Post Tax Profits up 21.4%
January 21, 2011
Financial Results for the quarter ended 31st December, 2010
ITC delivered an impressive performance for the quarter ended December 2010 with Net Turnover growing by 19% to touch Rs.5453 crores driven by Foods, Agri and Paperboards.
The Company's Pre-tax profits for the quarter ended 31st December 2010 recorded a growth of 19.4% over last year and crossed the Rs.2000 crores mark driven primarily by the Branded Packaged Foods, Agri and Cigarette businesses. Post-tax profits at Rs.1389 crores grew by 21.4%. Earnings Per Share for the quarter stood at Rs.1.81.
FMCG - Branded Packaged Foods
The Branded Packaged Foods business clocked an impressive performance with sales growing by 24% during the quarter. The business continued to drive improvement in profitability through a combination of product mix enrichment, higher net realisation, smart commodity sourcing and active cost management across the supply chain.
'Sunfeast Yippee!' Noodles launched in Sept '10 continued to gain consumer franchise during the quarter. The product is being rolled out to target markets.
The 'Bingo!' range of potato chips and finger snacks recorded impressive performance with sales growing by 48% during the quarter. The exciting range of variants along with clutter-breaking advertising and brand promotions continue to maintain the buzz around the brand.
In the Biscuits category, sales of 'Sunfeast' grew by 28% during the quarter driven by product mix improvement led by significant growth in the sales of value-added variants of cookies and creams. During the quarter, the 'Sunfeast' range of biscuits was further enhanced with the launch of the 'Dark Fantasy Choco' and 'Dark Fantasy Choco Fills' variants.
In the Staples category, 'Aashirvaad' atta further fortified its leadership position with robust growth in sales during the quarter driven by improved realisation and higher volumes. 'Aashirvaad Multi-Grain Atta', ITC's premium atta offering, was extended to target markets during the quarter. The business also scaled up its presence in the branded Spices segment during the quarter with the launch of 'Aashirvaad' Rasam and Sambhar blended powders in target markets leveraging the brand's association with superior quality and consistency.
The business is continuing to invest in manufacturing and distribution infrastructure to support larger scale. Comprehensive interventions continue to be made in the area of supply chain management to enhance product freshness, market servicing and margins while focusing on specific actions to minimize the impact of inflationary commodity prices.
Education & Stationery Products
The Stationery business continued on its impressive growth trajectory registering a 50% growth in sales during the quarter. The leadership position of the 'Classmate' brand of notebooks is being further leveraged with an enhanced portfolio of scholastic products comprising geometry boxes, pens, pencils, highlighters, wax crayons, colour pencils etc.
The business continues to actively promote 'Paperkraft', its executive and office supplies stationery brand. Working in tandem with the Paperboards & Specialty Papers Division (PSPD), the business has positioned 'Paperkraft' as the finest 'green' paper for business applications viz. copy-scan-print-fax. Paperkraft's 'green' credentials include the Company's membership of the prestigious Global Forest & Trade Network, an international initiative of the WWF (World Wide Fund for Nature). The Company's social forestry programme continued to enhance Paperkraft's 'green' profile.
Personal Care Products
The Personal Care business continued to gain consumer franchise leveraging investments in R&D, product development and brand building. 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. The product has been well received in the launch markets and is being progressively rolled out to target markets.
The business expanded its product portfolio in the Soaps category with the launch of 'Vivel Glycerine Milk Cream' - a new offering in the winter segment. 'Vivel Deo Spirit', the business' offering in the freshness segment, was extended to Andhra Pradesh, Kerala and Karnataka during the quarter.
The Anti-Hair fall shampoo variant under the 'Fiama Di Wills' brand launched in Sept '10, has received encouraging consumer response and is being extended to target markets.
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 manufacturing facilities at Haridwar (Uttarakhand) and Manpura (Himachal Pradesh). Apart from the fiscal benefits that accrue on such investments, these facilities also provide a higher degree of flexibility in manufacturing.
Cigarettes
Against the backdrop of a challenging business environment, the Company's unwavering focus on delivering superior consumer value through world-class products enabled it to sustain its leadership position in the industry. Consumer centricity and product innovation have enabled the business to deliver superior value through its brand portfolio of well crafted blends, contemporary packaging styles and state-of-the-art manufacturing technology and processes. Several initiatives launched during the year 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 Kings Arctic Menthol', 'Gold Flake SLK' and 'Player's Gold Leaf" have further enhanced market standing. The business continues to make investments towards enhancement of quality, productivity and variety.
The Ministry of Health and Family Welfare, Government of India recently released the report of the first Global Adult Tobacco Survey (GATS) - India 2010. The GATS report highlights that out of the 34.6% of adults in India who consume tobacco in any form, only 5.7% of adults smoke cigarettes. The remaining consume chewing tobaccos and/or smoke bidis. Despite such a low share of tobacco consumption, cigarettes contribute the bulk of the tax revenues from the tobacco sector. Taxes realized from every kilogram of tobacco consumed in the cigarette format are 20 times higher than those from other forms of tobacco products. Such a deeply discriminating taxation regime is encouraging consumers to shift from cigarettes to cheaper and lightly taxed forms of tobacco consumption. Consequently, whilst consumption of tobacco in the cigarette form is on the decline, the overall consumption of tobacco in the country continues to rise. Paradoxically, the social objective of control of tobacco consumption in the country gets defeated even as the revenue potential of the tobacco sector as a whole is sub-optimised.
In contrast, a country like China, given its equitable tax regime and a practical regulatory framework, is able to collect tax revenues from cigarettes that are 13 times higher than that in India despite the rate of tax being half that of India. Clearly, there is a need to pursue a balanced taxation agenda which is equitable to all stakeholders, even as it progressively achieves the social objective of controlling tobacco consumption.
The organised industry continued to be impacted by 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). This 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. 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. Such domestic tax-evaded cigarettes, which along with smuggled cigarettes are estimated to constitute more than 12% 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.
Despite the 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 consolidate its leadership position in the industry.
Hotels
The Hotels industry continues to make gradual recovery from the lows witnessed in 2008/09 and 2009/10. ITC's Hotel business leveraged the relatively improved business environment to record a robust performance during the quarter with Segment Revenues and Segment Profits growing by 15% & 16% respectively.
During the quarter, ITC Maurya achieved the coveted LEED (Leadership in Energy and Environmental Design) Platinum Rating - the highest rating awarded by the US Green Building Council. This recognition makes it the world's first and largest LEED Platinum rated hotel in the "existing building" category and is yet another manifestation of ITC's commitment to sustainable business practices.
Construction activities of the new super luxury properties at Chennai and Kolkata are progressing satisfactorily. In addition, several renovation programmes are nearing completion including room renovations at the ITC Maratha in Mumbai. The business continues to pursue an aggressive investment led growth strategy recognising the long-term potential of this sector. Several new projects including joint ventures and management contracts are on the anvil to rapidly scale up the business across target market segments.
Paperboards, Paper & Packaging
While sales of paperboards and packaging to external customers grew strongly during the quarter, overall segment performance was impacted due to packaging inventory depletion caused by the uncertainty around the change in graphic statutory warnings on cigarette packaging. For the nine months period ended December 2010, Segment Revenue has grown by 12% while Segment PBIT has recorded an impressive growth of 21%. An enriched mix of value added products, higher capacity utilisation and significant value capture through in-house pulp production aided margin expansion.
The business continued to leverage its integrated 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 on the anvil.
The Packaging and Printing business continues to provide strategic sourcing support to the Cigarette, Foods and Personal Care businesses. The business is in the process of enhancing its capacity while leveraging its existing 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 a robust growth.
Agri Business
The Agribusiness posted a strong performance during the quarter with Segment Revenues and Profits growing by 18% and 36% respectively. This impressive performance was driven by higher Soya and Coffee trading volumes and improved performance in Leaf Tobacco exports.
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 today is the only corporation of its size to be 'carbon positive', 'water positive' and 'waste recycling positive' even as it has created sustainable livelihood opportunities for over 5 million people.
ITC's recycling initiative '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 currently 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 56 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 under Sustainable Livelihoods initiative to provide the potential to alleviate people from poverty, the programme for genetic improvement of cattle through artificial insemination to produce high-yielding crossbred progenies has been given special emphasis. 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 loans from banks for various income generation activities.
The Company's social sector footprint can be viewed at a glance in the following chart:
| Intervention Areas |
Unit of Measurement |
Q3 2010-11
(Cumulative Achievement) |
| Total Districts Covered |
Number |
56 |
Social and Farm Forestry
Area Planted
Employment Generation |
Hectare
Million Persondays |
114,428
51 |
Soil Moisture Conservation Programme
Area Covered |
Hectare |
56,951 |
Sustainable Agricultural Practices
Organic Fertiliser units |
Number |
13,770 |
Sustainable Livelihoods Initiative
Cattle Development Centres
Animal Husbandry Services |
Number
No of AIs |
171
523,060 |
Economic Employment of Women
SHG Members
Women Entrepreneurs |
Persons
Persons |
15,378
35,433 |
Primary Education
Beneficiaries |
Children |
252,329 |
Health and Sanitation
Low Cost Sanitary Units |
Number |
3,036 |
Robust performance by Non-Cigarette FMCG businesses. Segment Revenues up 24% with improved profitability led by the Branded Packaged Foods business.