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Pre-Tax Profits up 25% In celebration of Centenary Year : Total Dividend of Rs.10/- per share
21 May 2010

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Financial Results for the Quarter and Year ended 31st March, 2010

Highlights

Profits from Operations : + 26 %
Pre-Tax Profits : + 25 %
Post Tax Profits : + 24 %

Q4 Pre-tax profit of Rs.1505 crores and Post-tax profit of Rs.1028 crores represent a growth of 26% and 27% respectively.

Non-cigarette FMCG segment registers robust revenue growth of 34% in Q4.

Board recommends total Dividend of Rs.10/- per share for 2009/10 including a special Centenary Dividend of Rs. 5.50 per share.

Paper and Pulp investments leveraged to improve value capture and margins. Segment results grow by 35%.

Agri business profits up 70%.

Sequential improvement in Hotels business revenues and profits, with growth of 16% and 10% respectively in Q4, reversing the de-growth of the first 3 Quarters of the year.
Personal Care business launched the ‘Fiama Di Wills’ Transparent Gel bar which was voted ‘Product of the Year’ in the soaps category based on a survey conducted by AC Nielsen.
The ‘ITC Royal Gardenia’ was launched in Bengaluru. It is the world’s largest and Asia’s first LEED Platinum rated hotel.
ITC's Sustainability Report 2009 was adjudged one of the best reports globally in the 'Carbon Disclosure' category by CRRA'10 (Corporate Responsibility Reporting Awards '10).

The Company posted yet another year of impressive performance with a healthy topline growth and high quality earnings, notwithstanding the extremely challenging economic environment, especially in the first half of the year. Gross Turnover for the year grew by 13.5% to Rs.26259.60 crores. Net Turnover at Rs.18153.19 crores grew by 16.3% primarily driven by a 20.9% growth in the non-cigarette FMCG businesses, a 19.8% growth in the Cigarettes business and a 17.4% growth in the Paperboards, Paper & Packaging segment. Pre-tax profits increased by 24.7% to Rs.6015.31 crores while Post-tax profits at Rs.4061.00 crores registered a growth of 24.4%. Earnings Per Share for the year stands at Rs.10.73 (previous year: Rs.8.66). Cash flows from Operations stood at Rs.6620 crores during the year, compared to Rs.4706 crores in the previous year.

For the fourth Quarter, Net Turnover at Rs 5053.79 crores registered a growth of 27.9% driven by robust performance in Cigarettes, other FMCG businesses and the Agribusiness segment. Pre-tax profits at Rs.1504.79 crores and Post-tax profits at Rs. 1028.22 crores grew at an impressive rate of 26.3% and 27.1% respectively over the same Quarter last year.

ITC will complete 100 years in August 2010. ITC today is the leading FMCG marketer in India, the second largest Hotel chain, the clear market leader in the Indian Paperboard and Packaging industry, the country’s foremost Agri-business player and one of India’s fastest-growing Information Technology companies in the mid-tier segment.

In celebration of your Company completing a century, the Board of Directors were pleased to recommend a special Centenary Dividend of Rs.5.50 per share in addition to the dividend of Rs.4.50 per share (previous year: Rs.3.70) for the year ended 31st March, 2010. Total cash outflow in this regard will be Rs.4452.33 crores (previous year: Rs.1633.87 crores) including Dividend Distribution Tax of Rs.634 crores (previous year: Rs.237.34 crores), making it one of the highest ever dividend payouts by an Indian company in the private sector.

FMCG – Cigarettes | Branded Packaged Foods
Personal Care Products | Lifestyle Retailing | Education & Stationery Products
Safety Matches | Incense sticks (Agarbatti) | Hotels
Paperboards, Specialty Papers & Packaging

Agri Business | Sustainable Development

FMCG - Cigarettes

During the year, the Cigarette industry in India continued to contend with the twin challenges of discriminatory and punitive taxation and increased regulation. After two successive years of severe increases in cigarette taxation – increase in excise duty rates by 6% and imposition of Value Added Tax at a rate of 12.5% on invoice price in 2007, and an unprecedented increase in excise duty of the order of 140% and 390% on regular and micro-sized non-filter cigarettes respectively in 2008 – the industry in 2009/10, saw several States departing from the consensus VAT rate of 12.5% and increasing the rates of VAT on cigarettes from time to time. Certain States also levied entry tax on cigarettes in addition to VAT and some others increased the entry tax rate. Most States, like the Centre, largely targeted the cigarette sector. Consequently, tobacco consumption in the cigarette format suffered.

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) has been occupied by duty-evaded illegal regular size filter cigarettes which are sold to consumers at Rs.10/- per packet of 10 cigarettes. These low priced tax-evaded illegal cigarettes are a growing threat to the legitimate industry, Government revenues, market stability and the social objective of regulating tobacco consumption. Some reports indicate that funds from illegally produced and contraband cigarettes often find their way to finance terrorism and other anti- social activities. It is imperative that the authorities strengthen enforcement to eliminate this fast growing illegal industry.

In the regulatory arena, graphic statutory warnings on retail packages of tobacco and tobacco products were introduced and further restrictions on sale of tobacco products were notified during the year under review. Such regulations and others like the ban on smoking in public places together with the high tax cost of cigarettes encourage consumers to shift to cheaper and lightly taxed tobacco products. Consequently, whilst consumption of tobacco in the cigarette form is on the decline, the overall consumption of tobacco in the country continues to rise, leading to the unintended outcome of sub-optimisation of economic value per unit of tobacco consumption.

Notwithstanding these challenges, the Company retained its leadership position and improved its market standing during the year through the delivery of superior consumer value, based on a combination of deep consumer insights, contemporary product development and cutting edge technology. The stability in cigarette excise duties in 2009 resulted in the Company recovering some of the consumer franchise lost earlier. Market interventions during the year included the launch of new variants of ‘Gold Flake’ and ‘Navy Cut Filter Kings’ with innovative product features, limited edition packs of ‘Classic’ and launch of new brands like ‘Flake Excel Filter’ and ‘Duke Filter’. The business also launched its premium line of hand-rolled cigars in select markets under the brand name ‘Armenteros’. Manufactured exclusively for ITC by expert cigar rollers in the Dominican Republic, with the finest quality Cuban, Nicaraguan, and Brazilian seed tobacco, the ‘Armenteros’ range is truly world class and has been well received by the most discerning cigar aficionados in the country.

The Company believes that the economic potential of tobacco can be maximised through moderation of taxes on tobacco, minimisation of discriminatory taxes between different classes of tobacco products and a regulatory framework that addresses the genuine concerns of all the stakeholders of the tobacco industry. The need is for a balanced agenda on tobacco, both fiscal and regulatory.

Branded Packaged Foods

The Branded Packaged Foods business recorded impressive growth during the year. The business focused on enhancing consumer franchise through new product launches, heightened communication and increased levels of promotions. A wide range of well-differentiated products, supported by significant investments in product development, innovation, manufacturing technology and unmatched distribution infrastructure have substantially enhanced the market standing and consumer franchise of the Company’s branded packaged food products.

During the year, the business was adversely impacted by historically high prices of input commodities such as wheat, flour, dairy inputs and sugar. The impact of input cost increases was largely contained through a combination of smart sourcing and increased internal efficiencies, minimizing the ‘cost-push’ impact for consumers.

In the Staples category, sales of ‘Aashirvaad’ atta grew 21% and the brand sustained its leadership position with a market share of 56% among national branded players. The brand was further fortified during the year with the launch of ‘Aashirvaad’ multigrain atta for the health conscious consumer.

In the Biscuit category, the ‘Sunfeast’ brand consolidated its position with an All India-Urban market share of 11%. The ‘Sunfeast’ range witnessed enrichment of its product-mix with higher sales of value-added products such as Marie, Special Creams and Cookies.

In the Confectionery category, ‘Candyman’ is the clear market leader in the hard boiled segment. Mint-o ‘Gol’ was successfully launched during the year in the ‘chews’ category. The continued success of ‘Toffichoo’, ‘Lacto’ and ‘Choco-Double éclairs’, provided further impetus to the overall growth of the Confectionery business.

In the Salty Snacks category, Bingo! penetrated into new markets, gaining further consumer franchise. Product portfolio was further strengthened during the year with the launch of the ‘Tedhe Medhe’ and ‘International Cream & Onion’ variants.

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 Company’s Personal Care business made significant strides during the year in gaining consumer franchise. The business continued to roll out product offerings in the soaps and shampoos categories under the ‘Essenza Di Wills’, ‘Fiama Di Wills’, ‘Vivel Di Wills’, ‘Vivel’ and ‘Superia’ brands across new geographies focusing on enhancing consumer benefits. The launch of ‘Fiama Di Wills’ Gel Bathing Bar augmented the premium portfolio. Besides being extremely well received by consumers, it was voted ‘Product of the Year’ in the soaps category based on a survey of over 30,000 Indian consumers by AC Nielsen. The ‘Vivel’ brand was further strengthened with the launch of the ‘Milk Cream & Glycerine’ bathing bar in the winter care segment, and ‘Deo Spirit’ in the freshness segment. Similarly, the ‘Superia’ soap portfolio saw the addition of ‘Milky Glow’ and ‘Lemon Fresh’ variants.

The business continues to communicate with the consumer through multiple channels, including TV, digital social-networking, print/outdoor advertising, point of sale merchandising, trade schemes, one-on-one consumer interactions, etc.
Responding to the growing demand for its products, the business added capacity at its plant at Haridwar in Uttarakhand and commissioned a new plant at Manpura in Himachal Pradesh.

The business continues to invest in building a strong portfolio of brands and products through well-defined research and development strategies backed by the Company’s dedicated and state-of-the-art R&D Centre.

Lifestyle Retailing

During the year, the business consolidated and strengthened its position in the branded apparel market. ‘Wills Lifestyle’, now an established premium lifestyle brand, has a growing consumer preference driven by its vibrant range, high-fashion and rich product-mix. The brand’s premium imagery is further reinforced through its association with the ‘Wills Lifestyle India Fashion Week’, the country’s most prestigious lifestyle event. Under the ‘Ramp to Racks’ initiative, the brand has tied up with leading designers of the country such as Rohit Bal, Rohit Gandhi-Rahul Khanna, Rajesh Pratap Singh, JJ Valaya, Satya Paul and Ranna Gill to co-create the ‘Wills Signature’ range of designer-wear. This initiative has enhanced the brand’s exclusive aura, strengthened its premiumness and deepened its aspirational dimension. The brand is now available at 56 exclusive stores in 30 cities and in more than 150 ‘shop-in-shops’ in leading departmental stores.

‘John Players’ in the popular ‘Youth’ segment with its impactful imagery and vibrant product portfolio continued to enhance consumer franchise during the year. Its new association with the well known film star, Ranbir Kapoor, was well received by consumers further enhancing brand desirability. ‘John Players’ has a pan India presence in over 225 flagship stores and 1200 multi-brand outlets and departmental stores.

Education & Stationery Products

The Education & Stationery Products business registered an impressive growth of 40% during the year, powered by brand ‘Classmate’. The business is the largest player in the notebook segment with a market share of 12%. During the year, the business launched a slew of complementary stationery products under the ‘Classmate’ brand. These included gel & ball pens, mechanical & wood cased pencils and geometry boxes. The ‘Paperkraft’ range was also enlarged during the year to include markers and highlighters in addition to expanding the range of executive notebooks.

The business leveraged the Company’s environment friendly paper, high quality product range and excellent distribution infrastructure coupled with best-in-class printing and trade marketing practices to fortify its leadership in the Education and Stationery products market. During the year, youth icons Yuvraj Singh and Soha Ali Khan were signed on as brand ambassadors to endorse ‘Classmate’. Several interventions, leveraging such celebrity association, were launched during the year resulting in an enhanced level of consumer connect for the brand.

Safety Matches

The Company’s Safety Matches business along with that of Wimco Ltd., registered a topline growth of 10.8% during the year driven by continued consumer preference for its strong brand portfolio across all market segments. The business also increased its presence in international markets by growing its exports of value added products, particularly to Africa and the Middle East.

Domestic volumes continued to witness a decline during the year consequent to price increases effected in the previous year. Several strategic cost initiatives were undertaken by the business to partially mitigate the impact of the continued escalations in input costs. The business continues to partner the small scale sector by sourcing a significant portion of its requirement from multiple units in this sector. The Company is helping these units improve their competitive ability and by providing technical inputs to strengthen their process capabilities.

Incense sticks (Agarbatti)

The Agarbatti business recorded an impressive 55% growth during the year, driven by increasing consumer franchise for the ‘Mangaldeep’ brand combined with enhanced distribution reach and innovative consumer offerings. Mangaldeep is currently the second largest national brand. During the year the business launched a new variant, “Fragrance of Temple”, in Tamil Nadu, under the ’Mangaldeep’ brand. This product, which delivers temple aroma, has received wide consumer acceptance and will be progressively rolled out across India.

In line with the Company’s commitment to the ‘Triple Bottom Line’, the Agarbatti business provides livelihood opportunities to more than 8000 under-privileged women through Self Help Groups, small scale entrepreneurs and NGOs across India. During the year, the business entered into partnerships with the Governments of Orissa, Assam and Tripura to set up sourcing centres which would create livelihood opportunities for rural women through agarbatti rolling.

Hotels

The aftermath of the terrorist attack in Mumbai in November 2008, the swine-flu pandemic and the general squeeze on corporate travel combined to adversely affect the performance of the Indian hotel industry during the year. The impact was particularly severe during the first half with occupancies and average room rates witnessing steep declines. Given the adverse business environment, the Company’s hotels business posted a 9% decline in Net Revenues during the year. The situation, however, improved during the second half aided by a strong showing by the Indian economy, with Net Revenues and PBDIT growing by 16% and 13% respectively during the last quarter of the fiscal year, reversing the declining trend witnessed in the first three quarters of the year.

The Company launched the ‘ITC Royal Gardenia’, in October 2009 at Bengaluru. This 292 room hotel 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. It was recognized as the ‘Best New Launch in the Luxury Upscale Category’ by the Hotel Investment Conference, South Asia and has successfully positioned itself in the niche segment of ‘Responsible Luxury’ within a short span of time.

The Company has a positive long term outlook for the Indian hotel industry and as such, continues to sustain its aggressive investment-led growth strategy. Construction activity of the new super luxury properties at Chennai and Kolkata are progressing satisfactorily. In addition, several new projects including joint ventures and management contracts are on the anvil to rapidly scale up the business across all the four market segments.

Paperboards, Specialty Papers & Packaging

The Paperboards, Specialty Paper and Packaging segment recorded robust growth in revenues and profits. Segment Revenues grew by 14.6% over the previous year to touch Rs.3234 crores. Segment Results at Rs. 684 crores reflect a growth of 34.5%.

Total production of Paper and Paperboards during the year stood at 547,931 tons compared to 469,335 tons during the previous year. Overall sales, including internal transfers, grew by 19% to 549,181 tons, with the value added paperboards growing at a faster pace of 29%. Export turnover for the year grew by 38%. The state-of-the-art new paper machine commissioned in 2008 operated to full capacity during the year, enabling the business to make a significant entry into the Paper segment of the industry. The copier and writing paper produced by this machine has enabled higher order value capture on the back of the strong forward linkages with your Company’s Education and Stationery Products business. Despite inflation in input costs and pricing pressures in the ‘Writing and Printing’ paper segment, the business posted a sterling performance driven by higher overall productivity, higher value capture through increased usage of in-house pulp, superior product mix and several cost management initiatives.

The integrated nature of the 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 – strategically positions the Company to further consolidate and enhance its leadership status in the Indian Paper and Paperboards industry.

The Packaging and Printing business continued to make investments in world class technology and skills to consolidate its position as the leading provider of high quality paperboard and flexibles packaging in the country. During the year, the business achieved substantial growth in its external trade and emerged as a leading supplier of value added packaging to the Consumer Electronics and FMCG segments. The business continued to leverage the state-of-the-art flexible manufacturing facilities at Chennai and Haridwar to provide innovative packaging solutions to the Company’s Branded Packaged Foods and Personal Care businesses. The in-house capability to deliver best-in-class packaging solutions is reducing time-to-market for new launches and is a source of competitive advantage for these businesses.

Agri Business

Agri business revenues remained flat during the year due to rationalization of the agri-commodity portfolio necessitated by the increasing policy interventions and volatility in the commodity markets. Whilst these challenging circumstances impacted volume throughput, the business posted impressive growth in margins with profits growing by 70% over the previous year. This robust performance was achieved due to the stellar performance of the leaf tobacco portfolio. Leveraging the growing demand for the Indian crop, the Company further cemented its position as the foremost supplier of quality Indian tobaccos in the global market.

In addition to the development of the first series of Flue Cured Hybrids, concerted efforts by the business during the year on varietal improvement resulted in the identification of two Advanced Breeding Lines for specific regions in Andhra Pradesh and Mysore. Appropriate agronomical practices were formulated to harness the potential of the newly developed varieties. Farmers benefited through significantly higher productivity coupled with desirable quality traits. Further, technical collaboration with international agencies in burley and oriental tobaccos helped in devising crop specific package of practices for the production of preferred styles. These pioneering R&D interventions augmented with dedicated crop development initiatives in different growth regions have ensured desirable levels of production, enabling the Indian farmer to move towards global standards in crop cultivation.

The business continued to source identity preserved specific grades of high quality wheat through the e-Choupal network for the Branded Packaged Foods business. Significant cost and quality advantages were achieved through sourcing across geographies based on price optimisation and by just-in-time direct procurement at the processing units with over 50% of the potato requirements for the Haridwar plant being sourced locally. In sourcing chip stock potato for the Company’s ‘Bingo!’ brand of potato chips, the business scaled up sourcing of locally grown potatoes (closer to the manufacturing units) in order to support local farmers and minimise logistics costs.

Contribution to Sustainable Development

There is an increasing realisation worldwide that societal challenges arising out of poverty, environmental degradation and climate change pose an unprecedented threat to the sustainability of businesses across the globe. The Company draws satisfaction from the fact that, foreseeing these challenges, it has vigorously pursued, for more than a decade now, 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 of its size to be ‘carbon positive’, ‘water positive’ and ‘solid waste recycling positive’.

The Company continued to enlarge its footprint during the year in the social sector by expanding and deepening its coverage in the project areas. It stayed with its proven strategy of concentrating on 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. The Company 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 Company’s pioneering initiative of wasteland development through the Social Forestry Programme has so far promoted plantations over 16,442 hectares in 480 villages, covering 19,376 poor households. The households covered under the Social Forestry Programme continue to reap the benefits derived from cut plantations. The Soil and Moisture conservation programme, designed to assist farmers in identified moisture-stressed districts, witnessed a further increase in its coverage during the year. Land has also been treated for erosion resulting in preservation of precious topsoil for agriculture. In total, the watershed development programme today covers 51,294 hectares. The pioneering social development projects include initiatives in watershed development, social farm and forestry programmes, soil & moisture conservation programmes designed to assist farmers in identified moisture-stressed districts, preservation of precious topsoil for agriculture and group irrigation projects. In continuation of its policy to provide an integrated solution for promoting sustainable water management, the Company has focused on interventions that ensure efficient usage of water aimed at improving farm productivity, promoting group irrigation projects and demonstrating the use of agricultural implements including sprinkler sets.

Towards improving the income earning capability of the farming community, Sustainable Agricultural Practices were provided to promote organic fertiliser units through vermi-composting and NADEP technologies during the year. 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 improvements of cattle through artificial insemination to produce high-yielding crossbred progenies has been given special emphasis because it reaches out to the most impoverished and has the potential to pull them out of poverty. The initiative towards Economic Empowerment of Women continued with self-help groups (SHG) organised thereby providing gainfully employment either through micro-enterprises or self-employment though income generation loans.

The Company’s initiative in the recycling programme is creating considerable awareness among the public on the benefits of the ‘Reduce-Reuse-Recycle’ process. It has received rich accolades from the Government, NGOs, commercial institutions and the public at large. Winning international appreciation, this initiative was conferred the ‘Papyrus Award’ by the Bureau of International Recycling (BIR), in recognition of its services and contribution to the recycling industry.

Flowing from its commitment to the ‘triple bottom line’ philosophy and recognising the carbon intensity of fossil fuel based energy, the Company has progressively made investments in renewable energy. During the year, a 6MW wind power project was commissioned in Maharashtra. This adds to the renewable energy capacity of the Company augmented earlier with the commissioning of the 14.1MW wind power project in Tamil Nadu in September 2008. These investments and several other efforts initiated by the Paperboard, Paper and Packaging Business ensure that 31% of the Company’s total energy requirements are met from renewable sources, thereby drastically reducing the Company’s carbon footprint. The Company’s investments in Wind Energy are eligible for Carbon Credits under the Clean Development Mechanism of the Kyoto Protocol, resulting in substantial cost savings. The Company’s total investment in Wind Energy will soon touch around Rs.275 crores post commissioning of wind energy projects currently underway in Maharashtra and Karnataka.

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

 

Intervention Areas Unit of Measurement Q4 2009-10
(Cumulative Achievement)
Total Districts Covered Number 55
Social and Farm Forestry
         Area Planted
         Employment Generation
Hectare
Million Persondays
103,466
46.56
 
Soil Moisture Conservation Programme                         Area Covered Hectare 51,294
Sustainable Agricultural Practices
    Organic Fertiliser Units
Number 13,463
Sustainable Livelihoods Initiative
    Cattle Development Centres
    Animal Husbandry Services
Number
Milch Animals
161
407,609
Economic Employment of Women
    SHG Members
    Women Entrepreneurs
Persons
Persons
14,278
29,695
Primary Education
    Beneficiaries
Children 228,872
Health and Sanitation
    Low Cost Sanitary Units
Number 2,937

The Board of Directors, at its meeting in Kolkata on 21st May 2010, approved the financial results for the year ending 31st March 2010, which are enclosed.

Click here for the Financial Results