for sale are planned within the development. The Hotel is scheduled to open in the last quarter of 2016. Construction of The Oberoi, Casablanca is in progress. The Hotel is located on a prime ocean front site close to the central business district and is scheduled to open in the last quarter of 2018. The Oberoi, Al Zorah, The Oberoi Marrakech and The Oberoi, Casablanca will all be managed by a wholly owned subsidiary of the Company. Construction of The Oberoi Sukhvilas is in the final phase of completion. The property is located near Chandigarh, and adjoins a 400 acre forest. The 20 acre hotel site consists of luxury villas surrounded by extensive landscaped gardens. The hotel will be managed by the Company and is scheduled to open in October, 2016. Work has commenced on The Oberoi Rajgarh Palace located near Khajuraho in Madhya Pradesh. The boundry wall has been completed and construction at the site is progressing. Planning consent for the Company's 55 acre beach front site at Goa is awaited. Other Government and environmental approvals are in the process of being obtained. Planning in respect of The Oberoi Hotel and luxury branded residences in Bengaluru is brsently in progress. Construction of The Oberoi, Doha is currently underway. Located on a prime site in the central business district of the city, the hotel will consist of 244 rooms and 44 service apartments. The hotel is scheduled to open in the first quarter of 2019 and will be managed by an overseas subsidiary of the Company. Planning and design of The Oberoi luxury service apartments in Lusail, Qatar is in progress. The iconic ocean front development will consist of 182 Luxury Apartments and is scheduled to open in the last quarter of 2018. The development will be managed by an overseas subsidiary of the Company. The Oberoi Gir, a Luxury Jungle Resort sbrad over 50 acres, is located on the periphery of Gir National Park in Gujarat. Gir National Park is the sole home of the Asiatic Lion and also supports a variety of wildlife, flora and fauna. The Resort shall consist of 22 Luxury tents and is scheduled to open in the last quarter of 2019. Awards Mr. P.R.S. Oberoi, Executive Chairman, The Oberoi Group was conferred with the ET Bengal Visionary Award by The Economic Times Bengal Corporate Awards, 2016. In 2015, Mr. Oberoi was voted amongst CNBC TV18's Top 15 Indian Business Icons. Some of the other major recognitions received by Oberoi Hotels & Resorts during the Financial Year 2015-16 have been: Oberoi Hotels & Resorts was voted World's Best Hotel Brand in the Travel + Leisure, World's Best Awards Readers' Survey, 2015 and World's Leading Luxury Hotel Brand for the fourth consecutive year by World Travel Awards, 2015. The Oberoi Udaivilas, Udaipur was voted the World's Best Hotel overall, and ranked 1st in the Top Resorts in Asia category for the fifth consecutive year. Development in Human Resources and Industrial Relations The success of the Company has been its people who have always gone the extra mile to create unforgettable memories for guests. It is their natural warmth and genuine care of guests that gives the Company and its hotels a competitive advantage. It is imperative that we create and foster a culture that supports our team members, helps in their development and enables them to perform at their very best. In doing so, the Company will continue to be the brferred employer for people wishing to make a career in the Hospitality Industry. With this in mind, the Company continuously reviews and re-aligns its people practices and policies thus ensuring that it puts into action the people focused values enshrined in The Oberoi Dharma. The Company was recognized as one of the Best Employers in the 'Aon Best Employers India -2016' Survey. The Aon Best Employers study's research methodology covered 113 companies across 12 industries to adjudge India's Best Employers of 2016. In another independent study conducted by the Great Place to Work® Institute, India, in partnership with The Economic Times, The Oberoi Group has been selected in the Top 30 companies to work for in India. Learning and Development: The distinctive competitive advantage of the Company lies in the unrelenting focus of each team member in ensuring that every guest leaves as an ambassador of our hotels. To achieve this, we need to ensure that we continuously nurture this service ethics in the organisation while equipping our team members with the technical skills and behavioural competencies required to achieve this result. The efforts of The Oberoi Centre of Learning and Development are focused on: • Creating structured programmes for the training and development of team members who join the Company in our core programmes - the two-year Post Graduate Management Programme and the three-year Undergraduate STEP (Systematic Training and Education Programme). • Conducting development programmes for high performing team members and supervisors that provide them with the skillsets necessary to take on additional responsibilities through the Supervisory and Executive Development Programmes. In addition, The Oberoi Centre for Learning and Development created and conducted training programmes for team members and executives at all levels in order to fulfill the organisation's commitment to continually add to the individual's skill sets and competencies thereby helping each individual to grow as a person and a professional. Industrial relations remained stable throughout the year. As on 31st March, 2016, the number of people employed by the Group was 9,894. For and on behalf of the Board VIKRAM OBEROI Managing Director and Chief Executive Officer P.R.S. OBEROI Executive Chairman Gurgaon 26th May, 2016 |