The global economy remained lacklustre in 2015 with growth slowing down to just 3.1% compared to 3.4% in 2014 (as per latest IMF estimates). This marks the slowest pace of expansion since the global financial crisis in 2009 and the fourth successive year that the global economy has grown at a rate lower than its long-term average of 3.6% p.a.
The Indian economy also witnessed another challenging year growing by 7.5% in real terms during the first nine months of 2015-16 representing a marginal improvement over 2014-15 (7.2%). However, there was a marked decline in Nominal GDP growth, which stood at 8.1% for the period April 2015 to December 2015 as compared to 11.4% for the corresponding period in the previous year. Other economic indicators also suggested tepid performance across consumption, private investments and exports which have contracted significantly against the backdrop of a soft global demand environment. The performance of the Industry sector also remained subdued as reflected by the Index of Industrial Production (IIP) which grew by just 2.6% during the period April 2015 to February 2016. This was also reflected in the performance of capital markets as well, with the Sensex declining by 9% during the year (after rising 25% in FY15), reflecting the sluggish business environment, slower than expected progress on the reforms agenda and muted growth in corporate earnings.
Given the macro - economic scenario, the business landscape in the Company's operating segments was rendered extremely challenging during the year in the wake of unprecedented pressure on the legal cigarette industry due to the cumulative impact of steep increase in taxation and regulatory pressures, sluggish demand and price deflationary conditions in the FMCG space, and start-up costs relating to new products/categories especially in the non-cigarette FMCG segment. The business environment in the Hotels industry also remained challenging with the overhang of excess room inventory exerting pressure on pricing apart from which the Business had to absorb the gestation costs of new properties. Agri exports from India were impacted during the year due to higher crop output and steeper currency depreciation in competing origins. The Paperboards, Paper and Packaging segment also had to contend with a weak demand and pricing environment.
Despite the challenging business environment as aforestated, Gross Revenue for the year grew by 3.2% to 51,582.45 crores. Net Revenue at 36,475.27 crores grew by 1.1% primarily driven by a 7.7% growth in the non-cigarette FMCG segment and 6.2% growth in the Cigarettes segment. Excluding exports of agri-commodities, Gross Revenue and Net Revenue for the year grew by 6.4% and 5.5% respectively. Profit Before Tax registered a growth of 6.9% to 14,958.39 crores while Net Profit at 9,844.71 crores increased by 2.5%. Earnings Per Share for the year stood at 12.26 (previous year 12.05). Cash flows from Operations aggregated 14,079.07 crores compared to 13,534.65 crores in the previous year.
For the year ended 31st March, 2016, the Company has declared a Dividend of 8.50 per share (including a special dividend of 2.00) per ordinary share of 1/- each (previous year 6.25 per share) and has also recommended issuance of 1 bonus share for every 2 existing ordinary shares held by Members on record date.
ITC's diversified portfolio of businesses, spanning FMCG, Paperboards & Packaging, Agri Business and Hotels enables it to have significant presence in all the three sectors of the economy, namely, agriculture, manufacturing and services, providing the Company the unique opportunity to contribute meaningfully to the growth and development of the country. Despite the extremely challenging business environment during the year under review, ITC continued to make significant investments in the Indian economy across its business domains.
Hence, while the net capital employed has expanded at a compound rate of 15% over the previous five years to reach 34,807 Crores as at 31st March, 2016, returns on net capital employed (Profit before interest and taxes) have increased during this period from 8,975 Crores to 15,008 Crores, a compound rate of 14%.
ITC is one of India's most admired and valuable corporations and has consistently featured over the last twenty years, amongst the top 10 private sector companies in terms of market capitalisation and profits. It is amongst the most influential stocks in the Indian equity market.
While profit growth moderated during the year especially in comparison with the Company's own track record, it is pertinent to note that Value-Added by the Company, i.e. the value created by the economic activities of the Company and its employees, grew by 8% over last year to 41,135 crores. The Company's Contribution to Exchequer during the year stood at 30,750 crores representing a growth of 12% over last year and stand at 75% of the total value addition made by the Company.
The Company remains amongst the Top 3 Indian corporates in the private sector in terms of Contribution to Exchequer.
For the year ended 31st March, 2016, the Company has declared a Dividend of 8.50 per share (including a special dividend of 2.00) per ordinary share of 1/- each (previous year 6.25 per share).
The Hon'able Prime Minister's vision to build a dynamic, progressive and self - reliant India through impactful programmes such as the Make in India, Skill India, Digital India and Swachh Bharat resonates deeply with the Company's efforts to create a national institution of pride. About 86% of raw materials and stores & spares have been locally procured during the year.
The Company's suppliers, both local and international, constitute one of its important stakeholder groups. Supplier engagements are founded on a positive procurement culture supported by policies, processes and best practices to ensure that procurement activity is conducted in an open, transparent and non-discriminatory manner. In order to strengthen sustainable procurement processes, Policies on 'Responsible Sourcing' and 'Human Rights Consideration of Stakeholders beyond the Workplace' have been adopted to address issues of labour practices, human rights, bribery, corruption, occupational health, safety and environment.
The Company actively encourages competency development among local vendors and its vendor base includes numerous medium and small scale enterprises that are proximate to its manufacturing locations. Wherever appropriate, vendors are provided technical support and managerial inputs to enable them to move in tandem with the Company's business plans. With a view to widespread the 'Triple Bottom Line' strategy of the Company, vendors/service providers and large outsourced manufacturing facilities are encouraged to adopt management practices detailed under the international standards such as ISO 9001, ISO 14001, OHSAS 18001 etc.
The Company had availed the incentives offered by the States of Andhra Pradesh and Tamil Nadu, by way of deferment of Sales Tax, which are repayable over a period ranging from 10 to 14 years. The outstanding amount of such assistance in the form of Deferred Sales Tax due to be repaid by the Paperboards and Specialty Papers Division (PSPD) is given below:
Human Resource Management systems and processes in the Company are aimed at creating a responsive, market-focused, customer-centric culture and enhancing organisational vitality, so that each business is internationally competitive and equipped to seize emerging market opportunities. The Company believes that the robustness and adaptability of its Human Resource systems and processes are critical for an organisation to remain relevant and competitive in today's highly dynamic and rapidly evolving business landscape.
Towards this end, five capability platforms relevant to making businesses future-ready have been identified - Strategic, Value Chain, Leadership, Innovation and Human Resources Development. These platforms are also designed to strengthen organisational systems to facilitate speedy and competitively superior responses to market opportunities.
The Company is dedicated to nurturing sustainable Employee Relations and continues to leverage the 'Good Employee Relations' approach in ensuring responsive manufacturing, flexible work systems and, at the same time, maintaining a cost and environment conscious ecosystem in all units. ITC believes that its competitive capability to build future-ready businesses and create enduring value for stakeholders is enriched by a dedicated and high-quality human resource pool. It has continuously invested in the human resource capital as seen below:
The Company has Policies on Human Rights applicable to its employees and its value chains. The Policies and their implementation are directed towards adherence to applicable laws and to uphold the spirit of human rights, as enshrined in existing international standards such as the Universal Declaration and the Fundamental Human Rights Conventions of the International Labour Organisation (ILO). The Company introduced systems to ensure sound implementation of ITC's Sustainability Policies specifically with respect to the Human Rights and decent work place. A system for employees to read and sign-off the Sustainability Policies including Policies on Human Rights and ITC's Code of Conduct was rolled out across Divisions. During the year, 8587 employees across the Company have been covered amounting to 94% of the managerial workforce.
The employees are also entitled to retirement benefit schemes which include employee pension, provident fund and gratuity. All statutory payments, as applicable, e.g., Provident Fund and Family Pension contributions, are deposited with the Government in a timely manner.
The pension plans and other applicable employee benefits obligations are determined and funded in accordance with independent actuarial valuation. The assets of these trust funds are managed in accordance with the prescribed statutory pattern. The assets of the trust funds are well diversified and investments are made with the objective of protecting capital and optimising returns within acceptable risk parameters. The funds are consistently sustained to meet requisite superannuation commitments.
ITC's overarching aspiration to create significant and sustainable societal value is manifest in its CSR initiatives that embrace the most disadvantaged sections of society, especially in rural India, through economic empowerment based on grassroots capacity building. Towards this end, the Company has adopted a comprehensive CSR policy outlining programmes, and plans to undertake projects and activities to create a significant positive impact on identified stakeholders. All these programmes fall within the purview of Schedule VII of the provisions of Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014. The footprint of the Company's Social Investments Programme (SIP) projects is spread over 26 states covering 166 districts.
The Company's stakeholders are confronted with multi-dimensional and inter-related issues, at the core of which is the challenge of securing sustainable livelihoods. Accordingly, interventions under the Company's SIP are appropriately designed to build their capacities and promote sustainable livelihoods. The key elements of the Company's CSR interventions are to:
Various CSR activities in which the Company has been engaged during the current year are listed below:
The expenditure incurred under Section 135 of the Companies Act, 2013 on CSR activities amounted to 247.50 Crores (2015 - 214.06 Crores).