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DIRECTORS' REPORT TO THE MEMBERS
The Directors have pleasure to present the 81st Annual Report of your Company covering the operating and financial performance for the year ended December 31, 2013.
For the first time in its history, your Company's Turnover crossed the coveted mark of Rs. 20,000 Million. During the year 2013, your Company achieved a total turnover of Rs.20,984.1 Million as compared to the Turnover of Rs.18,717.5 Million in the year 2012 – reflecting a growth of approx. 12.1%. Your Company recorded a Net Profit of Rs.1,907.4 Million for the year 2013, which was 11.2% higher than the Net Profit of Rs.1,716.0 Million for the year 2012.
Your Company has witnessed constant growth over the past few years, which endorses its strong understanding of the consumer needs and lifestyle. Your Company has been relentlessly working on improving its product offerings through constant research and development. The footwear collection has vastly improved over the years and many contemporary and fashionable designs of footwear have been launched. The new designs have helped your Company to constantly increase its customer base while meeting the changing lifestyle needs of the loyal customers.
During the year under review, the manufacturing facilities of your Company have also been upgraded with introduction of improved quality, better technology and materials for producing footwear with a more trendy look and comfort to meet the ever–changing market requirements. In order to meet its demand for footwear, your Company has also tied up with various manufacturers to produce shoes as per its own designs and quality standards. Modernization of factories is an on–going process in your Company and the same shall continue in the future.
In its strategic pursuit, your Company continues to open approx. 100 new retail stores every year across India and shut down or relocate unviable stores. Most of the new stores are of large format having space of more than 3,000 sq. ft. and
delicately designed to display each category of footwear and accessories. These large format stores provide an excellent ambience and delightful shopping experience to the customers. During the year under review, your Company opened 95 new stores, including the largest footwear store in India at Viviana Mall, Mumbai, covering an area of approx. 28,000 sq. ft. Your Company is accelerating its growth focusing on tier II and tier III cities where the potential for growth is significant.
The improved performance of your Company over the past few years is a testimony to the fact that the Company is moving in the right direction and has adopted the right model of growing its business. The Indian market offers great opportunities and challenges as well. As the Indian consumers become more and more demanding in their choices, preferences and tastes, your Company will also gear up to seize these opportunities and face the challenges with appropriate strategies. Key Priorities of your Company for the year 2014 shall be to expand its presence in existing markets as well as in tier II and tier III cities in India. Footwear offerings shall continue to focus on the latest fashion and trend at affordable prices to attract and serve the younger generation of customers.
TRANSFER TO RESERVES
Your Company has transferred a sum of 190.7 Million to General Reserve against Rs.171.6 Million transferred last year.
The Board of Directors have recommended a final dividend of Rs 6.50 per share (i.e., 65% on an equity share of Rs.10/– each) for the year ended December 31, 2013, as against Rs.6.00 (i.e.,60% on an equity share of Rs.10/– each) paid last year. The payment of aforesaid dividend is subject to approval of the shareholders at the ensuing Annual General Meeting of the Company and if declared, shall be paid to the shareholders from June 04, 2014 onwards.
During the year under review, your Company has transferred to the Investor Education & Protection Fund (IEPF) of the Central Government the entire amount of Rs. 306,808/– as matured fixed deposits and interest accrued thereon, which remained unclaimed/unpaid for a period of more than seven years, despite several reminders and communications from the Company. Accordingly, your Company has no unclaimed/unpaid matured deposits or interest thereon as on December 31, 2013. Presently the Company is not accepting any fixed deposits.
During the year under review, ICRA Limited has reaffirmed the rating of [ICRA] A1 + (pronounced as 'ICRA A one plus') to your Company for its Commercial Paper (CP) programme. This is the highest–credit quality rating assigned by ICRA Limited to short term debt instruments. ICRA Limited has also reaffirmed the rating of [ICRA] AA (pronounced as 'ICRA double A') to your Company for its Line of Credit (LOC) limits of fund based/non–fund based facilities sanctioned by the Banks. The outlook on the assigned rating is 'Positive.'
AWARDS AND RECOGNITION
Your Directors are pleased to inform that your Company continues to maintain its leadership position in the organized footwear industry in India. Your Company has been the recipient of several awards and recognitions. During the year under review, your Company received the following Awards and Recognitions:
(i) Brand Equity – The Most Trusted Brand of 2013:
'BATA' has bagged the No. 1 position in the FOOTWEAR category – This is the second consecutive year that your Company bagged the No.1 spot. The brand BATA was catapulted in ranking from 27th position in 2012 to 16th position in 2013 – an improvement of 11 positions in overall ranking amongst the top 100 brands in India.
(ii) Images Shoes & AccessoriesAward– 2013:
Bata India has been awarded Images Most Admired National Footwear Retail Chain of the Year.
(iii) India's Most Attractive Brand 2013:
Bata India has been ranked at the 11th position by DNA Newspaper on the basis of a survey conducted by research firm TRA amongst the top Brands in India.
CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility (CSR) is a continuous commitment of your Company for overall economic development and well being of the Country. CSR plays an important role in sustainable growth of your Company and ensures that your Company discharges its duties towards development of the society. As a good corporate citizen in India, your Company participates in initiatives that preserves and protects the environment and natural resources. Your Company is one of the leading Members of the Bata Children's Program (BCP) of Bata Shoe Organization, which contributes immensely to the development and well being of under–privileged and differently–abled children, specially the girls, across the World.
Your Company has been engaged in various CSR activities throughout the year. During the year 2013, CSR activities undertaken by your Company included the following:
1. Arranged for relief material & assistance for the flood–hit victims at Uttarakhand. Approx. 15 tons of relief material including food, utensils, warm clothes and blankets were distributed amongst the survivors of disaster victims at villages in Haridwar and Dehradun.
2. Organized Blood Donation Camps at the corporate office at Gurgaon and at manufacturing units. General Health Check–up was conducted for underprivileged children at various schools at Gurgaon and Batanagar.
3. Organized Self–Defense Training for underprivileged school girls in Gurgaon. These underprivileged girls learnt easy self–defense tricks through the volunteers to handle difficulties with simulations on managing untoward situations. The training workshop boosted the confidence of these girls and shall help them fight against various odds and challenges that they face in their daily lives.
4. Conducted Hepatitis–B Vaccination Campaigns at Jharsa Village, Gurgaon. More than 280 kids were vaccinated against Hepatitis–B which is a serious disease caused by a highly infectious virus that attacks the liver which can lead to severe illness, liver damage, etc.
5. Organized a Tree Plantation Drive at Aravalli Bio Diversity Park, Gurgaon. Approx. 700 trees were planted by the volunteers along with enthusiastic school children who were introduced to the wonders of nature and respect for sustainable resource management. Your company had also organized 'Bata Walks Green' Campaign in manufacturing units. Our volunteers planted saplings across our factories to spread awareness about environment protection, sustenance, and eco–conscious growth.
6. Govt. Girls Primary School, Gurgaon and Primary & KG School at Batanagar were renovated. A multi–purpose Auditorium and a new Computer lab had been introduced to the students of Batanagar Primary & KG School. The renovation at Govt. Girls Primary School included hygienic classroom, safe & comfortable furniture, neat and clean classrooms with cartoon characters painted and educational messages written on walls by the volunteers.
7. Under the BCP India initiatives, successfully launched a sustainable employee volunteering initiative – "Each One Teach One Campaign" to create awareness on the rights of a girl child, moral values, co–curriculum and sport activities. 30 employees of the Company are volunteering 1 hour weekly to teach underprivileged girls in a Primary School in Gurgaon.
8. Rain Water Harvesting projects of your Company continued near Bata House, Gurgaon and at its Hosur Unit, where rain water collected from the plot is being used for recharging of borewell and rain water collected from the roof is being used for washrooms and in lawns and gardens.
Your Board is aware that the Government of India has included Section 135 under the new Companies Act, 2013, encouraging certain class of companies in India to spend 2% of average net profits of three years towards CSR. The provisions of the new Act are yet to be notified. Your Company will take appropriate steps to meet the requirements under the CompaniesAct, 2013 in due course.
The process of opening large format stores and renovating the existing stores to foster contemporary appeal continued during the year 2013. Your Company has opened 95 large format stores (approx. 3000 sq. ft. or more) and renovated/ relocated / closed unviable retail stores across India. The strategy adopted by your Company has resulted in higher sales and profitability year–on–year as demonstrated in financial results of the Company.
Your Company continues to introduce contemporary and fashionable designs in its product range. Special attention has been provided to improve the quality and style of footwear in each category. In every season throughout the year 2013, your Company improved its footwear collections in stores to suit the needs and desires of the customers. An exclusive range of ladies footwear and a variety of products for the kids and children were launched, which have been well accepted by the customers. Your Company continued to be the market leader in Men's formal footwear, with Ambassador, Comfit, Moccasino – all brands recording a high growth. In ladies segment, Marie Claire and Sundrop brands of footwear have recorded a good growth. Your Company's footwear range for the children – Bubblegummer and Angry Birds continued to be the most favourite brands in India. Evergreen brands of your Company, viz., Power, North Star, Scholl and Weinbrenner – all have registered growth in volume in the year 2013 as compared to the previous year 2012.
Your Company's premium Brand – Hush Puppies has been expanding in line with the overall retail expansion program and continues to open exclusive stores and shop–in–shop stores in premium departmental stores. At the end of year 2013, Hush Puppies had 34 exclusive stores and 37 shop–in–shops. Hush Puppies lives the brand vision of "Treating the World to their favorite shoes" with exclusive retail stores, unique products and exciting brand image. Hush Puppies range of footwear shall continue to focus on comfort with contemporary styling, to attract younger consumers to the brand. Your Company shall invest in various marketing plans to re–position the brand in the minds of consumer as international premium lifestyle casual footwear brand in India.
Your Company's new retail concept – FOOTIN offers a new range of footwear focusing on affordable fashion and trendy styles. In FOOTIN stores, customers can get fashionable, young looking and affordable footwear presented through a high–density display concept. It is one of the new business models with a different approach to improve volume growth of your Company. During the year under review, your Company has opened 8 new FOOTIN stores across India, with a new range of footwear for both men and women focusing on fashionable and trendy styles at an affordable price. These stores are unique in terms of display and ambience and different from other footwear retail stores in India.
The year 2013, certainly would be counted among the most active years for E–commerce division of your Company. Your Company generated a volume growth of almost 100% in on–line business during the year 2013 as compared to the previous year 2012. Your Company's E–Commerce business reached approx. 750 cities across India with its shipments. In order to attract more e–customers, new partnerships have been entered into by tying up with leading on–line players e.g., Flipkart, Jabong, E–bay, HomeShop18, Myntra, Rediff, Indiatimes, etc. As a part of the strategy, Cash on Delivery service was launched for the end customer to facilitate the shopping ease. Your Company's website www.bata.in <http://www.bata.in> has experienced a tremendous growth in traffic of approx. 2.5 Million visitors. Customer Service remained a focused area for the E–Commerce business of your Company with a dedicated team continuing to serve its on–line patrons.
Your Company will further strengthen its E–Commerce business and establish lasting relations with the existing and new partners. The focus would remain on customer service and swift operations to ensure that the customers get their footwear in good condition and well in time. The existing website www.bata.in <http://www.bata.in> shall also be upgraded with new and exciting features for the customers. High importance is being given to the social media network to ensure that the customers on the social platform are satisfied with the product and services being rendered by your Company.
Your Company's Industrial division is now recognized as the leading supplier in the safety footwear market. Not only has the division expanded its coverage in the market but also is focused towards upgrading the market with newer technology products. The product range has been refreshed by launching new moulds as well as new PU–Rubber sole collection. The customer service function has been strengthened to provide immediate response to the queries raised by the industrial buyers.
Your Company's Institutional business has recorded better results in the year 2013 as compared to the previous year. The strategy to focus on segments like defence, canteens, education, corporate, etc. has been fruitful and resulted in achieving good market penetration. A new range for the healthcare segment has been launched with specialized footwear to be used in hospitals for Doctors, Nurses, front office staff, maintenance team, etc.
CUSTOMER CARE INITIATIVES
During the year under review, your Company has further strengthened its customer care division. Effective and satisfactory customer service continued to delight the customers at various points, i.e., starting at retail stores, during the sale interaction, post sales services at Customer Help Desk and obtaining feedback from the customers. A new initiative – "Passion to Serve" program has been adopted for the sales personnel which entitles them to periodic promotions. An exclusive Customer Help Desk has been in place to assist the customer and to locate stores, inform product availability, process online orders and to acknowledge all their valuable feedback. On the Digital Space, through Facebook, your Company has entered into over 100,000 customers' personal space and acquired more than 150,000 "Like" on Bata Facebook page.
Your Company's Export sales in 2013 were Rs.147.1 Million compared to Rs.149.8 Million in 2012. Various plans are being explored to improve Export volume of the Company in the future.
Your Company has a well–organized Supply Chain team at its Corporate Office in Gurgaon which controls the demand planning, replenishment, transportation and warehousing operations. Introduction of a new Supply Chain Planning processes has been the key highlight for the year 2013. Critical initiatives on implementation of new Supply Chain Planning processes will ensure right products at right stores at the right time in right quantities and right sizes, which will improve efficiency and reduce cost of holding inventory. This process is being implemented in a phased manner and shall cover all the Retail Distribution Centers (RDCs) of your Company. This initiative will reduce the out of stock events at retail stores thereby improving the customer service levels.
Supply Chain team has also undertaken an initiative to consolidate all the warehouses in Delhi NCR region. A detailed modernization and consolidation plan of warehouses in other regions also has been planned in the current financial year.
The Capital Expenditure incurred during the year amounted to Rs. 774.6 million in 2013, which was predominantly due to opening of a number of new stores and modernization of existing stores. Capital Expenditure has also been incurred for installation of machinery and moulds to modernize our factories.
INDUSTRIAL RELATIONSAND PERSONNEL
Your Company has continuously been working to improve human resources competencies and capabilities in the company, which is critical to achieve results as per the plan. Major initiatives and interventions to this effect as taken up during the year 2013, are as under:
Building up the best team in all functional areas
During 2013 your Company has hired 171 middle and senior level Executives for its various functional areas to replace the people moving out, retiring, etc. with professionals having better qualifications and experience.
Creating bench strength and building up capability for future growth
Executive Development plan
For the fourth consecutive year, your Company pursued its aim of nurturing and developing new talent for various responsibilities. Eight Executive trainees have been hired from various retail management schools and trained for 9 months under the Executive Development Plan (EDP). Five Executive Trainees, who successfully completed their training under EDP, have been placed as District Managers across retail operations chains.
Training and Development
a) District Manager Training
Developing and Training of internal talents continued to be the focus area of your Company. 96 nominated District Managers across all retail chains attended 2 days District Managers' Training program.
b) Training of Store Employees and Store Managers/K–Scheme Agents
Imparting Training to store employees to improve their knowledge and skill levels with an objective to provide better customer service in retail stores remained a key focus are in the year 2013. Training was conducted for 1,251 store employees and 317 K–Scheme Agents/Store Managers to enhance their performance and effectiveness.
The Earning per Share (EPS) (Basic and Diluted) of your Company at Rs.29.68 reflects an increase by approx. 11% as compared to EPS of Rs.26.70 in the previous year.As informed earlier, since April–2010, your Company does not have any Bank Borrowings and the entire capital expenditure has been funded through internal sources.
RESEARCH & DEVELOPMENT ACTIVITIESAND ENERGY CONSERVATION
Your Company continued its local Research & Development activities during the year under review. These R&D activities included technological improvement in all key areas, e.g., product development, process development, material development, footwear moulds, etc. with emphasis on creating a pollution–free work environment. Total expenditure incurred on Research & Development was approx. Rs. 7 Million during the year. Your Company continues to actively pursue energy conservation measures. During the year under review, savings of energy cost worth approx. Rs.5.5 Million was achieved through replacement of conventional tubes with energy efficient lights, installation of energy efficient screw compressors and adopting other measures in its manufacturing units.
SUPPORT FROM BATA SHOE ORGANIZATION
Your Company continues to receive assistance and benefits of technical research and innovative programmes of Bata Shoe Organization (BSO) through Global Footwear Services Pte. Ltd., Singapore (GFS). Your Company has renewed the Technical Collaboration Agreement with GFS with effect from January 01, 2011 for a period of ten years. In terms of the said Technical Collaboration Agreement, your Company receives guidance, training of personnel and services from GFS in connection with research & development, marketing, brand development, footwear technology, testing & quality control, store location, layout & design, environment, health & safety, risk & insurance management, etc. Your Company continues to obtain expertise and experience from the visiting senior personnel of GFS and other BSO group companies to improve its product range and operational processes throughout the year.
In terms of the renewed Agreement as aforesaid, your Company has paid a fee of Rs.185 Million to GFS during the calendar year 2013.
The StatutoryAuditors of the Company – Messrs. S. R. Batliboi & Co. LLP, Chartered Accountants, retire at the ensuing Annual General Meeting of the Company and have given their consent for re–appointment. Your Company has also received their confirmation pursuant to Section 224(1B) of the CompaniesAct, 1956.
In compliance with the Central Government's Order dated November 06, 2012, your Board at the Board Meeting held on February 26, 2013 has re–appointed M/s. Mani & Co., Cost Accountants to carry out the Cost Audit of the Company in respect of Footwear. However, the Cost Audit Branch of the Ministry of Corporate Affairs, Government of India is yet to make the said Order effective. Your Company will file e–Form 23C as and when the said e–Form 23C is modified by the Central Government in line with the aforesaid Order.
The Cost Audit Report of the Company for the financial year ended December 31, 2012 was filed by M/s. Mani & Co., with the Cost Audit Branch, Ministry of Corporate Affairs, Government of India, on June 11, 2013.
There has been no change in composition of your Board of Directors during the year under review. The Ministry of Corporate Affairs, Government of India has included various provisions under the CompaniesAct, 2013 relating to composition of the Board of Directors and Committees of the Board of Directors of Indian companies. However, these provisions of the Act are yet to be notified. Your Company will take appropriate steps to reconstitute its Board of Directors and Committees thereof to comply with the requirements of the new CompaniesAct, 2013 and Rules framed thereunder in due course.
In terms of the provisions of the Companies Act, 2013 (to the extent applicable), your Board of Directors at their Meeting held on October 30, 2013 appointed Mr. Rajeev Gopalakrishnan, Managing Director as the 'Chief Executive Officer (CEO)' of the Company with immediate effect. At the said Board Meeting your Board has also appointed Mr. Ranjit Mathur, Director Finance as the 'Chief Financial Officer (CFO)' of the Company with immediate effect.
In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of your Company, Mr. Jorge Carbajal and Mr. Akshay Chudasama, Directors of the Company are due to retire by rotation at the ensuing Annual General Meeting of the Company and being eligible, offer themselves for re–election. The Board of Directors of your Company are of the opinion that their continued association with the Board will be beneficial to the Company and recommend their re–election.
STATUS OF BATANAGAR PROJECT
In terms of the Order of the Government of West Bengal, total obligation on the Company towards development of employee housing colony at Batanagar was Rs.650 Million. The Company has already received 315,000 sq. ft. of constructed space at Batanagar Project from Riverbank Developers Private Limited (RDPL), the developers of the project and had recorded a liability of Rs.216.2 Million in earlier years for obligation yet to be fulfilled towards the balance 325,000 sq. ft. constructed space. As per the Development Agreement entered into between RDPL and the Company in the year 2010, any liability arising on account of non–compliance of the terms and conditions of the aforesaid Order of the Government of West Bengal will be borne by RDPL.
Your Company alongwith RDPL has approached the Government of West Bengal for extension of the time limit for completion of Batanagar Project, and obtained their in–principle approval. The revised Order is awaited. During the year, the Company has signed an Addendum to the aforesaid Development Agreement whereby the Company shall receive 332,030 sq. ft. of constructed space in Batanagar Project against the balance 325,000 sq. ft. of constructed space from RDPL.
DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO SECTION 217 (2AA) OF THE COMPANIES ACT, 1956
Your Directors hereby confirm:–
i) that in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;
ii) that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year, and of the profit of the Company for that period;
iii) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
iv) that the Directors have prepared the AnnualAccounts on a going concern basis.
Bata Properties Limited and Coastal Commercial & Exim Limited continue to be wholly owned subsidiaries of your Company. In terms of the Circular No.2/2011 dated February 8, 2011 issued by the Ministry of Corporate Affairs, Government of India, your Board of Directors at their meeting held on February 12, 2014 have given consent for not attaching, inter alia, the Balance Sheet, Statement of Profit and Loss and other relevant reports and statements of its subsidiary companies to the Balance Sheet of your Company as on December 31, 2013 and have also agreed to comply with the conditions prescribed in the said Circular.
The Annual Reports–2013 of the aforesaid subsidiaries will be made available to the shareholders of the Company upon receipt of written requests from them. The Annual Reports–2013 of the aforesaid subsidiary companies will also be kept for inspection by the shareholders of the Company at the Registered Office of the Company and its subsidiaries and also at the Company's Office at 27B, Camac Street, 1st Floor, Kolkata – 700 016 between 09:30 a.m. and 12:30 p.m. on any working day.
In compliance with the requirements of the aforesaid Circular, a Statement showing relevant details for the year ended December 31, 2013 in respect of Bata Properties Limited and Coastal Commercial & Exim Limited, the wholly owned subsidiaries of the Company have been included in the Financial Statements of the Company which forms part of this Annual Report.
In compliance with the provisions of Clause 49 of the Listing Agreement with the Stock Exchanges, the Corporate Governance Report of your Company and Corporate Governance Compliance Certificate received from M/s. S. R. Batliboi & Co., LLP, Chartered Accountants, the StatutoryAuditors, are attached as separateAnnexure to this Report.
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
INDUSTRY STRUCTURE AND DEVELOPMENT
Indian footwear industry continues to be the second–largest footwear producer in the World – next only to China. The Indian Footwear Market is divided into organized and unorganized segments. The organized segment caters only 1/3rd of the footwear industry while the other 2/3rd is shared by small un–organized local players across the Country. The footwear market is dominated by men's segment which accounts for more than 50 per cent of total consumption, followed by 30 per cent in ladies segment and 15 per cent in kids segment. India produces more of men's shoes while other countries in the world produce more footwear for ladies. The organized sector is represented by major national and international players like Bata, Relaxo, Liberty, Adidas, Reebok, etc. while the un–organized sector comprises of small cottage industry based manufacturers.
The size of domestic footwear industry in India is approx. USD 35 Billion. According to an ASSOCHAM study, the Industry is considered to possess a significant potential with overall market anticipated to grow at a CAGR of approx. 15% during 2012–2014. The Indian footwear market is driven by growing fashion consciousness and increasing disposable income of the urban middle–class consumers. More and more women are now becoming financially independent, which give them more purchasing power. To exploit the potential of the Footwear industry in India, a number of premium footwear brands are foraying into India's tier–II and tier–III cities to increase their customer base. Indian Footwear Industry is expected to grow by 15% year–on–year in next ten years and increase in middle class population in these non–metro cities will be a major contributor to the volume growth of footwear business.
Being the largest producer of footwear in the World, China continues to be the biggest exporter of footwear globally. Import of footwear from China has seen a rapid growth during the past 5–6 years in all the three categories – men, women and children. Indian Footwear retailers have also preferred to import Chinese footwear, because of their lower cost and supply in abundance. Presently, India's footwear import from China is more than 60% of the total import and during the last five years such import from China has grown by more than 130%. India has seen a rise in overall export of footwear during the past few years. However, rate of increase in export has been much lower as compared to the rate of increase in import from China and other countries in the World. The maximum exports of Indian Footwear are made to USA and UK which collectively accounts for approx. 30% of the total export of footwear by India.
OPPORTUNITIES AND THREAT
Despite a dip in the GDP with a growth of 4.7% in 2013, the Indian Economy has shown a lot of resilience to overcome the challenges and is voiced to improve its performance in the coming years. Riding on this wave, the Indian Footwear Industry is gearing up to leverage its strengths towards maximizing its volume growth. Increase in organized retailing, rapid urbanization, increase in disposable income among the middle–class people and more importantly as a Country of the most young population in the World, Indian Footwear Industry is poised to play a major role in the Indian Organized Retail Industry's success in the future. Efficiency in operations shall be the key to success in the future. Establishing state–of–the–art manufacturing facilities, training & development of the employees and increase in Research & Development expenditure shall be the key focus area in addition to the replenishment of footwear offerings as per market demand.
Like other retail business, footwear retailing through on–line shall grow manifold in the coming years. Footwear retailers in India have gained a sudden upsurge with the rise of e–commerce and the growing on–line shopping. Companies have to increase their presence on the e–commerce sites to attract and cater to the growing needs of the younger generation. This will lead to increase in tie–ups amongst the traditional manufacturers and e–commerce companies and investment in warehousing, supply chain management, etc. needs to be increased to stay afloat in the competition.
Apart from completion and ever–increasing demand from the customers, the Indian Footwear Industry will face challenges from within as well. Rising input costs, scarcity of skilled labour, combating with retail inflation, policy paralysis regime due to uncertain political situations, are some of the areas of concern for the Footwear Industry in India.
Your Company enjoys the benefit of being in the business for more than eight decades and has a better understanding and retail network in comparison to its competitors. Your Company has been adopting appropriate strategies, e.g., aggressive retail expansion, promotion of its brands, contemporary styling, quality control and strengthening its human resources, etc. to achieve its objectives.
SEGMENT WISE OR PRODUCT WISE PERFORMANCE
Your Company operates in two segments – Footwear & Accessories and Surplus Property Development. Your Company has chosen Footwear & Accessories as its primary segment.
India has overcome various challenges in the economy and is considered to be one of the fastest growing ones amongst many developing countries. As far as estimates are concerned India by the end of this decade would be the 3rd largest economy after China and USA based on consumption level and increase in income besides other factors.
Your Company shall continue its focus to expand the retail outlets and improve the merchandise with newer and better designs to provide the Indian consumers the best in footwear. Achieving continuous growth in the performance of all business areas, shall be the key focused area going forward. In order to achieve volume growth, your Company has introduced FOOTIN concept of business, which offers fashionable & trendy designed footwear at an affordable price. The FOOTIN stores are different in ambience and display of footwear as compared to other BATA Stores. Your Company will improve its presence in e–Commerce business and also strengthen its Accessories business by offering a wide product range.
Indian Footwear Industry has the potential to grow and is capable to add value to the Indian Economy. Support from the Regulatory Authorities by creating a level playing field for all players and establishing more institutes to impart training on design, quality control and technology shall be required from the Industry. Your Company will seize the opportunities and face the challenges prevailing in the Industry and is confident to remain the market leader in the organized footwear retail Industry.
RISKS AND CONCERNS
Your Company continuously ascertains risks and concerns in the Footwear Industry affecting its present operations, future performances and business environment. In order to overcome such risks and concerns your Company adopts preventive measures as considered expedient and necessary. Some of the risks and concerns are as under:
Your Company has been engaged in several legal cases in connection with or incidental to its business operations. These include civil cases, excise and custom cases, etc. filed by and against the Company. These cases are being pursued with due importance and in consultation with the legal experts in respective areas. Your Board believes that the outcome of these cases is unlikely to cause a materially adverse effect on the Company's profitability or business performance.
Your Company has a Contingent Liability of Rs. 673.6 Million as on December 31, 2013 as compared to Rs.472.6 Million as on December 31, 2012. Attention of the Shareholders is drawn to the explanations mentioned in point no. 31 of the Notes to Financial Statements forming integral part of the Balance Sheet as on December 31, 2013. In view of the present status and based on legal advice received, your Board of Directors are of the opinion that no provision is required to be made against these Contingent Liabilities as of now.
Your Company has several recognized Trade Unions and enjoys harmonious relationship with all its employees. GLOBALLY COMPETITIVE BUSINESS ENVIRONMENT
Your Company operates in a globally competitive business environment. With ever increasing competition from the local players as well as global giants in the Footwear Industry with deep pockets, maintaining the existing market share and leadership position in organized retail footwear industry is a major challenge.
RISK RELATED TO CHANGES IN LAWAND REGULATIONS
Any change in the laws and regulations governing the leather and footwear industry may affect the business and financial condition of your Company.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
Your Company has an adequate system of internal controls commensurate with its size and scale of operations, to ensure that all assets of the Company are safeguarded and protected and that all transactions are authorized, recorded and reported appropriately. The Internal Audit Report and Risk Inventory Report are reviewed periodically by theAudit Committee of the Board of Directors. The Chief Internal Auditor is a permanent invitee to the Audit Committee Meetings. TheAudit Committee advises on various risk mitigation exercises on quarterly basis.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
Your Company has been maintaining its profitable growth for the eighth year in a row and believes that this is sustainable, barring unforeseen circumstances.
As mentioned in the Annual Reports of earlier years, since April–2010, Bank borrowing of your Company is Nil and the entire capital expenditure is being funded through internal accruals.
Your Board of Directors have recommended a dividend @ Rs.6.50 per share (i.e., 65%) on equity shares for the year ended December 31, 2013, subject to approval of the shareholders at the ensuing Annual General Meeting. If approved and declared, this will be the highest rate of dividend in the history of your Company.
MATERIAL DEVELOPMENTS IN HUMAN RESOURCE / INDUSTRIAL RELATIONS FRONT, INCLUDING
NUMBEROF PEOPLE EMPLOYED Human Resources
Your Company continued with Executive Development Programme (EDP) in 2013 to create a ready talent pool of District Managers in retail operations. 8 Executive trainees underwent EDP for nine months and 5 of them have been placed as District Managers after completion of their training under EDP.
Your Company has introduced a concept of recruiting and developing Management Trainees under the "Leadership 20 – 20 Program". During the year under review, 5 Management trainees were hired for Retail Operations and presently undergoing 12–15 months extensive training program.
Performance Linked Salary has been in force for all levels of employees. This has lead to a culture of accountability as clear goals/ objectives have been set for all executives.
Bata Emerging Markets (BEM) Interchange programme – a Talent Development initiative designed with an objective to provide global exposure to the participants and provide them with an opportunity to explore work experience outside their Country for a period of 6 months. 6 employees had participated in BEM Interchange Programme from March–2013 to Dec–2013.
The overall Industrial Relations in all the manufacturing units has been cordial in 2013. Some highlights are as under:
IR situation in the factory has been peaceful throughout the year. No mandays were lost during the year.
Your Company has launched a Voluntary Retirement Scheme (VRS) at Mokamehghat Unit in October–2013. Out of the 159 employees at the said Unit, 110 employees have opted for VRS and their final settlements are in process.
Different HR initiatives have been taken in the Manufacturing Units of your Company. Some of these initiatives included, Best Employee Awards, Medical Camps, Long Service Awards, Sports, Celebration of National Festivals, etc.
During the year under review, your Company has signed a Long Term Agreement (LTA) with the Union at Batanagar Factory. An agreement was also signed for enhancement of production at the Southcan Manufacturing Unit at Bangalore.
As on December 31, 2013, there was 4,944 permanent employees on the rolls of your Company.
Statements in the Management Discussion and Analysis Report describing the estimates, expectations or predictions may be 'forward–looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that would make a difference to the Company's operations include demand–supply conditions, raw material prices, changes in Government regulations, tax regimes, economic developments within the country and outside the country and other factors such as litigation and labour negotiations.
Your Board places on record its sincere appreciation for the co–operation and support received from investors, shareholders, customers, business associates, bankers, vendors as well as Regulatory and Government authorities.
Your Board would like to thank the major Shareholder and other group companies of Bata Shoe Organization for their guidance, support and co–operation in smooth operations of the Company. Your Board is ever grateful to the independent Directors for sharing their valuable experience and wisdom with the Management in the process of finalizing strategic decisions and oversight of the Company.
Your Board appreciates the invaluable contribution of the Senior Management Team for their leadership and all the employees of the Company for their indefatigable efforts which plays a pivotal role in achieving the objectives of the Company.
For and on behalf of the Board of Directors
Place : Gurgaon
Date : February 12, 2014.