ITC Limited :: Newsroom :: Media Releases

Net Turnover at Rs.3833 crores grew by 11%. Higher Paperboard & Packaging revenues, scale up of the Stationery and Personal Care businesses and superior product mix in cigarettes combined to more than offset the impact of a sharp slowdown in the hotels business.

The decline in hotel revenues consequent to the economic slowdown and the unfortunate terror strikes in Mumbai, the continuing impact of high commodity prices and store rentals, brand building costs of the new Personal Care portfolio and the significant investments in augmenting distribution infrastructure and systems combined to exert intense pressure on profitability during the quarter. Consequently, pre-tax profits at Rs.1331 crores registered a slower growth of 8.5% over the same period last year. Post tax profit, which was flat in H1, grew by 8.7% to Rs. 903 crores. Earnings Per Share stood at Rs 2.40 (SPLY Rs 2.21).

The extraordinary increase of 140% to 390% in the rates of excise duty on non-filter cigarettes in the 2008 Union budget, coming on the heels of a 30% increase in tax incidence in the previous year drove the organized cigarette industry to substantially vacate this category. This, in turn, has caused a section of consumers to move to revenue-inefficient tobacco products, including smuggled and tax-evaded cigarettes resulting in a sharp decline in volumes for the highly taxed legitimate cigarette sector.

Despite these testing circumstances, the Company's relentless efforts to create value through international quality products, significant investments in technology and product, strong portfolio of brands and focussed marketing and distribution have ensured a sizeable shift of consumers to the filter segments and enabled the Company to sustain its leadership position in the cigarette industry.

With organized industry substantially vacating the non-filter segment and the huge financial arbitrage resting in tax evasion, contraband and domestic illegitimate players have mushroomed leading to an estimated trebling of illegal cigarette volumes. These low priced tax-evaded illegal cigarettes are a growing threat to Government revenue, market stability and the social objective of regulating tobacco. It is imperative that enforcement authorities check this phenomenon to preserve revenues that rightfully belong to the Government.

The industry has been subjected to further stress with the recent implementation of smoking ban in public places. This is clearly discriminatory against the cigarette industry as it will propel consumers to cheaper forms of non-smoking tobacco consumption. It is apprehended that the twin impact of mushrooming illegal trade and switching to cheaper tobacco products will have a significant adverse impact on the earnings of thousands of small, marginal farmers, especially in rain-fed areas where several attempts to grow alternative crops have failed to yield results.

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.

Sales growth in the Branded Packaged Foods business was modest in the face of economic slowdown and its impact on urban demand in certain categories. The spill over inflationary impact of input commodities along with the high fuel prices significantly impacted margins during the quarter. In these circumstances and having acquired reasonable scale in a relatively short span of time, the business is progressively focusing on consolidating the portfolio in select high margin categories, improving market servicing and driving supply chain efficiencies.

The 'Bingo!' product range has further consolidated its position in the Finger Snack platform with the 'Hatke Jhatke' range going national. The wave shaped snack, with two exciting flavours - Funky Masala & Tomato Twist has been received positively in the market place. 'Bingo!'s' positioning as a youthful and innovative snack has got reinforced.

The 'Sunfeast' range of biscuits witnessed continued enrichment in product mix with higher sales of value added products like Creams, Cookies etc. The excise relief accorded to low and mid-priced biscuits, consistent with the Government's stated intention to promote the food processing industry, has given a fillip to the sector. It is hoped that the Government would respond to the industry's representation favourably and extend the relief to the entire category.

'Aashirvaad' further built on its leadership position in the Staples category. Confectionery sales grew significantly during the quarter, driven by 'Candyman Eclairs' and the extension of new segments like 'Candyman Lacto', which is now national. Similarly, the Ready-to-Eat (RTE) group continues to grow steadily, having made its first foray into the frozen foods segment in the US markets.

The Lifestyle retailing business continued to enhance consumer franchise with a retail footprint which now stands at 48 'Wills Lifestyle' stores, an extensive network of 'John Players' exclusive brand outlets and expanded visibility at reputed large format stores and multi brand outlets. However the economic slowdown and weak consumer sentiment has adversely affected growth.

Wills Lifestyle is being reinforced through new-look stores with world-class product presentation, tie-ups with a mix of renowned and budding designers and a range of international fabric makers for its premium product lines. The business is also focussing on women's wear, which is a large growth opportunity.

The business continued to register healthy growth and improved its footprint among the national branded players through its range of personal care products under the brands 'Fiama Di Wills', 'Vivel Di Wills', 'Vivel' and 'Superia'. These brands address identified segments of the market with differentiated value benefits.

The product portfolio was further enhanced with the launch of the 'Vivel' Ultrapro range of anti-dandruff shampoo, which has the ability to not only fight dandruff effectively but also nourish and moisturize hair to make it strong and soft. This range of anti-dandruff shampoos will be endorsed by a celebrity.

The stationery business witnessed strong growth of 78% during the quarter driven by robust sales of notebooks. The 'Classmate' range of notebooks, which is India's most widely distributed brand, is being marketed through school contact programmes, point of sale promotions and the Classmate Young Author Contest. The notebooks also communicate the Company's Triple Bottom Line message of being environment conscious. The recently launched 'Classmate Invento' geometry boxes for school students have been extended across select markets.

The business recently launched the 'Paperkraft Premium Business Paper', an environment friendly paper leveraging the "Ozone Treated Elemental Chlorine Free'' technology introduced in India for the first time by the Company's Paperboards, Specialty Papers & Packaging business. A proprietary chemical treatment renders it eco-friendly with a higher archival life.

'Paperkraft', the whitest and brightest 75 GSM business paper manufactured in India, offers an unmatched value proposition. As a superior, environment friendly and multipurpose paper for office and home use,''Paperkraft'' empowers consumers to "Go Green" and partner the Company's efforts to mitigate the adverse impact of climate change and create a positive environmental footprint.

The twin blows of economic slowdown and negative travel advisories arising from the horrific terror strikes at Mumbai have resulted in a sharp drop in traffic triggering a significant slide in occupancies and average room rates for the hotel sector in India. The situation was particularly adverse in December, traditionally amongst the strongest months in terms of business performance. Consequently, the revenues and profits of the Company's hotels business have declined by 14% and 34% respectively.

The business maintained its market leadership with segment revenues increasing by 14%. The quarter also witnessed the spillover effect of inflation in the cost of major raw materials procured during the first half of this year. Profitability was also affected due to the high depreciation impact of new investments in the pulp and paper machine facilities. The productivity of these machines is improving satisfactorily and is expected to reach optimum levels by the next quarter.

The new 'Ozone bleached' Pulp mill with an annual capacity of 1.22 lac tonnes is the first of its kind in the country to meet world-class environmental standards - a testimony to the Company's commitment to the 'triple bottom line'. This differentiated capability, apart from removing the dependency on imported hardwood pulp, will enable the business to expand the market for superior value added paper and paperboards on the strength of competitive cost and quality. The business has also quickly ramped up production of its newly commissioned 1 lac ton paper plant driving synergies and value capture based on strong forward linkages with the stationery business.

The Packaging and Printing business continued to provide strategic support to the Company's cigarette and other FMCG businesses by ensuring security of supplies and sustaining international quality. The flexibles and carton lines, commissioned recently, are being scaled up to cater to the distinctive and innovative packaging requirements of the Company's Branded Packaged Foods and Personal Care businesses. The business is driving substantial growth in external business, forging linkages with the consumer electronics industry and other FMCG customers. The recently commissioned 14 MW Windmill Project in the state of Tamil Nadu in pursuit of its commitment to progressively use renewable energy to further consolidate its carbon positive status, has started generating clean energy as planned. The project, in line with the Company's objective of investing in clean technologies, will result in cost savings and enhance ITC's positive environmental footprint.

The business revenues de-grew by 6% due to lower soya volumes and rationalisation of the agri-commodity portfolio, necessitated by the increasing policy interventions and volatility in the commodity markets since the previous year.

The Mysore season of leaf tobacco witnessed an unprecedented spurt in prices with rates increasing by more than 80% on the back of a demand supply mismatch. Despite this scenario, the business has maintained the export growth momentum and improved its margins. The business continued to provide strategic sourcing support to the Company's cigarette business by ensuring international quality supplies.

The Company deepened its imprint on the social sector by expanding to newer districts during the period. Social development projects are currently being progressed in 52 districts spread over the states of Andhra Pradesh, Bihar, Kerala, Karnataka, Maharashtra, Madhya Pradesh, Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal.

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. Towards improving the income earning capability of the farming community, sustainable agricultural practices were provided a major boost during the quarter with the promotion of organic fertiliser units through vermi-composting and NADEP technologies. Similarly, programme for genetic improvement of cattle was undertaken through artificial insemination to produce high-yielding crossbred progenies. Integrated animal husbandry services were provided during the quarter. These included addressing the needs of problem breeders, vaccines, feed additives and awareness drives. The initiative for the economic empowerment of women also continued apace with provision of gainful employment either in micro-enterprises or through self-employment with the support of income generation loans.

Intervention Areas	Dec 2008 (Cumulative Achievement)
Total Districts Covered	52 No.
Social and Farm Forestry	88409 Hectare
Soil and Moisture Conservation Programme	39861 Hectare
Sustainable Agricultural Practices Organic Fertiliser Units	13203 No.
Sustainable Livelihoods Initiative Cattle Development Centres Animal Husbandry Services	116 No. 245043 Milch Animals
Economic Employment of Women SHG Members Women Entrepreneurs	6649 Persons 16577 Persons
Primary Education Beneficiaries	152730 Children
Health and Sanitation Low Cost Sanitary Units	2692 No.

The Company was conferred the ICAI Award for Excellence in Financial Reporting with its Annual Report and Accounts adjudged as a commendable entry under the Category 'Manufacturing and Trading Enterprises'. This recognition also exemplifies the strong foundations of ITC's corporate governance philosophy and its emphasis on the principles of trusteeship and ethical corporate citizenship. It also received the prestigious Public Relations Society of India award for its Annual Report in recognition of its rich content and presentation.