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It gives me great
pleasure to welcome you to the 96th
Annual General Meeting of your Company.
It is a matter of
satisfaction for me to report yet another year of robust growth and
strong performance encompassing all the business segments of your
Company.
The foundations that
we have laid over time by investing in R & D, technology and
innovation for international competitiveness, supported by a robust
governance structure, continue to drive growth in your Company's
multiple businesses, providing a strong momentum for a secure
future.
FINANCIAL
PERFORMANCE
Gross Turnover for
the year grew by 20.2% to Rs. 19505 crores. Net Turnover at
Rs.12369 crores increased by 26.3% driven by the non-cigarette
FMCG businesses, higher agri-business revenues and the continuing
strong performance by the Hotels business. The non-cigarette
portfolio grew by 37.6% during the year and now
accounts for 52.3% of the Company's Net Turnover. Pre-tax profit
increased by 20.1% to Rs. 3927 crores, while Post-tax profit at Rs. 2700
crores registered a growth of 20.8%. Earnings Per Share for the
year stands at Rs. 7.19. Cash flows from Operations stood at Rs.
3402 crores during the year.
The ITC Group's
contribution to foreign exchange earnings over the last ten years
amounted to nearly USD 2.8 billion, of which agri exports
constituted nearly 65%. Earnings from agri exports is an indicator
of your Company's contribution to the rural economy by effectively
linking small farmers with international markets.
You, the
shareholders, can draw even greater satisfaction from the fact that
these financial results rest on a strong foundation of trust earned
by your Company's diverse brands, products and services and the
enduring relationships formed with millions of farmers in rural
India over several years. It is on this bedrock of trust,
competencies, innovation and rural partnerships that we have built
our aspiration to be a leader in every business segment we are
engaged in.
SUSTAINABLE AND
INCLUSIVE GROWTH
Last year, I had
spoken to you on the fundamental pillars of Vision, Values and
Vitality that have powered the transformation of your Company over
the past decade. I reiterated that envisioning a larger societal
purpose has always been the hallmark of your Company. Indeed,
this 'commitment beyond the market' is a compelling Vision that
motivates us to enlarge our contribution to the Indian Society, even
as we attain new milestones of excellence in sustainable wealth
creation.
We have, over the
years, pursued relentless innovation to forge unique business models
that synergise long-term shareholder value enhancement with the
superordinate purpose of creating greater societal capital. We
take pride that your Company is defined by its deeply 'Indian'
character that aligns corporate strategy to national priorities.
It is for this reason
that we measure our accomplishments not only in terms of financial
performance but also by the transformation we have consciously
engendered to augment the natural and social capital of the nation.
This approach towards achieving Triple Bottom Line benchmarks is
key to our resolve to contribute to the national goal of sustainable
and inclusive growth. It is my firm belief that business
enterprises can and must make a difference towards achieving greater
social equity. It is through a fundamental and unwavering commitment
to Triple Bottom Line objectives that long-term sustainability of
business enterprises can be ensured, unleashing in the process
strong drivers that can make national progress more inclusive and
equitable.
ITC has received
global recognition as an exemplar of Triple Bottom Line performance.
For five years in a row, we have achieved and sustained our
status as a 'water positive' organisation. We have also been 'carbon
positive' for the last two years. We continue to strive towards
achieving a 'zero solid waste' discharge status, having recycled
over 90% of solid waste produced during the year. This makes us,
to the best of my knowledge, the only business enterprise in the
world, of our size and complexity, to accomplish these three
dimensions of environmental excellence - an extremely challenging
task given the fact that we are continuously growing our
manufacturing operations.
In addition, through
a concerted effort to develop innovative value-chains across our
diverse business segments, your Company today is instrumental in
creating and sustaining livelihoods for nearly 5 million people,
many of whom represent the weakest sections in rural India.
Our deep commitment
in ensuring sustainability and competitiveness have given us the
confidence to voluntarily publish an annual Sustainability Report
with independent reputed third party verification. The 2006
Sustainability Report of your Company, the third in the series, is
the first in India and among the top 10 in the world to be presented
in accordance with the latest G3 guidelines of the Global Reporting
Initiative.
Indeed, these
achievements reinforce our commitment in making a meaningful
contribution towards sustainable and inclusive growth of the Indian
Society.
A SOCIAL CHARTER
FOR BUSINESS
A few weeks ago, the
Hon'ble Prime Minister Dr Manmohan Singh presented a ten-point
'Social Charter' sharing his vision on the responsibility of
corporates for sustainable and inclusive growth. He said, and I
quote, "Indian industry must rise to the challenge of making our
growth processes both efficient and inclusive. This is our endeavor
in Government. It will have to be yours too and I seek your
partnership in making a success of this giant national enterprise.
If those who are better off do not act in a more socially
responsible manner, our growth process may be at risk, our polity
may become anarchic and our society may get further divided. I
invite corporate India to be a partner in making ours a more humane
and just society." Unquote.
To my mind, the
Hon'ble Prime Minister's clarion call is not only a responsibility
that we, in Indian Business and Industry, must commit ourselves to
but a crying need that we cannot afford to neglect any longer. While
we can justifiably be proud of India's stellar performance in GDP
growth, the growing inequity in sharing the fruits of success is
indeed a millstone that impedes the nation's true potential.
Business Corporations draw heavily on societal resources. Therefore,
it is in the enlightened self-interest of business to engage
constructively in enlarging its contribution to the broader social
and environmental agenda. Competitiveness of firms can be severely
threatened by unsustainable environments and a lopsided social
structure that creates islands of affluence amidst a sea of poverty.
A constructive public-private partnership for socially responsible
growth is imperative and must occupy a larger space in the future
business strategies of India's corporate sector.
You are indeed aware
of the enormous importance of our rural engagement in the future
growth of your Company. We have constantly strived to meaningfully
blend our social responsibilities with business competitiveness, so
that we can continue to create shareholder value even as we enhance
the benefits that accrue to rural communities. We recognise that
this is the path we must pursue to ensure sustainable and inclusive
growth - a philosophy that is central to the vision articulated by
Prime Minister's Social Charter for Business.
I take immense
pride that the vision enunciated by the Hon'ble Prime Minister
echoes the core values that your Company has enshrined in its
management philosophy and governance structure. We have indeed been
'practitioners' of this vision for many years now. It gives me
immense satisfaction that your Company has executed, on a
substantial scale, innovative business strategies which result in
'mainstreaming' the disadvantaged sections of rural India.
Your Company's
pioneering e-Choupal initiative today comprises 6,400 choupals
transforming the lives of over 3.5 million farmers in 38,500
villages in 9 States of India. We hope to reach out to 10 million
farmers in 100,000 villages in the not too distant future. The
Social and Farm Forestry Programme of ITC covers 65,000 hectares
providing over 28 million person days of employment among the
disadvantaged. In the process, we have also helped sequester over
2,000 kilotons of Carbon Dioxide as a firm commitment to combating
climate change. Your Company's Integrated Watershed Development
programmes in rural areas cover nearly 27,000 hectares providing
critical irrigation to water stressed areas. This year, we have
also forged a milestone partnership with the Government of Rajasthan
for an integrated watershed development project covering 5,000
hectares. Your Company's initiatives to provide opportunities for
non-farm incomes through economic empowerment of women,
supplementary education and integrated animal husbandry services
continue to make significant strides in rural empowerment.
As a nation, we face
today a multi-dimensional challenge to chart a growth path that will
transform the lives of almost a third of our billion population who
live at the margin. Surely, it is not a task that any single segment
of society - be it Government or Responsible Business - can hope to
accomplish in isolation. It is true that sustained high rates of GDP
growth is one of the surest ways of creating livelihoods for the
disadvantaged. However, if such growth impulses do not envision or
contain conscious efforts to enhance social value, it is not
necessary that high growth rates alone will ensure social equity. In
fact, there is a danger that competitive pressures may not actually
lead to development and growth in areas that need it the most.
There is also a
significantly large cost involved in implementing value-chains that
are socially inclusive. While commensurate returns may flow over the
longer term, there are indeed cost barriers, over the short to
medium term, that inhibit investments in such socially inclusive
initiatives. In the absence of strong fiscal or financial
incentives, business enterprises would hesitate to raise such
investments and commit physical and human resources over a longer
term. Therefore, it is important to examine how market drivers can
creatively facilitate such long-term investments which have larger
societal benefits. Corporates will be able to support a much larger
social involvement in their business strategies, if market forces
facilitate such investments and returns.
How do we then
create a market that will support such corporate action for social
development ? If we are to transform the Hon'ble Prime
Minister's vision into reality to its fullest potential, we need to
find answers to this critical question.
MOBILISING CSR FOR
ECONOMIC GROWTH WITH EQUITY
Over the years,
progressive organisations have demonstrated several laudable
examples of responsible corporate action for social development.
Unfortunately, many of these efforts have not been able to reach a
level of scale and dimension that can make an impactful difference
on a nation as large and diverse as ours. Why is it, that despite
possessing rich and diverse managerial capability, a tradition of
entrepreneurship, economic resources and the right consciousness,
corporates are still unable to participate more meaningfully in
building natural and social capital?
The reasons are many
and complex. These relate to the lack of a conducive external
environment as also to organisations' vision, values, leadership and
competitive capability. However, if there is one common thread,
it is the unassailable fact that markets have failed to reward CSR
(Corporate Social Responsibility). They do not adequately
provide the drivers required to sustain a level of intensity of
long-term engagement necessary to produce results in the vast social
fabric. As Prof. David Vogel says, in his recent work titled 'Market
for Virtue', and I quote, "CSR is sustainable only if virtue pays
off. The supply of corporate virtue is both made possible and
constrained by the market …..while there is a place in the business
system for responsible firms, the 'market for virtue' is not
sufficiently important to make it in the interest of all firms to
behave more responsibly."
It is sometimes
argued that the 'reputational asset' that CSR attains is an adequate
reward in itself, and therefore, does not need any further market
incentives. However, at the present stage in India, such a
reputational asset has so far not led to any significant consumer
support, persuaded sizeable investor interest, or resulted in
meaningful preference in Government policies. Therefore, given the
ambivalent market response, CSR initiatives, by and large, tend to
attempt the minimum, often defined by compliance to regulations, and
do not ignite creativity and innovation to accelerate social
benefit.
There are also
apprehensions amongst many that investing in CSR would put them at a
disadvantage vis-à-vis their competitors who do not choose to carry
such social overheads. Nevertheless, there are worthy exceptions,
where organisations have displayed sustained commitment and are
certainly the harbingers of social change and an inspiration to
others. However, it is only when market forces make CSR a crucial
component of shareholder value creation that new competitive forces
will emerge in favour of responsible corporate action. It is
then that CSR will assume a new dimension - one that is defined by
market forces, and not inspired by corporate conscience alone.
I am of the firm
belief that private enterprises are well placed to play a much
larger role in augmenting natural and social capital. Corporates
have created assets and facilities that span the length and breadth
of the country, and therefore, constitute the front line of
engagement with civil society. The physical presence in communities
around their catchments gives them an opportunity to directly engage
in synergistic business activities that can create livelihoods and
add to preservation of natural capital. More than financial
resources, private enterprises possess the more crucial managerial
capability to ensure efficient delivery of social projects. In that
sense, CSR can lead to optimum utilisation of national resources,
given that far higher social benefits will accrue to every unit of
incremental cost incurred by the organisation. Thus, given the right
market incentives, Indian corporates can significantly add to
Government efforts in pursuing growth with equity in constructive
public-private partnerships.
The key to
corporates sustaining a meaningful strategy for constructive social
action therefore lies in the ability to create strong market drivers
that incentivise CSR. Civil Regulation, including pressure
groups, act as strong drivers to ensure socially responsible action.
Government regulation and public policy are also influential
drivers. However, these again tend to deliver the bare minimum
interventions. Besides, over reliance on regulation can stifle
corporate creativity and innovation. A perceptible augmentation of
societal capital will take place when market drivers spur innovation
and a sense of competition to deliver CSR in ways that positively
impact financial results. CSR initiatives then become a part of the
balance sheet deliverables, are quantified by the market and provide
a direct incentive to the company to enhance socially responsible
behaviour.
MAKING MARKETS
WORK FOR CSR
Can we, therefore,
make markets work for CSR ? Are there compelling market drivers
which would give a positive reinforcement to corporates to focus on
Triple Bottom Line performance ? Can these powerful drivers energise
innovation by companies, so that CSR becomes an integral part of the
marketing mix and a competitive differentiator ?
Fortunately, there is
an answer. The most potent force that can trigger a complete rethink
of corporate strategy and bring about transformational change lies
in the power of consumer franchise. I use the term 'consumer'
here in a broader sense to also encompass other market participants
including Government - both as a buyer and regulator, Investors,
Employees, Job-Seekers and other segments of Civil Society.
An enlightened
consumer, by exercising a choice in favour of 'socially responsible'
enterprises, can unleash a powerful force of incentives. A
'positive vote' for socially responsible companies, exercised
through preference for a company's products and services, would
change the context and dimension of meaningful CSR, create strong
economic multipliers and enhance shareholder value. The implications
of such consumer franchise for business will be wide ranging.
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Consumer
preference will spur a massive movement in corporate
innovation to integrate business goals with the building of
societal capital.
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CSR can also
emerge as a distinctive market differentiator and help
position progressive companies more strongly in the marketplace.
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Companies will
vie for consumer spend by positioning CSR as a compelling
value proposition.
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Gains would
accrue to the company and its shareholders with increasing
revenues and goodwill.
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Where consumers
go, Investors will follow. Investors will increasingly find such
socially responsible companies attractive, given the
larger market gains.
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Potential
employees would also seek opportunities in such successful
companies and the enterprises themselves would be better
positioned in the war for talent.
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Competition
amongst CSR exemplars would lead to a perceptible
augmentation of natural and social capital and this would
create a more sustainable future.
Thus, powerful market
drivers will emerge to encourage CSR as an integral part of business
strategy. In the course of time, stakeholders will build a more
enduring relationship with such companies, continuously creating
value for the organisation, for its shareholders and the nation.
ENLISTING CONSUMER
SUPPORT
The key,
therefore, lies in mobilising market participants - the most potent
being the consumer - and enhancing awareness amongst them, so as to
empower their decisions. We will need to ramp up consumer
education substantially, so that they are made aware of the power
they possess to transform society and bring in enduring social
change. Government, Industry and Civil Society will need to join
hands in this endeavour to give it more body, scope and reach.
Your Company made a
beginning in this direction by creating a high visibility 'cause
marketing' campaign involving our popular brands - 'Sunfeast'
and 'Aashirvaad' - and highlighted the link with some of our
CSR initiatives. It was our endeavour to educate the consumer
that with every spend on those brands, they would, in effect, be
contributing to the Social Forestry and Watershed initiatives of
your Company. You are aware that your Company's 'Classmate' brand
contributes significantly towards the education of the
underprivileged by earmarking a portion of its proceeds for this
cause. I am given to understand that school children actually
prefer Classmate products not only for their superior quality, but
also for their association with a noble cause. We are committed to
enhancing these awareness campaigns, and it will be our endeavour to
continuously make the consumer aware of the choice that she
possesses to support such social programmes by making informed
buying decisions.
It is heartening to
note that worldwide, consumers are already demonstrating their
preference for socially responsible products and services. In 2006,
an estimated €1.6 billion worth of Fairtrade products were sold
across the world, growing annually by almost 50%. This independent
consumer certification mark guarantees that disadvantaged producers
are getting a better deal. Today, more than 7 million people -
farmers, workers and their families - across 59 developing countries
benefit from the international Fairtrade system. In some cases,
consumers have also demonstrated that they are willing to pay more
for a product or service if it contributes to social good. These are
certainly welcome developments although they occupy, as of now, a
small proportion of global trade. If these individual efforts of
consumers get escalated into collective action, they will certainly
have a distinct impact on corporate thinking and action.
Unfortunately, the
'market for virtue' in India is practically non-existent.
However, a small beginning has been made. With concerted action from
policy makers and civil society, a significant force can be created
by enlightened consumer franchise to spur industry into innovative
thinking for social action.
India's young
demographic profile will also support this trend. In late 2006, a
Cone Millennial Cause Study in the US found that, amongst the youth,
nearly nine out of ten surveyed stated that they were likely or very
likely to switch from one brand to another (price and quality being
equal) if the second brand was associated with a good cause. This
goes to indicate that with greater awareness through education and
exposure, the future generation will tend to exercise a 'vote' for
companies with higher social accountability. This is now getting
to be a worldwide trend, and with increasing connectivity through
the Internet, widespread media and new tools for communication, I
can see the emergence of a young global community, who share common
views, common concerns, and common hopes and aspirations. This is a
force that is lying dormant amongst India's confident new young
generation, and once unleashed will be a formidable catalyst for
change.
ALIGNING FORCES OF
FRANCHISE
Given the power of consumer franchise, how do we align forces
amongst all the market participants to support a new movement for
innovative CSR?
To make 'consumer
choice' a compelling market driver we would need to create a
supportive institutional framework to facilitate the process
of making an informed choice by market participants. Let me briefly
elaborate on some of these enablers :
First, the Policy
and Institutional Framework.
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Market
participants would need an effective tool to make an informed
choice in favour of a Responsible Corporation. I would
suggest that Government support the development of a 'CSR
Sustainability Trustmark', or a series of Trustmarks
defined by Industry segments, which could be displayed on
products and services to convey to the consumer that the
enterprise follows a strong commitment to building natural and
social capital. Voluntary in nature, these Trustmarks, crafted
on sound scientific and market principles, will stand for the
positive impact a company has made on the environment and the
society. The Trustmarks could also be supplemented with Ratings,
based on the extent of the individual company's involvement in
creating societal capital.
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The Trustmarks
need to be administered by a reputed and independent body or
bodies, much like the financial rating agencies. An
institutional framework and appropriate guidelines can be
created by a Government-Industry partnership to provide
organisational support and credibility.
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A major
impetus can emerge out of Government's consideration to extend
fiscal and financial concessions, priority clearance and
other incentives to organisations that attain sustained high
ratings. Government and its agencies could also give purchase
preferences to suppliers with highly rated Trustmarks.
Second, the role
of Industry :
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In championing a
sincere commitment to a Vision that embraces contribution to
Society as a key component of business strategy.
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In moving towards
voluntary disclosure of Triple Bottom Line performance in
the Company's Annual Reports, verified by independent reputed
third party organisations.
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In making a
strong effort to attain the CSR Sustainability Trustmarks,
and displaying the same on their products and services.
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In enlarging the
Company's contribution by giving preference to vendors with a
strong CSR and Sustainability orientation.
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In developing a
model code of responsible conduct by Industry bodies and
associations for its members.
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In encouraging
Modern Retail outlets to develop special sections that
display and sell products with Trustmarks.
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In providing
support to the creation of Awards that recognise outstanding
Sustainability Performance. This would provide a tremendous
reputational asset and incentivise CSR significantly.
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In
strengthening reporting on Sustainability based on
guidelines such as the Global Reporting Initiative. I am sure
that the Indian operations of multinationals, not listed on
Indian bourses, would also want to make such public disclosures
and demonstrate their contribution to the Indian Society. I
envisage a future where Sustainability Reporting will form an
integral part of a firm's public disclosures, and will be valued
by stakeholders in equal measure to the established practices of
financial reporting.
Third, the role of
Investors.
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Investors play
a critical role in encouraging social accountability in
corporate behaviour. Globally, there are today hundreds of
funds that invest in socially responsible enterprises. These
funds rely on Sustainability Indices such as Dow Jones
Sustainability World Index, FTSE4Good, Domini 400 Social Index
and others to guide investment decisions. These funds have
already channeled large amount of investors' savings into
companies that have high social brand capital.
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India has
witnessed some welcome developments in this direction in recent
years. The ABN Amro Bank launched a Sustainable Development
Fund as India's first Socially Responsible Investing Fund.
Recently CRISIL, S&P and KLD have announced that they would
develop an Environmental, Social and Corporate Governance (ESG)
Index of Indian companies. The Institute of Chartered
Accountants of India is also reported to be working on
developing a similar evaluation.
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Individual
investors, while seeking to maximise returns from their
portfolio holdings, could exercise a powerful choice for
companies with high Triple Bottom Line performance.
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Banks and
Financial Institutions could ask for voluntary disclosures and
factor the rating in their lending evaluations.
Fourth, the role
of Civil Society organisations.
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Consumer
awareness will benefit immensely if civil society
organisations and consumer bodies actively advocate the usage of
Trustmarks. They could also promote awareness amongst
constituents to support products and services of companies with
higher Sustainability ratings.
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Schools and
educational institutions could also promote awareness on
responsible corporate behaviour and its association with the
Trustmark ratings on products and services, and design elements
in their curriculum to groom citizens of tomorrow as enlightened
consumers.
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And finally,
the Media, as one of the most powerful forces of shaping
public opinion, can make a multi-dimensional contribution in
this direction.
It is my strong
belief that by aligning such powerful forces, we will see the
emergence of a new consciousness where CSR will transcend from
corporate philanthropy to a competitive value proposition.
Your Company has been
instrumental in setting up the CII-ITC Centre of Excellence for
Sustainable Development, which is a unique institution that
seeks to address the void in developing requisite capability on
Sustainability issues among Indian industry. The Centre endeavours
to bring about transformational change in Indian businesses by
providing thought leadership, promoting awareness and building
capacity. One of the major initiatives of the CII-ITC Centre is to
recognise excellence in Sustainability practices by presenting
Awards to industry, based on a rigorous process of selection. This
attempt to recognise outstanding Sustainability initiatives is
designed not only to celebrate individual corporate action, but also
to inspire others to follow.
I am convinced that
in today's enlightened India, more and more companies will respond
to the appeal made by the Hon'ble Prime Minister to forge
partnerships for social action, and achieve growth with efficiency
and inclusivity. Making markets work for CSR will indeed provide the
compelling foundation for such initiatives.
MAKING A
DIFFERENCE
The essence of what I
have presented to you today is a considered response to enhancing
corporate participation in societal development. Your Company has
been at the forefront in providing both thought leadership and
action in creating a more secure, sustainable and inclusive future.
It is true that no single organ of society will be able to make a
significant difference based on their individual action. However,
the efforts made by your Company demonstrate that with innovation,
commitment and by forging enduring partnerships, we can all make a
difference.
Indeed, the
challenges seem daunting when we witness the scale of inequity and
poverty. The good news is that never before in world history have we
possessed so much knowledge, technology and resources to deal with
this apparently hopeless situation. It is indeed heartening to
witness a growing corporate consciousness to ensure that the future
generations are more secure. I hope this groundswell of effort
will continue to grow and become a committed movement for a better
tomorrow.
I firmly believe that
Corporates in India have the capability, the vision and the
entrepreneurial skill to forge a more prosperous future for the
nation, even as they sharpen their competitiveness and grow their
businesses globally. Mahatma Gandhi said, and I quote : "The
difference between what we do and what we are capable of doing would
suffice to solve most of the world's problems". We need to heed
this message to realise our fullest potential.
To be able to stand
tall amidst adversity, to live your convictions and know that your
actions and beliefs have transformed the lives of millions is at
once a humbling and enriching experience. Your company is indeed
privileged to be able to make a difference, and be recognised for
the contribution it makes. Our abiding Vision, the strength of our
outstanding human capital, and our commitment to creating enduring
value will continue to inspire us as we strive to achieve even
greater success in the future.
On this occasion of
your Company's 96th AGM, I would like to once again thank all of you
- our valued shareholders - for your unstinted support in our shared
journey to create one of India's most valuable corporations. In this
journey, I look to you, as always, for your continued support and
encouragement.
Thank you, Ladies and
Gentlemen.
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