Hindustan Unilever Directors Report, HUL Reports by Directors

Directors Report	Year End : Mar '12 � Mar 11

To the Members, The Company''s Directors are pleased to present the 79th Annual Report of the Company, along with Audited Accounts for the financial year ended 31st March, 2012. 1. FINANCIAL PERFORMANCE (STANDALONE) 1.1 Results (see para 1.4) Rs. Crores for the year ended for the year ended 31st March, 2012 31st March, 2011 Revenue from operations, net of excise 22,116.37 19,735.51 Profit before exceptional items and tax 3,350.16 2,730.20 Profit for the year 2,691.40 2,305.99 Dividend (including tax on distributed profits) (1,883.90) (1,641.96) Transfer to General Reserve (269.14) (230.60) Profit & Loss Account balance carried forward 1,773.96 1,235.60 1.2 Category wise Turnover (see para 1.4) Rs. Crores for the year ended for the year ended 31st March, 2012 31st March, 2011 Sales Others* Sales Others* Soaps and Detergents 10,488.38 147.90 8,683.88 117.18 Personal Products 6,746.95 98.91 5,750.68 99.71 Beverages 2,577.02 40.41 2,309.23 37.27 Packaged Foods 1,341.93 17.53 1,162.28 16.15 Others (including Exports, Chemicals, Water etc.) 581.32 55.04 1,474.94 64.37 Total 21,735.60 359.79 19,381.01 334.68 * Others represent service income from operations, relevant to the respective businesses. 1.3 Summarised Profit and Loss Account (see para 1.4) Rs. Crores For the year ended For the year ended 31st March, 2012 31st March, 2011 Sale of products less excise duty 21,735.60 19,381.01 Other operational income 380.77 354.50 Total Revenue 22,116.37 19,735.51 Operating Costs (18,825.03) (17,057.12) PBDIT 3,291.34 2,678.39 Depreciation (218.25) (220.83) PBIT 3,073.09 2,457.56 Other Income (net) 277.07 272.64 Profit before exceptional item 3,350.16 2,730.20 Exceptional Item 118.87 206.83 PBT 3,469.03 2,937.03 Taxation (777.63) (631.04) Profit for the year 2,691.40 2,305.99 Basic EPS (Rs.) 12.46 10.58 1.4 Demerger of FMCG Exports Business In order to fully exploit the opportunity in exports market and to provide necessary focus, flexibility and speed to the business, the Board of Directors had approved in-principle a Scheme of Arrangement for transfer of the FMCG Exports Business Division (demerged business undertaking) of the Company into its wholly owned subsidiary, Unilever India Exports Limited (UIEL''), on 9th May, 2011 which subsequently was approved by the shareholders on 28th July, 2011. The Hon''ble High Court of Bombay sanctioned the said Scheme with the appointed date of 1st April, 2011. Accordingly, the financial results of the demerged business undertaking do not form part of the audited results of the Company for the year ended 31st March, 2012. However, the audited results of the Company for the year ended 31st March, 2011 included the results of the said demerged business undertaking and hence, to that extent, previous year figures are not comparable with the current year figures. The results of the Company excluding the results of the demerged business undertaking for both the years are given below: Rs. Crores for the for the year ended year ended 31st March, 31st March, 2012 2011 Revenue from operations, net of excise 22,116.37 18,796.24 Profit before exceptional items and tax 3,350.16 2,654.48 Profit for the year 2,691.40 2,246.19 2. DIVIDEND Your Directors are pleased to recommend final dividend of Rs. 4.00 per equity share of face value of Re.1/- each for the year ended 31st March, 2012. The interim dividend of Rs. 3.50 per equity share was paid on 22nd November, 2011. The final dividend, subject to approval of shareholders at the Annual General Meeting on 23rd July, 2012, will be paid to the shareholders whose names appear in the Register of Members as on the date of book closure i.e. from Friday, 6th July, 2012 to Friday, 20th July, 2012 (inclusive of both dates). The total dividend for the financial year including the proposed final dividend amounts to Rs. 7.50 per equity share and will absorb Rs. 1,883.90 Crores including Dividend Distribution Tax of Rs. 262.96 Crores. 3. CHANGE Of THE REGISTERED Office In January 2010, your Company inaugurated the new Corporate Office named ''Campus'' at Andheri, Mumbai. The Board of Directors at their meeting held on 31st October, 2011, approved the change of Registered Office of the Company to Unilever House, B. D. Sawant Marg, Chakala, Andheri East, Mumbai 400 099 from the earlier office at 165/166 Backbay Reclamation, with effect from 1st January, 2012. 4. RESPONSIBILITY STATEMENT The Directors confirm that: - in the preparation of the annual accounts, the applicable accounting standards have been followed and that no material departures have been made from the same; - they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits of the Company for that period; - they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and - they have prepared the annual accounts on a going concern basis. 5. CUSTOMER MANAGEMENT In 2011-12, your Company has built on the initiatives of the previous years and has further strengthened its reputation as an execution and distribution powerhouse. One of the key thrusts during the year was coverage expansion in the rural markets. The Shakti network has been leveraged to enroll 30,000 Shaktimaan who distribute in 100,000 new villages. The Company has added a million stores over the last two years to its coverage, thus doubling its direct coverage and tripling its rural coverage. Your Company has now built a clear distribution advantage with a direct reach of more than 2 million outlets. The Perfect Store programme aimed at improving availability and visibility of Company''s products at the point of purchase continued making good progress with over a million retail outlets being enrolled under this programme across urban and rural India. With a single minded focus on the Perfect Store programme, your Company converted 500,000 enrolled outlets into Perfect Stores during the year. It is now established that stores which are consistently Perfect grew sales well ahead of average retail growth and had higher market share growth for your Company''s overall portfolio compared to overall share growth. Your Company believes that the end consumer can be better served if the capabilities of the front-end resources on the ground get enhanced. With this objective in mind, work on a project to build a Human Resource Information System (HRIS) for 20,000 plus third party associates, who work in the market, was completed. This project is in the direction of improving the systems and processes and the capabilities of our associates and reaffirms your Company''s commitment towards its customers and consumers. The year also saw greater focus on customers to drive growth and ensure seamless working relationship with the partners. cross functional ''Customer Care'' teams were deployed for the Modern Trade customers to drive higher levels of customer service and engagement, which resulted in overall customer delight. This initiative has given very good results and your Company was awarded the best supplier by almost all leading Modern Trade customers in this year. Your Company also developed Best-in-Class'' sustainability initiatives with Wal-Mart and Metro that helped bring alive the Unilever Sustainable Living Plan (USLP). The learning''s of Modern Trade were extended to General Trade and a Joint Business Planning process with top customer was institutionalized under the umbrella of Unistar'', a comprehensive customer reward and recognition program. Your Company launched Customer Credo'' across 2300 plus distributors to further improve customer connect and faster resolution of issues. Under this initiative, the Company proactively engaged with distributors and trade to get into the shoes of the customer and experience issues from their lens. This was supported with a resolution mechanism using Levercare'', the customer helpline, taking customer centricity to the next level. The programme was christened Happy 2 Help'' and is planned to be repeated once every quarter. During the year, your Company piloted an alliance with Tata Teleservices Limited (TTSL) for the distribution of telecom products, leveraging its rural distribution footprint. The Company has scaled the distribution alliance with TTSL to four states covering over 150 channel partners. This distribution arrangement is aimed at accelerating rural growth by enabling the Company to go deeper into rural India due to improved viability for channel partners. This initiative not only helps the Company build more stable Shakti entrepreneurs but also enables it to increase rural investments thereby unlocking growth in this channel. 6.1 Project Shakti During the year, your Company further strengthened the Shakti initiative by extending the relationship with Shakti Amma to her family, through project Shaktimaan. Project Shaktimaan enrols the unemployed / under employed male members of the family to sell your Company''s products into the satellite villages of Shakti. The initiative serves two convergent purposes - enhances the livelihood opportunity of the Shakti family and improves the quality and depth of your Company''s distribution network. This initiative strengthens the philosophy behind Shakti, which comprises of: - Leading market development - Establish a suitable livelihood for the underprivileged - Creating a self-sustaining business model - Accessing markets beyond the reach of traditional distribution models By the end of this year, the Shakti network has been leveraged to enroll 30,000 Shaktimaan who distribute in 100,000 new villages and the Shakti programme had spread to 500,000 outlets, adding another dimension to your Company''s distribution and contributing to tripling the rural footprint. 7. SUPPLY CHAIN During the year, your Company has made significant progress towards its vision of delivering outstanding customer service and enabling sustainable growth. The service delivery standards showed steady improvement with CCFOT (Customer Case Fill on Time) maintained at 90% and loss reduction by 20% in comparison to last year. The Customer Satisfaction (eQ) survey scores have been encouraging and suggest that the actions taken by the Company are in the right direction. With the help of a sustained improvement program, the Modern Trade OSA (On-Shelf Availability) has seen further improvement with a loss reduction of 25% in comparison to last year. Your Company has embedded Sales and Operation Planning Process (S&OP) ways of working as part of the organization culture and this is adding value to the business. The Quality performance measured as CCPMU (Consumer Complaints Per Million Units) has shown 12% reduction over last year. Quality continues to be a focus area with thrust on design quality improvement and new quality standard implementation for warehousing and transportation. Your Company has a robust Supply Chain savings programme with continuous focus on end-to-end Supply Chain cost reduction with new technologies, processes and methods. During the year, your Company has delivered 6% saving in Supply Chain cost with factories delivering more than 8% saving with quantum improvement in technical efficiencies, wastage reduction and yield improvement. The renewed focus on TPM (Total Productivity Management) and visible leadership commitment toward turbo charging TPM, through strong focus on autonomous maintenance, strong circle engagement, loss analysis and reduced losses to improve PQCDSM (Productivity, Quality, Cost, Delivery, Safety and Morale), have helped the Company to improve employee engagement, efficiency and derive competitive advantage. In order to support the volume growth, your Company has progressed on the long-term plan to create capacities in line with demand so as to enable growth while managing costs. Your Company has successfully executed all capacity creation projects on time to ensure smooth delivery during the year. A number of projects on sustainable energy (bio-mass boilers), rain water harvesting and waste reduction projects like sludge digesters and vermi-composting have been initiated and commissioned across manufacturing sites. There has been significant improvement in Innovation OTIF (On Time in Full) with more than 100 innovation networks being executed during the year. This ability of execution powerhouse is supporting business to delight consumers and customers and catering to growth. The Procurement function of the Company has focused on Partner to Win'' programme with supplier and business partners to reduce lead time, procurement cost, improving reliability and working on new innovation. Your Company also leverages benefits of scale and synergy through Unilever''s global buying network. 8. RESEARCH, DEVELOPMENT AND INNOVATION Your Company continues to benefit from the strong foundation and long tradition of Research & Development (R&D) which differentiates us from many others. These benefits flow not only from work done in Research Centres in India, but also from the centres of Unilever''s global research work. With the world class facilities and a superior science and technology culture, we are able to attract the best of talent to provide significant technology differentiation to our products and processes. The R&D labs in Mumbai and Bangalore are aligned significantly to Unilever''s global R&D. Many of the projects which are run out of these centers are of global relevance and with a strong focus on needs of this region and the overall Developing & Emerging (D&E) world. The R&D programmes of your Company are focused on development of breakthrough and proprietary technologies with innovative consumer propositions. The R&D team of over 750 people comprises highly qualified scientists and technologists working in the areas of Health and Hygiene, Laundry, Household Care, Skin Care, Water Purification, Beverages, Frozen Dessert and Naturals. The R&D group also comprises critical functional capability teams in the areas of Regulatory, Clinical, Patents, Information Technology, Safety and Open Innovation functions. On the back of strong R&D inventions, close to hundred new products were launched successfully in the market in 2011-12. In Skin Care, Vaseline Men range products with improved moisturizing and skin lightening benefits were re-launched with distinctive packaging and formats. Fair & Lovely Spot Corrector Pen, Ponds White Beauty daily spot-less lightening cream with proprietary photo protection technology delivering SPF 20 PA and Fair & Lovely Anti-Marks were also introduced during the year. In Skin Cleansing, improved Lux and Hamam soaps, including a new variant on Lux (Lux Fresh) were launched with improved consumer benefits. Luxliquid hand wash and body wash were also introduced in the market along with a range of facial cleansing products of Pond''s, Fair & Lovely, Vaseline and Dove. New variants of Dove hair care range, including shampoo, conditioner and other post wash formats, were launched to meet the needs of different segments of the hair care market. Clear shampoo was re-launched with a superior formula and a separate range for men and women. Pepsodent Germicheck was re-launched with improved formulation during the year. Peps dent Gumcare strengthened its position by highlighting the mechanism of action in communication. Fire-Freeze, the new dual-sensation extra-freshness variant of Closeup was introduced during the year. During the year, Surf and Wheel range of detergents were re-launched with improved product propositions. New designs of Pureit, developed by R&D to the cater to needs of the mass market and premium consumers, were also launched during the year. Foods R&D made significant contribution in 2011-12 to the Company''s Foods & Beverages portfolio by delivering several innovations in the market. Among them were an exciting range of instant soups under Knorrwith the great taste of soups and crunch of croutons. In the Instant Coffee segment, R&D delivered two major product and packaging innovations - Bru Gold, a premium agglomerated 100% instant coffee and Bru Exotica, a range of single origin freeze dried coffee, both packed in an innovative triangular glass bottle design. R&D contributed towards the re-launched formulation and packaging of Kssan tomato ketchups and Jams. In the Frozen Dessert segment, Unilever''s flagship brand Fruttare made with real fruits was launched. A premium range of Selection Tubs was launched with a global packaging design and 3 new flavors''. R&D made a significant contribution in developing a premium range of flavored tea bags under the Taj Mahal brand and a range of ready to drink and ready to prepare ice tea under the Lipton brand. R&D has further contributed to the sustainability agenda of the Company by enabling significant reduction in packaging material consumption through several material efficiency initiatives. The continuous stream of innovative and technically advanced products launched in the market was a result of significant R&D investments and the scientific talent that the Company can attract and retain. With its strong scientific expertise and potential to deliver high value technologies, India continues to occupy a premier position in Unilever R&D. With the strong support from R&D as well as the brand development capabilities, your Company is well placed to meet the challenges arising from the increased competition intensity and the opportunities to drive faster growth. Your Company is working towards further strengthening the in-house scientific capabilities of the Indian R&D function and building new expertise bases to retain the competitive edge in the market place. The details of expenditure on scientific research and development at the Company''s in-house R&D facilities eligible for a weighted deduction under Section 35(2AB) of the Income Tax Act, 1961 for the year ended 31st March, 2012 are as under: - Capital Expenditure : Rs. 1.88 Crores - Revenue Expenditure : Rs. 22.91 Crores 9. ENVIRONMENT, Safety, HEALTH AND ENERGY CONSERVATION Your Company continues to focus on the vision of being an ''Injury Free'' and ''Zero Environment Incident'' organization. The behavioral safety programme is in place for more than seven years now. With increased focus on road safety campaigns, defensive driving training, hand in machine and other campaigns across units your Company has reduced accidents, measured as Total Recordable Frequency Rate (TRFR), significantly over the last 4 year period. The TRFR has come down by 46% in 2011 (in comparison to 2008 baseline) with 10.8% reduction in 2011 (in comparison to the previous year). In line with targets of the Unilever Sustainable Living Plan (USLP), where Unilever''s vision is to double the size of its business while reducing the overall impact on environment, your Company has steadily taken steps to reduce CO2 emissions. In 2011, the CO2 emission in Company units has reduced by 9.9% over 2010 and 14.7% over 2008 baseline. With respect to energy consumption, the Company''s operations achieved 12% improvement over 2010 and 21.7% improvement over 2008 baseline. Your Company has also increased the use of renewable resources like bio-mass fuel. The renewable energy proportion has reached 13.7% of total energy consumption in 2011. With respect to water usage, your Company''s operations achieved reduction of 10.1% over 2010 and by 21.5% over 2008 baseline. Rain Water Harvesting (RWH) has been implemented in more than 50% of the manufacturing units and 5 units of your Company have created the RWH potential to return more water to the ground than their water consumption and 33 manufacturing sites have been made zero discharge sites. Your Company pursues a three pronged approach in waste management; Reduce, Reuse and Recycle. - Reduce waste generation through technical interventions and optimization of processes like CIP (Cleaning in Place), sludge digester and filter press at Effluent Treatment Plants. - Reuse waste using new technologies of co-processing with cement manufacturers and generating fuel from waste. - Recycle waste through initiative like vermi-composting project. This has been initiated at three sites to treat the Effluent Treatment Plant waste into manure. The manure is being used as fertilizer in the garden which is effective in disposing waste in a sustainable manner. In 2011, over 96% of waste generated was liquidated through sustainable recycling. The information required under Section 217(1 )(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 with respect to energy conservation is appended hereto and forms part of this Report. 10. HUMAN RESOURCES Your Company''s Human Resource agenda for the year was focused on strengthening four key areas: building a robust and diverse talent pipeline, enhancing individual and organizational capabilities for future readiness, driving greater employee engagement and strengthening employee relations further through progressive people practices at the shop floor. Your Company''s employer brand has been built with high levels of rigor and thoroughness that has gone into making its consumer brands and reaching out to its customers. Your Company is widely acclaimed for its people development practices and has reinforced its position in this area in 2011-12. This, coupled with its ability to attract the best talent, gives a competitive edge to the organization. Your Company, once again, retained its position as the No. 1 Employer Brand with campus students of top business schools in 2011 and was voted to this position from a mix of FMCG, Consulting, Financial Services organizations, etc. Your Company has a vision to improve its Gender Balance, which requires an overhaul of your Company''s policies and programmes to ensure alignment and support to our Gender Balance agenda. The roadmap involves a combination of bringing in women in adequate numbers and creating enablers to ensure a culture of inclusion. These enablers could be as varied as flexi time to agile working, to more open and visible leadership models. ''Career by Choice'' is one such initiative which is a unique re-hire programme that will provide a platform for women looking for real opportunities to work flexibly and part time for live business projects. The initial part of the journey for Talent and Organization Assessment was undertaken successfully in 2010. Keeping in mind the needs and requirements of the current talent pool and also enhancing the Company''s preparedness for the future, your Company has now institutionalized the next phase of the Talent and Organization Assessment charters by charting out the best practices for each stream. Your Company has identified Beauty, Foods, Modern Trade, Rural and Water as key capabilities in order to win in the future and our investment in capability building is focused on these in addition to our core capabilities in Marketing, Sales and Distribution. Your Company has also launched a programme in mid 2011 with an aim to build capability, manage performance and augment the levels of engagement for 3P sales associates to enable active presence at the Point of Purchase (PoP), which will be a source of sustainable competitive advantage in the long run. Your Company undertook intensive training programmes through a combination of face-to-face and virtual learning approaches. Over 35,000 e-learning registrations took place indicating that the spirit of ''learn where you are'' is imbibed in employees of the Company. Your company is also investing in building capability in digital and social media to find new platforms for brands to engage with consumers in India more effectively. The Global People Survey is a part of the Unilever Employee Insight Programme which aims to give a voice to the Company''s people throughout the organization and provide a vehicle to make the views of everybody heard, as also to provide leaders with regular, meaningful and actionable feedback. It has 112 questions spread across 20 dimensions in the area of Strategic Leadership at Unilever level, Strategic Leadership at Organisation level, Immediate Boss Effectiveness and Engagement. Feedback from this survey forms the basis of holistic engagement plans which are reviewed consistently. Global People Pulse Survey (2011) confirmed that India scores featured in the top 25 countries across Unilever. An extremely favorable 94% of employees said that they were proud to work for your Company. This was on account of a number of proactive and innovative initiatives to engage our employees, the most significant being continuous and consistent business linked engagement, a vision for the future of the business and clarity and transparency to individuals on their own careers. This is also in recognition of your Company''s Performance Management and Reward processes which are geared towards building a performance and execution focused culture. Your Company has been investing in progressive employee relations practices to ensure that it invests in capability at the grass root level. ''Sparkle'' is a centrally hosted intranet based tool that supports skill mapping, skill assessment, performance assessment, gap analysis and enables training plan identification which is customized to each workman basis priority areas. The tool has been a pioneering tool in the area of workmen capability development and promotes higher transparency, focused training intervention linked to individual and business needs. The tool has delivered results for over a year now and your Company has successfully completed appraisals thereby identifying top performers and completed skill gap analysis of over 10,000 workmen online. Business Linked Engagement and TPM Edge programmes continued with full focus and rigout during the year and delivered significant improvement in factory operations. Information as per Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, forms part of this Report. However, as per the provisions of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent excluding the statement containing the particulars to be provided under Section 217(2A) of the Act. Any member interested in obtaining such particulars may inspect the same at the Registered Office of the Company or write to the Company Secretary for a copy thereof. 11. INFORMATION TECHNOLOGY Your Company continues to invest in Information Technology, leveraging it as a source of competitive advantage. The enterprise wide SAP platform forms the backbone of IT and encompasses all core business processes in the Company and also provides a comprehensive data warehouse with analytics capability that helps in better and speedier decisions. SAP is now used for collaboration with the suppliers and customers. Integrating systems with the key customers has allowed your Company to partner much more closely, leading to better customer service. Supply Chain optimization, enabled by the IT capability, remains a source of significant value. Your Company has institutionalized an extensive IT capability for customer development function to support execution in the front-end. All distributors run a standard distributor management system. The distributors'' salesmen use handheld devices for accepting retail orders which enable faster tracking and real time sales information. Your Company has used analytics and the existing IT infrastructure to build a capability for an intelligent sales call. This gives your Company, the ability to customize the sales call for each outlet on a scientific basis. This has helped improve the effectiveness and efficiency of the sales process significantly. Your Company is further enhancing IT capabilities built for rural expansion to equip Shakti Ammas using low cost mobile technology in order to make their market working more controlled and efficient. This is one of the key enablers that will allow to leverage our rural distribution to other partnerships in the future. Your Company continues to invest in IT infrastructure to support business applications and has made use of India''s expanded telecom footprint to provide high bandwidth terrestrial links to all operating units. Your Company also used software as a service to provide agile, cost effective IT capabilities in select areas. As the IT systems and related processes get embedded into the ways of working of the organization, there is a continuous focus on IT security and reliable disaster recovery management processes to ensure all critical systems are always available. These are periodically reviewed and tested for efficacy and adequacy. 12. FINANCE AND ACCOUNTS Your Company''s continued focus on cash generation resulted in a strong operating cash flow during the year; driven by good business performance, efficiencies and cost savings across the Supply Chain and continued focus on working capital management. Your Company managed investments prudently by deploying cash surplus in a balanced portfolio of safe and liquid instruments. Capital Expenditure during the year was at Rs. 310.01 Crores (last year - Rs. 311.31 Crores). This was primarily in the areas of capacity expansion, consolidation of operations, information technology, energy and other cost savings. The finance team of your Company has undertaken a programme to strengthen the processes across transactions, accounting, reporting and information to support the Company''s growth plans. One of the significant projects that has been implemented during the financial year is Project Parivartan'' which was aimed at transforming the payment process. This project, aimed at simplifying the payments process and improving payment efficiency, has been implemented and rolled out across all units of the Company and has shown a significant improvement in efficiency levels. Similar projects are underway in the area of accounting, reporting and information management which will move the Company''s processes to world class levels and support the growth plans of the Company. These programmes are aligned with the overall finance programme within Unilever. The Company has not accepted any fixed deposits during the year. There was no outstanding towards unclaimed deposit payable to depositors as on 31st March, 2012. In terms of the provisions of Investor Education and Protection Fund (Awareness and Protection of Investors) Rules, 2001, Rs. 7.76 Crores of unpaid / unclaimed dividends and interest / redemption of debentures were transferred during the year to the Investor Education and Protection Fund. Return on Net Worth, Return on Capital Employed and Earnings Per Share (EPS) for the last four years and for the year ended 31st March, 2012 are given below: Period ended 2007 31st March,2009 2009-10 2010-11 2011- 12 Return on Net Worth (%) 80.1 103.6* 88.2 74.0 77.7 Return on Capital Employed (%) 78.0 107.5* 103.8 87.5 96.8 Basic EPS (after exceptional items) (Rs.) 8.73 11.46** 10.10 10.58 12.46 * Annualised numbers for proportionate period ** for fifteen month period Segment-wise results Your Company has identified five business segments in line with the Accounting Standard on Segment Reporting (AS-17), which comprise: (i) Soaps and Detergents, (ii) Personal Products, (iii) Beverages, (iv) Packaged Foods, including culinary, branded staples and frozen dessert and (v) Others, including Exports, Chemicals and Water. The audited financial results of these segments are given as part of financial statements. 12.1 Risk and Internal Adequacy Your Company manages cash and cash flow processes assiduously involving all parts of the business. There was a net cash surplus of Rs. 1,830.04 Crores as on 31st March, 2012. The Company''s debt equity ratio is very low which provides ample scope for gearing the Balance Sheet, should that need arise. Foreign Exchange transactions are fully covered with strict limits placed on the amount of uncovered exposure, if any, at any point in time. There are no materially significant uncovered exchange rate risks in the context of Company''s imports and exports. Company accounts for mark-to-market gains or losses every quarter end in line with the requirements of AS-11. The Company''s internal control systems are commensurate with the nature of its business and the size and complexity of its operations. These are routinely tested and certified by Statutory as well as Internal Auditors and cover all offices, factories and key areas of business. Significant audit observations and follow up actions thereon are reported to the Audit Committee. The Audit Committee reviews adequacy and effectiveness of the Company''s internal control environment and monitors the implementation of audit recommendations including those relating to strengthening of the Company''s risk management policies and systems. Your Company has an elaborate process for Risk Management. This rests on the three pillars of Business Risk Assessment, Operational Controls Assessment and Policy Compliance processes. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. These are discussed with both Management Committee and Audit Committee. Some of the risks relate to competitive intensity and cost volatility. 13. DEMERGER Consequent to the approval of the Members in the Court Convened Meeting held on 28th July, 2011 and approval of the Hon''ble High Court at Bombay, the Scheme of Arrangement for transfer of certain assets, liabilities and properties of FMCG Exports Business Division of the Company to its wholly owned subsidiary, Unilever India Exports Limited was made effective 1st January 2012. 14. CORPORATE SOCIAL RESPONSIBILITY Sustainability has always been integral to your Company''s way of doing business. In November 2010, Unilever launched the Sustainable Living Plan, which puts sustainability at the heart of its business strategy. The central objective of the Unilever Sustainable Living Plan is to decouple growth from environmental footprint, while at the same time increasing your Company''s positive social impacts. The Unilever Sustainable Living Plan (USLP) has three significant outcomes by 2020: - Help more than a billion people to improve their health and well-being - Halve the environmental footprint of our products - Source 100% of our agricultural raw materials sustainably Underpinning these three broad goals are around 60 time bound targets spanning our social, economic and environmental performance across the value chain - from the sourcing of raw materials all the way through to the use of products in the home. The Unilever Sustainable Living Plan represents a long term goal and progress in 2010-11 has already been encouraging. By the end of 2011, for example, almost two-thirds of the palm oil used in products globally was being purchased from certified sources. In India, 60% of tomatoes are sourced sustainably. Pure it in-home water purifier delivers safe water, without requiring running water or electricity, and at a low cost, to over 30 million people in India. In 2010-11, Lifebuoy'' shygiene programme reached more than 30 million people in India, spreading hygiene awareness and encouraging behavior change. Your Company has taken steps to ensure that the food brands have a better nutritional profile. Around 60% of the major food and beverage brands, viz. Brooke Bond, Bru, Knorr, Kissan and Kwality Wall''s, comply with the ''Healthy Choice'' guidelines as on date. In 2011, your Company reduced CO2 emissions by 14.7% (per tonne of production over 2008 baseline); water use by 21.5%; and waste by 52.8% in factories in India. Your Company has improved CO2 efficiency in transportation by 17.8% despite significant increase in volumes. During the year, the Frozen Dessert business has deployed over 23,775 environment friendly HC-based freezers in its fleet. Your Company has extended the Shakti initiative by adding 30,000 Shaktimaan (male family members of existing Shakti entrepreneurs who have enrolled for the programme), to sell the products by visiting the surrounding villages on bicycles. Even though the Company is making changes across the length and breadth of its business, much remains to be done. The Company has to develop products and processes that enable growth in a resource stressed world, and encourage behavior and habits that help people live sustainably. While your Company has an ambitious and challenging agenda, it certainly doesn''t have all the answers. What it knows, is that it requires all of us to work together for achieving a sustainable future. Your Company is also working in partnership with governments and NGOs to implement water conservation projects in more than 180 villages in 17 districts of India. By 2015, your Company aims to create water conservation capacity of a hundred billion liters to enable a better future for a million people. In April 2012, your Company has released India progress report on Unilever Sustainable Living Plan as well as a report on your Company''s community water conservation projects. 15. EMPLOYEE STOCK OPTION PLAN (ESOP) Details of the shares issued under ESOP, as also the disclosures in compliance with Clause 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are set out in the Annexure to this Report. No employee has been issued share options, during the year, equal to or exceeding 1% of the issued capital of the Company at the time of grant. Pursuant to the approval of the Members at the Annual General Meeting held on 29th May, 2006, the Company adopted the ''2006 HLL Performance Share Scheme''. The Scheme has been registered with the Income Tax authorities in compliance with the relevant provisions of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the terms of the Performance Share Plan, employees are eligible for the award of conditional rights to receive equity shares of the Company at the face value of Re. 1/- per share. These awards will vest only on the achievement of certain performance criteria measured over a period of 3 years. During the year 168 employees, including Whole time Directors, were awarded conditional rights to receive a total of 4,12,633 equity shares at the face value of Re. 1/- each. The above mentioned comprises of conditional grants made to eligible managers covering performance period 2012-14. The ''2006 HLL Performance Share Scheme'' was introduced as a measure to reward and motivate employees as also to attract the talent and retain the key employees. On a review of the operating experience of the said scheme and bearing in mind the charges in the global trends on management rewards, it is proposed to revise the approach of award of share options under the scheme by adopting a revised 2012 HUL Performance Share Scheme''. 16. CORPORATE GOVERNANCE Your Company is renowned for exemplary governance standards since inception and continues to lay a strong emphasis on transparency, accountability and integrity. In the year 2011 your Company received the ICSI National Award for Excellence in Corporate Governance, in recognition of its Corporate Governance practices. A separate report on Corporate Governance is provided at page no. 50 of this annual report together with a Certificate from the Auditors of the Company regarding compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchange(s). A certificate of the CEO and CFO of the Company in terms of sub-clause (v) of Clause 49 of Listing Agreement, inter alia, confirming the correctness of the financial statements, adequacy of the internal control measures and reporting of matters to the Audit Committee is also annexed. The Ministry of Corporate Affairs, Government of India introduced the Corporate Governance Voluntary Guidelines, 2009. These guidelines have been issued with the view to provide Corporate India a framework to govern themselves voluntarily as per the highest standards of ethical and responsible conduct of business. The recommendation of the Voluntary Guidelines pertaining to separation of offices of the Chairman and the CEO, constitution of Audit Committee and Remuneration Committee, Risk Management framework, are already practiced by your Company. Your Company has been in substantial compliance of these guidelines. During the year Secretarial Audit and Secretarial Standards Audit were carried out. The detailed reports on the same are given at page nos. 67 to 69 of this annual report. 17. OUTLOOK The fiscal year 2011-12 witnessed slowdown of economic activities particularly industrial output. Inflation also remained at elevated level throughout the fiscal year. Private investment has declined in its pace of growth considerably affecting the growth rate of the economy. Higher spending on subsidies on account of oil and fertilizers widened the fiscal deficit of the centre more than the budget estimates. The RBI has projected a GDP growth of 7.2% for 2012-13 whereas the Economic Survey 2011-12 projected a GDP growth of 7.6%. All these projections point to continuation or improvement over the pace of economic activity of the previous year. Combined with a lower inflation rate, the prognosis for the new financial year is one of improved performance on growth front. Stable external conditions and a favorable monsoon would be critical to the realization of these projections. The growth prospects for agriculture in 2012-13 will hinge on the performance of monsoon. FMCG markets are expected to grow, however uncertain global economic environment, inflation and adverse impact of rupee depreciation and competitive intensity continue to pose challenges for the future. While the near term conditions pose a challenge for the economy, the medium to longer term trends based on rising incomes, aspirations, low consumption levels, etc. are positive and an opportunity for the Company. 17.1 Cautionary Statement Statements in this report, particularly those which relate to Management Discussion and Analysis, describing the Company''s objectives, projections, estimates and expectations, may constitute ''forward looking statements'' within the meaning of applicable laws and regulations and actual results might differ materially from those either expressed or implied. 18. SUBSIDIARY COMPANIES A statement pursuant to Section 212 of the Companies Act, 1956 relating to Subsidiary Companies is attached to the accounts. In terms of General Exemption, under Section 212(8) of the Companies Act, 1956, granted by Ministry of Corporate Affairs vide its circular no. 02/201 1 dated 8th February, 2011 and in compliance with the conditions enlisted therein, the Audited Statement of Accounts, Auditors'' Reports thereon and the Reports of the Board of Directors of the Company''s subsidiaries for the financial year ended 31st March, 2012 have not been annexed. The Annual Accounts and related documents of the Subsidiary Companies shall be kept open for inspection at the Registered Office of the Company. The Company will also make available these documents upon request by any Member of the Company interested in obtaining the same. However, as directed by the said circular, the financial data of the Subsidiaries have been furnished under ''Subsidiary Companies Particulars'' forming part of the Annual Report (refer page no. 150). Further, pursuant to Accounting Standard AS-21 issued by the Institute of Chartered Accountants of India, Consolidated Financial Statements presented by the Company in this Annual Report includes the financial information of its subsidiaries. 19. BOARD OF DIRECTORS Mr. Deepak Parekh, Independent Director and Chairman of the Audit Committee of the Company, stepped down from the Board of the Company with effect from 27th December, 2011, after a tenure lasting more than 14 years. The Board acknowledges and places on record its deep appreciation for the contribution made by Mr. Deepak Parekh as an Independent Director and the Chairman of the Audit Committee of the Company. Mr. Gopal Vittal, Executive Director, Home & Personal Care resigned from the Board of the Company with effect from 20th January, 2012, to pursue opportunities outside Unilever. The Board acknowledges and places on record its appreciation for the contribution made by Mr. Gopal Vittal as a Whole time Director on the Board of the Company. Mr. O. P. Bhatt was appointed as an Additional Director on the Board of the Company with effect from 20th December, 2011, in accordance with Section 260 and Articles of Association of the Company. Notices have been received from Members pursuant to Section 257 of the Companies Act, 1956 together with necessary deposits proposing the appointment of Mr. O. P. Bhatt as Non-Executive Independent Director on the Board of the Company. The Members of the Company in the Extraordinary General Meeting held on 4th April, 2008 had appointed Mr. Nitin Paranjpe as a Managing Director and Chief Executive Officer (CEO) of the Company for a period of five years, with effect from 4th April, 2008. The current term of office of Mr. Nitin Paranjpe as a Managing Director and CEO of the Company is due to expire on 3rd April, 2013. It is proposed to re-appoint Mr. Nitin Paranjpe as the Managing Director and CEO for a further period of five years commencing from 4th April, 2013. In accordance with the Articles of Association of the Company, all other Directors, except for Managing Director, will retire at the ensuing Annual General Meeting and being eligible offer themselves for re-election. 20. MANAGEMENT COMMITTEE The day-to-day management affairs of the Company are vested with the Management Committee, which is subjected to the overall superintendence and control of the Board. The Management Committee is headed by Mr. Nitin Paranjpe, as the Chief Executive Officer, and has Functional / Business Heads as its members. During the year, Ms. Geetu Verma joined the Management Committee of the Company as Executive Director - Foods to succeed of Mr. Shrijeet Mishra, who resigned from the services of the Company. Mr. Hemant Bakshi, who earlier held the position of Executive Director - Sales and Customer Development, was appointed as Executive Director - Home & Personal Care of the Company. Mr. Hemant Bakshi has succeeded Mr. Gopal Vittal, Executive Director - Home & Personal Care, who ceased to be the member of the Management Committee consequent to his resignation. Mr. Manish Tiwary was appointed as a member of the Management Committee as Executive Director - Sales and Customer Development. Before being appointed to the Management Committee, Mr. Manish Tiwary was Vice President, Modern Trade of the Company. 21. AUDITORS M/s. Lovelock & Lewes, Statutory Auditors of the Company retire and offer themselves for re-appointment as the Statutory Auditor of the Company pursuant to Section 224 of the Companies Act, 1956. 22. APPRECIATIONS AND ACKNOLLEDGEMENTS Your Directors place on record their deep appreciation to employees at all levels for their hard work, dedication and commitment. The enthusiasm and unstinting efforts of the employees have enabled the Company to remain at the forefront of the Industry. Your Directors would also like to acknowledge the excellent contribution by Unilever to your Company in providing with the latest innovations, technological improvements and marketing inputs across almost all categories in which it operates. This has enabled the Company to provide higher levels of consumer delight through continuous improvement in existing products and introduction of new products. The Board places on record their appreciation for the support and co-operation your Company has been receiving from its suppliers, redistribution stockists, retailers, business partners and others associated with the Company as its trading partners. Your Company looks upon them as partners in its progress and has shared with them the rewards of growth. It will be Company''s endeavor to build and nurture strong links with the trade based on mutuality of benefits, respect to and co-operation with each other, consistent with consumer interests. The Directors also take this opportunity to thank all investors, clients, vendors, banks, regulatory and government authorities and stock exchanges, for their continued support. On behalf of the Board 1st May, 2012 Harish Manwani Mumbai Chairman

Source : Dion Global Solutions Limited

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