Annual Report-FY 2011-12 - Timex Group India

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DIRECTORS’ REPORTTo the Members of Timex Group India LimitedYour Directors are pleased to present the Twenty-fourth Annual Report and Audited Statement of Accounts for the yearended 31 March 2012.FINANCIAL RESULTSRs. in Lakhs2011-12 2010- 11Income 18,391 17,391Expenditure 17,786 15,633EBIDTA 911 1,927Interest 109 0.47Depreciation 197 169Profit before tax (PBT) 605 1,758Provision for Taxes 152 357Profit after Tax 453 1,401The year under review had been a tough year due to slowdown of the economic growth. The GDP growth projection of 9%fell short of expectations and the year closed with GDP growth of under 7%. This coupled with high inflation and borrowingcosts adversely impacted the consumer demand in most categories and your Company was no exception.In addition, the economy witnessed a sharp depreciation of Indian Rupee during the year, which in turn had significantlyimpacted the operating margins for the business. Your Company had taken aggressive price increases across brands tominimize the impact of adverse exchange rate; however the full benefit of these price changes will only be seen in the nextyear. The rupee continues to be weak and necessary steps are being taken to mitigate the future risk in this regard.Regardless of these challenges, the focus of the Company had been to deliver results and continue to invest in the long termgrowth drivers for the business. The year 2011-12 saw the Company growing marginally over the last year on overall businessbut our trade channel, which is a better barometer for business equity witnessed approx 20% growth over the last year.The year 2012-2013 shall continue to be a challenging year. However, we have no doubt that the fundamentals of the Indianeconomy shall continue to be strong over the longer term. Going forward the Company has set itself clear goals andobjectives to ensure the sales and profit evolution is in line with the Company’s strategic plan.In the last year, your Company had initiated synchronized action on multiple fronts – people leadership, brand presence andinnovations in terms of products. Some of the key initiatives taken were as under:• Improved Brand salience by building a stronger consumer connects through a multimedia Communication program.• Key positions in the Company were filled in to help address some of the competency gaps.• Revamped the product portfolio and introduced new styles with improved aesthetics and at the same time generated ahigher gross unit margin for the business. This will serve us well in future• Launched iconic Timex products such as Intelligent Quartz – the world’s smartest analog watch & Heart Rate Monitor.• Partnered with 3 Gold Label Marathons (SCMM-Mumbai, ADHM-Delhi & TCS Bangalore 10K) as “Official Timekeeper”.• Visual Merchandising development: Introduced new VM concepts and techniques to amplify brand visibility across verticals.• Expanded retail chain and launched 100 th “Time Factory” store.• Started E-Commerce and Face book fan page for our youth brand – HELIXMANAGEMENT DISCUSSION AND ANALYSISTHE INDIAN WATCH MARKETThe present size of the Indian time industry is currently estimated at INR 4,600 crore. The industry has witnessed a growthof 8-10 percent in the past few years. The watch industry has a promising future as it is expected to grow at 12-15 percent inthe next few years. A large part of this growth is expected from youth, women and luxury segment of the consumers. Whilethe unit growth is driven by low price unbranded products, the growth at the mid and higher price points is driven bycreating higher value through improved styling and technology. The growth in the market has been led by marketing8
investments made by several Indian and global brands (including the launch of several new brands) which are increasingtheir focus on the Indian market. It is estimated that the watch penetration in India is 27 per cent only with just 3.5 per cent ofthe Indian population owning multiple watches.The economy and mass segments form close to 80 per cent of the market by volume and contribute only 40 per cent of themarket by value. Whereas affordable luxury and luxury segments are estimated to contribute around 20 per cent of the marketby value and have a small volume of around one lakh pieces. Around 60 per cent of the market by value is controlled byorganized players. The gender segmentation shows a bent towards men with 60 per cent of the market catering to them.The growth factors are changing consumer dynamics, increase in disposable income, growth of organized retail and entry ofinternational brands. The emerging trends show youth and women consumers as the primary growth segments in the watchindustry. Additionally on account of increasing maturity of the Indian consumer and on account of the concerted effort of theorganized sector branded Time wear has been growing rapidly at the expense of the unorganized sector.Currently, the major challenges faced by the industry are stringent government regulations, slower than anticipated changein the consumer behavior in terms of channels where they shop being quite undercapitalized, and a large unorganized market.OUTLOOK/ OPPORTUNITIES AND CHALLENGESThe economic growth of India and the changing life style of the Indian consumers who are aspiring to a more internationalway of life on account of the growing awareness of the global fashion trends bode well for the growth of the watch industry.Your company is well positioned to take advantage of this.The factors like growing economy in the long term, increasing consumerism, favorable demographics, 300 million strongmiddle class and more than a million high net worth individuals, hold a lot of promise for the Time wear industry in near future.The new rule which allows 100% foreign direct investment in single brand retail trading will further open up the Indian marketfor foreign investments and accelerate retail market growth.The new age watch buyer is a young, aspiring individual with a high disposable income. The consumer does not see thewatch merely as an instrument for keeping time; a watch is now considered a fashion accessory and the brand name a fashion& style statement, and a reflection of his or her personality. This has created a trend of multiple watch ownership “A differentwatch for different occasions.” This encouraging development for the industry could propel industry growth significantly infuture years and Timex Group India Limited (TGIL) with its wide array of brands and styles, ranging from Fashion to Classicsand Sports to Jewellery can take full advantage of this.The Company has a unique advantage of having several international brands and domestic manufacturing capabilities. Thisallows international products to be sold in India at prices which offer tremendous “Value for Money” to the consumer. Thecompany also boasts of a portfolio of seven brands and the presence of its own franchised retail chain, “The Time Factory”,comprising of 100 stores. This allows TGIL to participate at all ends of the value chain which in turn enhances margins. Bydoing so, the company is also better positioned to control its own destiny more effectively and this provides a sustainablegrowth platform for the business in the years ahead.In addition, your Company continues to leverage the skills reposed at the Timex Group Global Design Centre located in Milanand also Global Supply Chain organization to support the business in India which has resulted in improved technology andstyling of the products.TGIL has been recognized by the industry for its commitment to the Indian Time wear Industry. It has been selected twice ina row in the last 2 years in the Brand Equity’s most trusted brands list in the consumer durables segment.RISKS/ THREATSThe slowing down of the economy, high inflation, high borrowing costs and depreciation of Indian rupee and their resultantimpact on the consumer sentiments are major risk for the future consumer demand for the products across all categories.Indian Time wear industry is not devoid of bottlenecks and there are key challenges owing to the government policies andregulations. Economic growth slowdown coupled with rising inflation continues to be great challenge. High duties andcomplex & varied taxation structure are proving to be key impediments to its growth. The latest revision of Excise Duty from10% to 12% is a new challenge. Taxes such as VAT, Octroi fall under the jurisdiction of the state government and many of thesestates have imposed a different rate of tax. The current import duty structure is also impacting the operations and profitabilityof both Indian and international watch companies, posing as hindrances to the growth of the Indian Time wear industry.The increase in the commodities prices, increased cost of sourcing from China and limited vendor capacity for the criticalwatch parts in India are resulting in the increase in the sourcing costs of key components. The rising input costs shall havean adverse impact on the operating margins, unless mitigated through various measures to cut costs (without compromisingquality). Several initiatives are being developed to address this risk.9
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Annual Report-FY 2011-12 - Timex Group India

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