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Post Tax Profits up 21.8%
22 Jul 2010

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Financial Results for the Quarter ended 30th June, 2010

Highlights

Profits from Operations : +19.6%
Pre-Tax Profits : +19.2%
Post Tax Profits : +21.8%

Operating Profits from Non-Cigarette businesses grow 38% (Rs.265 crores in
Jun ’10 from Rs.192 crores in Jun ‘09).

Robust performance by Non-Cigarette FMCG businesses. Segment revenues up 32.2% with improved profitability.

Agri Business delivers strong performance with Segment revenues up 43.5% on the back of higher sales of Soya, Leaf Tobacco and Wheat.

Recovery continues in the Hotels segment with revenues and profits growing by 21% and 26% respectively.

Strong showing by Paperboards, Paper and Packaging businesses, leveraging recent investments in Paper and Pulp capacities. Segment revenues and profits up 13% and 48% respectively.

ITC completes a 100 years on August 24, 2010.

The Company posted an impressive performance during the quarter with healthy topline growth and high quality earnings. Net Turnover at Rs. 4817 crores grew by 16% driven by the Foods, Personal Care, Agri and Cigarette businesses. Pre-tax profits increased by 19.2% to Rs.1570 crores while Post-tax profits at Rs.1070 crores registered a growth of 21.8%. Earnings Per Share for the quarter stood at Rs. 2.80.

 

FMCG – Cigarettes | Branded Packaged Foods
Personal Care Products | Education & Stationery Products
Hotels | Paperboards, Specialty Papers & Packaging
Agri Business | Sustainable Development

FMCG - Cigarettes

The Company’s relentless focus on providing world-class products to consumers enabled it to sustain its leadership position in the industry. Innovation and consumer centricity have enabled the business to deliver superior value through its brand portfolio of well crafted blends, contemporary packaging styles and use of state-of-the-art manufacturing technology. Several initiatives across the brand portfolio in terms of pack modernization, improvement in smoke profile and introduction of new brands and variants such as ‘Lucky Strike’, ‘Classic Menthol Rush’, ‘Gold Flake SLK’ during the quarter have bolstered the Company’s market standing in the premium categories and improved overall market share. The business is also test marketing its products in the new ‘micro filter’ segment (length not exceeding 60mm). On the manufacturing front, the business commenced operations at its new facility in Ranjangaon, Pune. Investments continued to be made towards enhancement of quality, productivity and variety.

The cause for concern, however, remains the severe taxation and regulatory milieu for cigarettes in India. The already high and punitive tax incidence on cigarettes in India was further exacerbated with a steep increase of 17% in excise duties in the Union Budget 2010,  increases in VAT rates and new Entry Tax imposts by several States. Consequently, industry volumes have come under severe pressure.

The vacuum created by the exit of the popular low priced micros and plain non-filter cigarettes (in the wake of the heavy imposition of excise duties in 2008) provided the headroom for tax-evaded cigarettes to enter the market in a big way. These tax-evaded cigarettes sell in the market at prices that do not even cover the cost of taxes payable thereon. Such cigarettes, estimated to constitute more than 8% of the Indian market, not only deprive the legitimate industry of revenues and profits that it rightfully deserves but also deny the Exchequer of its fair share of taxes. It is imperative that the authorities strengthen enforcement to eliminate this fast growing illegal industry.  

The cigarette industry continues to be impacted by the graphic statutory warnings on retail packages of tobacco. Such graphic warnings, which are more impactful on cigarettes than on other forms of tobacco by virtue of the design specifications, have placed cigarettes in a disadvantageous position. Such regulations and others like the ban on smoking in public places together with the high incidence of tax on cigarettes encourage consumers to shift to cheaper and lightly taxed tobacco products.

Despite the current challenging market conditions, the Company remains confident of leveraging its internationally benchmarked product quality, the resilience of its brands and the superiority of its competitive strategies to retain its leadership position in the industry. 

Branded Packaged Foods

The Branded Packaged Foods business continued to expand with sales growing by 34% during the quarter. Improved realisations, richer product mix and active cost management across the supply chain resulted in enhanced value capture.

The ‘Bingo!’ range of potato chips and finger snacks continued to gain consumer franchise with strong growth in revenues. The exciting range of variants was further augmented with the launch of ’Oye Pudina’ during the quarter. Clutter-breaking advertising and brand promotions continue to maintain buzz around the brand.

Sales of ‘Sunfeast’ biscuits grew by 43% during the quarter alongwith product mix improvement, with sales of value-added variants of cookies and creams growing significantly.

In the Staples category, ‘Aashirvaad’ atta consolidated its leadership position with sales growing by 21% on the back of improved realisations and higher volumes. Confectionery category revenues grew by 25% supported by the launch of an orange variant of ‘mint-O Gol’ and increasing consumer franchise for Eclairs and Lactos.

The business is investing in manufacturing and distribution infrastructure to support larger scale in view of the growing demand for its products. The business continues to focus on supply chain improvements to enhance product freshness, market servicing and margins.

Personal Care Products

The Personal Care business continued to make significant progress in gaining consumer franchise with revenues growing by 86% during the quarter. Product offerings under the ‘Essenza Di Wills’, ‘Fiama Di Wills’, ‘Vivel Di Wills’, ‘Vivel’ and ‘Superia’ brands continue to focus on enhancing consumer benefits.

The business made a foray into the fast growing and relatively under-penetrated domestic skin care market with the launch of ‘Vivel Active Fair Cream’ in June 2010 in select markets. The product, with its unique"Fairness Lock System" seeks to deliver superior consumer benefits in the form of faster and longer-lasting fairness and higher levels of sun protection. It has a SPF 15 sun protection rating.

The business sustained its impressive growth in the Soaps category achieving a volume market share of 5%. Product portfolio was enlarged with new offerings in the freshness segment with the launch of ‘Vivel Deo Spirit’.

Currently, brands ‘Vivel’ and ‘Superia’ are each estimated to be more than Rs 200 crores per annum in terms of consumer spend. 

The business is investing in building a strong portfolio of products and brands through well-defined research and development strategies backed by the Company’s state-of-the-art R&D Centre. It is also continuously enhancing the quality of engagement with consumers through efficient deployment of media, direct contact and promotional activities across conventional and new age consumer connect avenues.

The business continues to leverage investments in tax-exempt manufacturing facilities at Haridwar (Uttarakhand) and Manpura (Himachal Pradesh). Apart from fiscal benefits that will accrue on such investments, these facilities will provide a higher degree of flexibility in manufacturing and ensure the highest standards of product quality.

Education & Stationery Products

The Education & Stationery Products business registered a robust revenue growth of 30% during the quarter. The business continues to consolidate its market leadership position in the notebook segment while the recent additions in scholastic range are gaining traction.

The business continues to leverage its association with youth icons Yuvraj Singh and Soha Ali Khan - brand ambassadors for the ‘Classmate’ range of products. This intervention has enhanced the level of consumer awareness of Classmate’s growing product basket beyond its flagship category of notebooks, namely pens, pencils, geometry boxes, markers, highlighters, copier paper, etc.

The business continues to promote ‘Paperkraft’, its executive and office supplies stationery brand. Working in tandem with the Paperboards & Specialty Paper Division (PSPD), the business has positioned ‘Paperkraft’ as the finest green paper for business applications viz. copy-scan-print-fax. Paperkraft’s green credentials are supported, among other factors, by the Company’s membership of the prestigious Global Forest & Trade Network, an international initiative of the WWF (World Wide Fund for Nature) and the Company’s social forestry programme.

Hotels

The incipient recovery of the Hotels sector witnessed in the latter part of 2009/10 showed further signs of improvement during the quarter with improved levels of foreign tourist arrivals and domestic travel. The relatively improved business conditions were manifest in the performance of the segment with revenues growing by 21% and segment profits by 26%.

The ITC Royal Gardenia, a 292 room luxury offering in Bengaluru launched in October 2009, is the largest LEED (Leadership in Energy and Environmental Design) Platinum rated hotel in the world and the first in Asia to achieve this distinction. The hotel has successfully occupied the niche position of ‘Responsible Luxury’.

Construction activities of the new super luxury properties at Chennai and Kolkata are progressing satisfactorily. In addition, several renovation programmes are underway including addition of a new shopping arcade and room renovations at the ITC Mughal in Agra and renovation of the ‘Dum Pukht’ restaurant in ITC Maurya, New Delhi. Several new projects including joint ventures and management contracts are also on the anvil to rapidly scale up the business across target market segments.

Paperboards, Specialty Papers & Packaging

The business posted an impressive performance during the quarter with segment revenues growing by 13%. Segment results grew at a faster pace of 48% driven by a combination of product mix enrichment, higher realisations and enhanced value capture through in-house pulp production.

The business continued to leverage its integrated business model - access to high-quality fibre from the economic vicinity of the Bhadrachalam mill, in-house pulp mill and state-of-the-art manufacturing facilities on the one hand and a robust forward linkage with the Education and Stationery Products business on the other – to further consolidate its leadership status in the Indian Paper and Paperboards industry. In order to sustain its pre-eminent position in the Paperboards segment, investment in a state-of-the-art machine is underway which is expected to be operational by early 2012.

The Packaging and Printing business continues to provide strategic sourcing support to the Cigarette, Foods and Personal Care businesses. The business also leveraged its state-of-the-art investments in flexibles and carton lines to deliver value added packaging to key customers in the consumer electronics and FMCG industries. Sales to external customers registered robust growth. Investments in a new carton line are underway to cater to the growing demand in this segment.

Agri Business

During the quarter, the Agri business posted a robust performance recording a revenue growth of 44% on the back of increased sales of soya, leaf tobacco and wheat. The business continues to provide strategic sourcing support to the Company’s Cigarette and Branded Packaged Foods business by ensuring high quality supplies. Construction activity of the new green leaf threshing facility in Karnataka is progressing satisfactorily.

Contribution to Sustainable Development

The Company, foreseeing the unprecedented threat to sustainable development as a consequence of societal challenges arising out of poverty, environmental degradation and climate change, has vigorously pursued a conscious strategy to align its businesses to serve a larger societal purpose. Unique business models have been crafted to synergistically deliver economic, environmental and social value. The Company continues to sustain its unique position as the only company in the world to be ‘carbon positive’, ‘water positive’ and ‘solid waste recycling positive’.

ITC's recycling initiative - christened ‘Wealth Out of Waste’ (WOW) - has been internationally recognised by Bureau of International Recycling. WOW reaches out to schools, institutions and homes through awareness building and source segregation of waste. There are over 100 corporates supporting WOW and more than three lakh households across southern India participating in the initiative. In order to inculcate the habit of source segregation among young children, WOW is spreading the idea of recycling in schools and the immediate plan is to cover at least two lakh school children during the year 2010-11 across southern India. ITC has initiated commemorating 1st July as National Recycling Day to create larger awareness of the importance of recycling.
 
The Company continued to enlarge its social sector footprint by expanding to newer districts during the period. It continued to focus on the three main areas of interventions under Mission Sunehra Kal: (a) natural resource management, which includes wasteland, watershed and agriculture development (b) sustainable livelihoods, comprising women’s economic empowerment and genetic improvement in livestock and (c) community development, with focus on primary education and health and sanitation. ITC is currently running social development projects in 55 districts spread over the states of Andhra Pradesh, Kerala, Karnataka, Tamil Nadu, Orissa, West Bengal, Bihar, Uttar Pradesh, Maharashtra, Madhya Pradesh and Rajasthan.

The pioneering initiative of social development projects including watershed development, Social Forestry Programmes, Soil & Moisture conservation programmes is designed to assist farmers in identified moisture-stressed districts, preservation of precious topsoil for agriculture and group irrigation projects. The households covered under the Social Forestry Programme continue to reap the benefits derived from cut plantations during the period. Towards improving the income earning capability of the farming community, Sustainable Agricultural Practices were continued with the promotion of organic fertiliser units through vermi-composting and NADEP technologies. Several varieties of paddy, gram and wheat have been tested in 474 field demonstrations leading to participative selection of higher productive strains by farmers. Similarly, the Sustainable Livelihoods initiative of the Company strives to create alternative employment for surplus labour and decrease pressure on arable land by promoting non-farm incomes.  Among many such activities, the programme for genetic improvement of cattle through artificial insemination to produce high-yielding crossbred progenies has been given special emphasis and has the potential to pull them out of poverty. Integrated animal husbandry services addressed the needs of problem breeders, vaccines, feed additives and awareness drives. The initiative for the economic empowerment of women also continued apace with gainful employment being provided either in micro-enterprises or through self-employment with the support of income generation loans.

The Company’s social sector footprint can be seen at a glance in the following chart:

Intervention AreasUnit of MeasurementQ1 2010-11
  (Cumulative Achievement)
Total Districts CoveredNumber55
Social and Farm Forestry
         Area Planted
         Employment Generation
Hectare
  Million Persondays
107,521
  48.38
 
Soil Moisture Conservation Programme                         Area CoveredHectare54,615
Sustainable Agricultural Practices
      Organic Fertiliser Units
Number13,506
Sustainable Livelihoods Initiative
      Cattle Development Centres
    Animal Husbandry Services
Number
  Milch Animals
164
  441,297
Economic Employment of Women
    SHG Members
    Women Entrepreneurs
Persons
  Persons
14,278
  29,695
Primary Education
      Beneficiaries
Children228,872
Health and Sanitation
      Low Cost Sanitary Units
Number2,937

The Board of Directors, at its meeting in Kolkata on 22nd July 2010, approved the financial results for the quarter ended 30th June 2010, which are enclosed.

Click here for the Financial Results