Underlying Post-tax Profit growth of 18.5%
Net Turnover up 15.9%
Reported Post-tax Profit up 15.3%

ITC concluded yet another year of handsome growth. The financial performance for the year ended 31st March 2003 is particularly satisfying as it has been achieved in the face of several challenges, including the general economic slowdown that affected the FMCG industry in particular, the burgeoning impact of state level taxes on cigarettes, low tourist arrivals into India in the first half coupled with the gestation of new hotel investments, and incubation cost of new business initiatives.

ITC crossed yet another milestone with Gross Turnover at Rs. 11025 crores exceeding the Rs.10,000 crores mark. Pre-tax profit increased by an impressive 15.5 % to Rs. 2056 crores, while Post-tax profit at Rs. 1371 crores registered a growth of 15.3%. After adjusting for certain one-off items (Interest income on tax refunds: Previous Year: Rs. 32 crores Current Year: Rs. 9 crores; Income Tax refunds: Previous Year Rs. 12 crores Current Year: Rs.18 crores; Mark down on certain assets relating to the Company's erstwhile edible oils business: Rs.35 crores in the Current Year) underlying Pre-tax profit for the year registered an even more impressive growth of 19.1% while underlying Post-tax profit increased by a substantial 18.5%. Earnings Per Share for the year stands at Rs. 55.41. Gross cash generation from operations grew an impressive 15% to Rs.2258 crores.

The Board of Directors recommended a dividend of Rs.15.00 per share (Previous year:Rs.13.50 per share). This will entail a total cash outflow of Rs.418.84 crores, comprised of the proposed dividend of Rs.371.27 crores and income tax on the proposed dividend of Rs.47.57 crores. This level of dividend translates to a payout ratio of 30.6%.

FMCG-Cigarettes

The operating environment for cigarettes in India continues to pose an increasing order of challenge, particularly in the spheres of taxation and regulation of consumption and communication. Despite the challenging circumstances, the Company leveraged its leadership position in the industry to record a revenue growth of 9.3% during the year driven by improved product mix and a volume growth of 4.1%.

Several innovative products were launched during the year in keeping with the company's strategy of providing superior value for the consumer: Gold Flake Kings Cool Mist was rolled out in select markets, supplementing the range of taste and flavour options for consumers while all premium brands were successfully extended in the ultra premium bevelled edge packaging format. Further, encouraged by the initial response to the 5s form of packaging, two more brands - Scissors Standard and Capstan Standard - are being increasingly marketed in this format to enhance buying convenience. The year also saw the launch of Wills Insignia in the super premium category in a unique shoulder box package. It is rapidly creating a franchise in the consumers' minds as the finest global standard in cigarette quality.

FMCG-Others

During the year, the Company crossed significant milestones both in the range of FMCG products launched as well as the breadth of distribution. Investment in people, systems, trade marketing expertise and product development enabled the launch and national rollout of several other FMCG products spanning Apparel, Packaged Foods, Greeting Cards and Stationery, Safety Matches and Incense sticks (Agarbatti). The business model in each of these product categories envisages retaining core competency-based elements of each value chain in-house. Manufacturing is outsourced largely to small and medium enterprises (SMEs). Such a model enables ITC to participate effectively in strengthening the capability of these SMEs, thereby enhancing the competitiveness of the entire value chain. The Company is engaged in further expanding its distribution and delivery bandwidth to serve as a springboard to cater to a much wider range of FMCG products.

Branded Packaged Foods

The Company's Branded Packaged Foods business continues to expand rapidly. In the Ready to Eat segment, the product portfolio under the 'Kitchens of India' brand was further expanded with the introduction of new recipes in the vegetarian and dessert categories. 'Kitchens of India' is rapidly gaining popularity as an ideal gifting item for all occasions. The introduction of 'Aashirvaad' Pure Salt in March 2003 reinforced the Staples portfolio while the Company's offerings in the Atta category - 'Aashirvaad Select' at the premium end and 'Aashirvaad Whole Wheat Atta' in the popular segment- have met with encouraging response from consumers and are being rolled out nationally. The 'Aashirvaad' brand is rapidly progressing towards establishing a leadership position as a national brand.

The Confectionery segment saw the launch of the 'mint-o' brand in the compressed lozenges category and 'Candyman' in the children's confectionery segment. 'mint-o' was rolled out progressively to target markets and is now available in 3 variants - Regular, Orange and Lemon. This brand has substantially expanded the compressed lozenges category and has acquired over 30% market share in less than one year of introduction. The 'Candyman' brand, launched in 2 unique flavours -'Mango Delite' and 'Wild Banana', is gaining wide market acceptance and popularity. Entry into the Snack foods segment was initiated with the launch of 'I Bischips'- a unique baked product that offers the consumer a healthy snacking option.

Lifestyle Retailing

10 new exclusive Wills Lifestyle stores were added during the year, thus creating in the aggregate over 57000 sq ft of world-class retail space spanning 48 Wills Lifestyle stores across 38 cities in India.

The product range was expanded with the launch of 'Wills Classic' in 20 select Wills Lifestyle Stores to cater to the high potential formal work wear segment. The product has been well received and already represents over 19% of turnover of these outlets. Development is under way to further expand the product range to attain full representation in the fashion portfolio.

Wills Lifestyle's internationally benchmarked quality continues to earn industry recognition, with 'Wills Sport' winning the "Most Admired Women's Wear Brand" at the Images Fashion Awards 2002.

The Company's foray into the mid priced segment with the launch of 'John Players' in December 2002 is being rapidly scaled up to meet the ambitious target of reaching national presence in a short period of time.

Greeting Cards & Gifts

During the year, the Greeting Cards business nearly tripled its turnover to achieve a market share of 15% thereby establishing itself as the No.2 player in the industry within 2 years of launch. The product range was enlarged with the introduction of Gift wrappers, Autograph books and Slam books. The Social Cause range of cards introduced in partnership with SOS Children's Villages of India is now established as one of the top brands in this category in the country. The business also test marketed its range of premium stationery products under the brand 'Expressions Paperkraft'. The premium stationery range is scheduled for all India launch in 2003-04.

Safety Matches

After the initial launch in North Kerala in August 2002, market coverage was rapidly extended to all major metros, all southern states and many states in West, North and Eastern India. The Company's brands, iKno, Mangaldeep, Delite, Vaxlit and Aim met with encouraging consumer response and gained impressive market shares, touching about 15% in the metros and nearly 10% in other markets.

Incense Sticks (Agarbattis)

ITC's foray into the marketing of incense sticks is yet another manifestation of its partnership with small and medium enterprises. Three brands - Spriha, Nivedan and Ashageet - in six fragrances were part of the initial launch. Consumer response has been encouraging and distribution is being extended in a phased manner to cover all target markets in 2003-04.

Hotels   

Aided by improved business climate in the second half of the year, revenues from the Hotels business grew by 19% over last year. The commissioning of the 250-room ITC Hotel Sonar Bangla Sheraton and Towers in Kolkata marks yet another significant milestone in the Company's strategy of completing the ITC Welcomgroup chain. This super deluxe hotel's unmatched ambience combines the best features of a resort with the contemporary functionalities of a business hotel, drawing widespread accolades as Asia's finest business resort. The Company's second hotel in Mumbai, ITC Grand Central, is expected to be ready for operations by end 2004.

Paperboards and Specialty Paper

During the year, the Tribeni Tissues Division and the Bhadrachalam Paperboards division were integrated into the Paperboards and Specialty Papers Division in line with the operating synergies envisaged at the time of amalgamation of the erstwhile ITC Bhadrachalam Ltd. with the Company. Production during the year exceeded 100% capacity utilization with overall sales increasing to 230094 MT from 228505 MT. Sales of value added products grew by nearly 62% to 57653 MT from 35600 MT, resulting in an enriched product mix and higher profitability.

The Company commissioned a poly extrusion plant and a super calender facility during the year, enhancing the range of value added products. The Elemental Chlorine Free (ECF) Pulp mill commissioned in October 2002 (the only one of its kind in the country) further improved the Company's cost competitiveness, and also enabled the launch of superior value added grades of paper. This facility meets world-class environmental standards in keeping with ITC's commitment to the environment.

Agri Business

Despite an oversupply situation in the global leaf tobacco industry coupled with steep devaluation of currencies in the competing countries viz. Brazil & Argentina, the Company's exports of cigarette leaf tobaccos during 2002-03 grew significantly by over 18% (Rs.220 crores against Rs.187 crores the previous year). The Company continues to provide its customers a comprehensive range of high quality tobaccos, constantly innovating distinctive grades and providing cost effective products through technology upgradation at both the farm and processing ends.

The Tobacco portal, launched by the Company in collaboration with the Tobacco Board to help farmers improve quality and productivity, now covers 100 installations in Andhra Pradesh and Karnataka, with plans to double the reach in 2003-04.

Other agri commodity exports (soya, rice, coffee and marine products) touched Rs.845 crores during 2002-03, an impressive increase of 50% over the previous year, leveraging the opportunity in non-basmati rice.

The Company more than doubled its e-choupal network, adding 1080 choupals during 2002-03. Todate 2100 choupals have been installed, reaching out to over one million farmers in about 10,000 villages in the states of Madhya Pradesh, Karnataka, Andhra Pradesh and Uttar Pradesh. This e-network now extends beyond Soya to Wheat, Coffee and Marine products.

The Board of Directors, at its meeting in Kolkata on 23rd May 2003, approved the financial results for the year ended 31st March 2003, which are enclosed.

Notes:

(i) The above results were approved at the meeting of the Board of Directors of the Company held on 23rd May, 2003.

(ii) Figures for the previous year have been re-arranged wherever necessary.

(iii) Gross Income comprises of Segment Revenue and Other Income.

(iv) The Provision for Taxation comprises of

(v) The above is as per Clause 41 of the Listing Agreement and does not take into account the excise issues disputed by the Company.

Notes :

(i) The above was approved at the meeting of the Board of Directors of the Company held on 23rd May, 2003.

(ii) Figures for the previous year have been re-arranged wherever necessary.

(iii) The Board of Directors of the Company has recommended a dividend of Rs. 15.00 Per Ordinary share for the financial year ended 31st March, 2003 and the dividend, if declared, will be paid on or after 28th July, 2003 to those members entitled thereto.

(iv) The Register of Members of the Company will be closed for the purpose of dividend from 16th July, 2003 to 25th July, 2003 (both days inclusive).

(v) The 92nd Annual General Meeting of the Company has been convened for 25th July, 2003.

Notes :

(1) The Company's corporate strategy aims at creating multiple drivers of growth anchored on its core competencies.The Company is currently focused on four business groups : FMCG, Hotels, Paperboards, Paper & Packaging, and Agri Business. The Company's organisational structure and governance processes are designed to support effective management of multiple businesses while retaining focus on each one of them.

(2) The business groups comprise the following :

(3) Branded Garments, Greeting Cards, Stationery & Gifts, Packaged Foods (Staples, Confectionery, Snack Foods and Ready to Eat Food ) and Agarbattis and Matches constitute new business activities. Accordingly segment results largely reflect start up and business development costs.

(4) In its Hotels business, the Company has been engaged in implementing its strategic investment plans to complete the ITC Welcomgroup chain. Capital employed of Rs. 943 Crores (2002 - Rs. 782 Crores) includes Rs. 841 Crores (2002 - Rs. 676 Crores) relating to the recently opened hotels at Delhi, Mumbai and Kolkata as well as capital work in progress in respect of the hotels under construction.

The Hotel industry showed early signs of recovery during the second half of the year. However, the segment results for the year continue to reflect the gestation cost of the newly opened hotels, the impact of the global slump in international travel, the adverse effect of travel advisories and the holding cost in respect of Hotel Searock which has been the subject matter of a prolonged legal dispute.

(5) The Company's Agri Business markets agri commodities in the domestic and export markets; supplies agri raw materials to the Branded Packaged Foods Business and sources leaf tobacco for the Cigarettes Business.

(6) Unallocated corporate assets include Rs. 803 Crores (2002 - Rs. 881 Crores) being legacy assets acquired by the Company as part and parcel of the schemes facilitating exit from the Financial Services and Edible Oil Businesses in 1997.

(7) Figures for the previous year have been recast to conform to current presentation.

Notes:

During the Year, the Company has adopted Accounting Standard (AS) 23 - Accounting for Investments in Associates in Consolidated Financial Statements and Accounting Standard (AS) 27 - Financial Reporting of Interests in Joint Ventures in Consolidated Financial Statements.
Consequently, the figures for the previous year are not comparable with the current year.