Philips India
BSE: 500560 | NSE: PHILIPS | ISIN: INE319A01016 | Consumer Goods - Electronic
- Directors Report
- Chairman's Speech
- Auditors Report
- Notes To Accounts
- Accounting Policy
- Finished Products
- Raw Materials
| Directors Report | Year End : Dec '07 |
The Directors submit their report and audited accounts for the year
ended December 31, 2007.
For India was a year of ups and downs, mostly of expectations. The
economy surged by over 9% in the fourth quarter of 2006, leading many
to believe that growth rate could be sustained, if not exceeded. But by
mid-year, we had indications of problems in US financial markets that
could have serious consequences for the global economy. Today India is
a $ I trillion economy, growing at an average of 8% a year. With over a
billion consumers, a growing middle class and world-class
entrepreneurs, we believe India is best positioned among all emerging
economies to withstand the risk of global downturn. And, as one of
Indias most respected consumer brands, we are at the heart of the
biggest all-weather growth stories.
Your Companys performance during the year was strong, with robust top
line growth and high quality earnings. All business segments posted
strong growth in revenue and increase in respective market share. The
Lighting business continued to perform strongly both in respect of
turnover and profitability. Consumer Electronics recorded a growth of
20%, Medical business grew by 21% and Domestic Appliances and Personal
care business grew by 37% during the year 2007. The profitability of
the Consumer Electronics and Medical business improved substantially as
compared to the previous year. Philips strategy globally is to focus on
three key areas, viz. Growth, Talent and Simplicity. India will
continue to be a key market for Philips from the growth and development
perspective.
1. FINANCIAL PERFORMANCE
1.1. RESULTS
RS. Min.
2007 2006
Gross Income 29,363 26,735
Operating profit 2,456 1,485
Exceptional items (net) 438 1,544
Profit before tax 2,894 3,029
Fringe benefit tax (38) (61)
Provision for current tax (939) (824)
Provision for deferred tax (14) (14)
Profit after tax 1,903 2,130
Transfer to General Reserve 190 1,970
1.2. DIVISIONAL SALES
2007 2006
Lighting 12,626 10,970
Consumer Electronics 8,356 6,962
Medical Systems 3,415 2,804
Domestic Appliances & Personal Care 1,780 1,300
Innovation Campus 2,395 3,782
Others 334 668
Total 28,906 26,486
Sales for the year ended December 2007 reported a nominal growth of
around 10%, but the operating profit grew by 65% largely due to changes
in distribution pattern and better product mix. Sales on a comparable
basis, i.e. after excluding Semi Conductors, has grown by 19%. Profit
before tax was lower as compared to the previous year on account of a
sharp reduction in income from exceptional items.
1.3. FINANCE & ACCOUNTS
Your Company delivered a strong performance in cash generation during
the year, driven by the strong operating performance, better
realization and working capital management and sale of assets/
business. The cash surplus was invested in financial instruments in
accordance with the policy of the Company. In terms of the provisions
of Investor Education and Protection Fund (awareness and protection of
investors) Rules 2001, Rs. 25.82 lakhs of unpaid/unclaimed dividend
was transferred during the year to the Investor Education and
Protection Fund.
2. DIVIDEND
Your Directors recommend payment of Rs. 2.0 per share as dividend on
the fully paid equity shares for the financial year ended 31 December
2007. This will absorb Rs. 140 million as dividend and Rs. 28 million
as dividend tax.
3. BUSINESS PERFORMANCE
The Notes to the Profit and Loss Account for the year provide segment
results. Required disclosure is made below for Lighting, Consumer
Electronics, Innovation Campus (Software), Medical Systems, Domestic
Appliance and Personal Care divisions.
3.1 LIGHTING
The Division grew more than 15%, making it the sixth year of
consecutive double digit growth. All the business groups of the
division grew in double digit profitability for the year. This growth
helped the division to improve the market share of 30% in the Industry,
despite the growth of existing players and the entry of new lighting
and non - lighting players in the Industry.
New products in all categories were introduced. Recently created
avenues/ channels such as rural & replacement markets were leveraged
further to improve reach and sales. On the professional front, new
stadia, viz. Ranchi, Bhopal, airport lighting and major infrastructure
projects were executed. Inroads were also made into the areas of Retail
and Solid State lighting.
On the manufacturing side, manufacturing capacity in CFL was enhanced
to cater to the needs of the local Market. Reorganisation of the
Industrial Activity in the Lighting Electronics business is completed.
The (Global) company is considering the setting up of Global
Manufacturing capacities and (product) Development Centres in India in
the near future.
Going forward in 2008, the division has plans to increase its
profitability as in the previous year. The division intends to reap
the benefits of the intended focus on energy savings in Lighting, the
current boom in infrastructure as also the Commonwealth Games scheduled
for 2010.
3.2 CONSUMER ELECTRONICS
The Consumer Electronics Division recorded a strong performance in
2007, registering a growth of 20%. This was aided by strong
performances in all the business segments, viz., Video & Multimedia
Applications (VMA), Audio & Multimedia Applications (AMA) and Colour
Televisions (CTV), enhanced by significant improvements in operational
efficiencies and strong business controls.
Colour Television (CTV) business grew by 23% aided by 6 times value
growth in the LCD category. The CTV market in India is witnessing a
rapid transition from the traditional cathode ray tube TV to LCD Flat
TV with consumers from the upper middle class as well as the middle
class segments opting for the latter. This is propelling the growth in
the Consumer Electronic industry and going by market estimates, the LCD
TV market is likely to cross the current CRT TV market size by year
2010.
The Company established the LCD TV business quite strongly in 2007 and
clearly sees a window of opportunity to become a significant brand in
this space. LCD TV is perceived by the Indian consumer as a technology
driven product and Philips in India has the image of being a technology
driven company. Our strategy in CRT TV will be to continue to have an
opportunistic play with a clear focus on the growing categories, i.e.
21 & 29 Real Flat.
3.3 MEDICAL SYSTEMS
The Medical Systems Division operates in the Diagnostic Imaging
segment, which includes CT, MRI, X-rays, Cardiovascular Systems,
Nuclear Medicine, PET-CT and Ultrasound Imaging Systems, and is also a
significant player in patient monitoring.
In 2007, the Division recorded strong growth in most business lines,
winning major contracts across its entire product range, including
those from major private hospital groups as also from large Government
postgraduate teaching hospitals. Strong account management backed by
excellent customer focus has been the key success factor of the year.
There was excellent growth in the Magnetic Resonance Imaging (MRI)
business during the year 2007 in both 1.5 and 3 Tesla segments.
Cardiovascular X-ray (Cath labs) registered a record growth both in
volume and value and was a leader in the segment Computerised
Tomography (CT) systems continued to do well during 2007. The
Cardiovascular Ultrasound segment, especially the Live 3D echo market,
was dominated by Philips and 4-dimension systems contributed to the
success of the Ultrasound equipment group in 2007. The Customer Support
group has performed consistently well, meeting and often exceeding
customer expectations, resulting in good loyalty-based repeat orders.
3.4 DOMESTIC APPLIANCES & PERSONAL CARE
The Domestic Appliances and Personal Care Division sales grew by 37%
during the year. Innovative products such as Intelligent water
purifier and Hands Free Intelligent Indian Food Processor were
launched during the year. The business established the highest ever
brand preference for its lead categories such as mixer grinders,
juicers & irons.
In a year of high launch investments and increase in raw material price
the business maintained its profitability. The outlook for 2008 is one
of stronger growth and continued emphasis on new product launches.
3.5 INNOVATION CAMPUS (PIC)
PICs strength at the end of 2007 was 978 as compared to 940 at the end
of 2006. The retention rate remained reasonable as compared to the IT
industry average. During the year the Healthcare group expanded its
activities to cover not only software engineering but also electrical
and mechanical fields. Sales (total deliveries) amounted to Rs. 2395
million as compared to Rs. 3,782 million in 2006. However, sales in
2006 included deliveries of Rs. 1381 million in respect of the
Semiconductor Division which was spun off to NXP Semiconductors. On a
comparable basis, there was a nominal decline in sales from Rs. 2,401
million in 2006 to Rs. 2395 million in 2007 - the primary reason being
the reductions in Consumer Lifestyle group.
4 BUSINESS RESTRUCTURING
Globally, Koninklijke Philips Electronics N.V. (KPENV), the promoter
of your Company, has announced a simplified organizational structure in
three market sectors, viz Philips Healthcare, Philips Lighting and
Philips Consumer Lifestyle. This new organizational structure came into
effect from January 1, 2008. Healthcare and Lighting are largely
unchanged. The creation of Consumer Lifestyle is a major event in
Philips history: Domestic Appliance and Personal Care division (DAP)
and Consumer Electronics division (CE) will cease to be separate
businesses and will be fully integrated to form the Consumer Lifestyle
sector.
5 NEW CORPORATE OFFICE
As a part of the Companys One Philips initiative, your Board has
decided to move its Corporate Offices to a new state-of-the-art office
space at DLF Cyber City, Gurgaon. This move will integrate all existing
business offices of the Company at Pune, Delhi and Mumbai and the
process is likely to be completed by end 2008.
A unified corporate office will help to further integrate business
processes and leverage scale and synergies across the organization.
Working from one office, at one location, offers managers the
opportunity to communicate and interact across divisional and
functional boundaries. By being together, the management will have
opportunities for interaction with different parts of the Company to
create a stronger, more cohesive Philips in India. It will enable the
Company to drive its key agenda of growth and support with larger
strength - the parent strategy of Vision 2010. The move will be cash
flow positive, since it will largely be funded out of realization of
the Companys two residential complexes located at Mumbai and Pune.
6. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
Your Company remains committed to maintaining internal controls
designed to safeguard the efficiency of operations and security of our
assets. Accounting records are adequate for preparation of financial
statements and other financial information. Through our internal audit
processes at divisional and corporate levels, both the adequacy and
effectiveness of internal controls across the various businesses and
compliance with laid-down systems and policies are regularly monitored.
A trained internal audit team also periodically validates the major
IT-enabled business applications for their integration, control and
quality of functionality. The Audit Committee of the Board met
periodically during the year to review internal control systems as well
as financial disclosure.
7. CORPORATE SOCIAL RESPONSIBILITY
Your Company has been able to make significant contributions in
Economic, Environmental and Social areas by tying up with effective
social partners / NGOs, in the year 2007. Arogyakiran, Healthcare
Initiatives & Tsunami Relief Projects and Rehabilitation are some of
the ongoing projects supported by Philips. Project Arogyakiran focuses
on providing primary healthcare to rural villages near Kolkata and
Vadodara. Over the last three years 1020 pregnant women were identified
and supported with Ante Natal Care (ANC) and Post Natal Care (PNC) at
the Child in Need Institute (CINI), Kolkata.
With the help of Trust for Reaching the Unreached, a voluntary
organization based at Kural village near Vadodara, your Company makes
available cost-effective and easily accessible primary and preventive
healthcare to 16 villages with a population of nearly 38,000 people,
through 4 dispensaries run by qualified doctors who provide subsidised
diagnostic care to patients. This organization also arranges referrals
for needy patients.
8. NEW BUSINESS INITIATIVES
The New Business Development function is working towards the
realisation of the Companys growth ambitions up to the year 2010. It
focuses on new business areas in the Lifestyle and Healthcare domain,
new product development and/or new product portfolio extensions and
addresses strategic initiatives to penetrate and develop markets in the
Indian Subcontinent, as well as some key One Philips initiatives such
as Key Sector Management in retail, healthcare and hospitality.
9. BUY BACK OF EQUITY SHARES
Pursuant to the provision of Article I2A of the Articles of Association
of the Company and in accordance with the provision of Section 77A and
77B and all other applicable provisions, if any, of the Companies Act
1956, and the provisions contained in the Private Limited Company and
Unlisted Public Limited Company (Buy-back of Securities) Rules, 1999,
consent of the Company is sought for the buy back of fully paid up
equity shares of the face value of Rs 10/- each up to a maximum of
6,923,076 equity shares and cash outflow not exceeding Rs. 1800 million
(Rs. One thousand eight hundred million only) at a price not exceeding
Rs. 260/- (Rs. Two hundred sixty only) per equity share. The Buy-back
will provide an option to the shareholders to sell their shares.
10. HUMAN RESOURCES AND INDUSTRIAL RELATIONS
Employee relations were cordial during the year. The Company continues
to invest in the development of its employees by way of various
internal and external training programmes.
As part of People Development efforts, the Learning & Development needs
of employees were identified and addressed on an ongoing basis. In
addition to the ongoing leadership development programmes, the focus
was on development of functional skills with emphasis on Sales and
Marketing. Some of the key programmes rolled out included Key account
management, Direct dealer management, and Service excellence workshops.
A unique Think Simplicity contest was launched around, new brand
positioning Sense and Simplicity.
The purpose was to encourage employees to realize and appreciate the
value of Simplicty in their daily lives. The response was overwhelming
- 1097 entries, 19 unit level winners were felicitated and the 7
national winners participated in the Simplicity event in London.
Information under Section 217 (2A) of the Companies Act 1956, read with
the Companies (Particulars of Employees) Rules, 1975, forms part of
this report.
11. CONSERVATION OF ENERGY, FOREIGN EXCHANGE OUTGO AND TECHNOLOGY
ABSORPTION
Information pursuant to Section 217(1)(e) of the Companies Act, 1956,
is provided in the Annexure to this report.
12. ENVIRONMENT, ENERGY, OCCUPATIONAL HEALTH & SAFETY
Your Company is committed to implementing the Philips Sustainability
Policy and is striving to continuously improve its contribution to the
environmental, economic and social aspects of sustainability. The
manufacturing units of your Company are actively involved in
implementing the Philips Eco-Vision III (2006-2009) programme. All
manufacturing units have established and are maintaining ISO-14001
certified environmental management systems.
Products and Systems introduced by your Company go.through a process of
EcoDesign. Your Company has also initiated several programmes to
improve the Health and Safety of employees working in the manufacturing
units and offices.
13. DIRECTORS RESPONSIBILITY STATEMENT
As required under Section 217 (2AA) of the Companies Act, 1956, your
Directors confirm that:
i) in the preparation of the annual accounts, applicable accounting
standards have been followed;
ii) the Directors 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 as on December 31, 2007 and of the profit of the Company
for the year ended December 31, 2007;
iii) the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of this Act, to safeguard the assets of the Company and to
prevent and detect fraud and other irregularities;
iv) the Directors have prepared the annual accounts on a going concern
basis.
The Companys Internal Auditors have conducted periodic audits to
provide reasonable assurance that the Companys established policies
and procedures were followed. The Audit Committee constituted by the
Board meets regularly with Internal Auditors and also with the External
Auditors to review internal control and financial reporting issues.
14. DIRECTORS
Mr. Rajeev Bakshi resigned from the Board effective April 19, 2007,
after serving on the Board for over one and a half years. The Board
records its deep appreciation of the valuable contributions made by Mr.
Bakshi to the Boards deliberations. The Board, at its meeting held on
April 19, 2007, appointed Mr. Murali Sivaraman as Additional Director
and Managing Director designate with effect from July 2, 2007.
Mr. K Ramachandran, Vice-Chairman & Managing Director of your Company,
resigned from the Board with effect from October 3, 2007, following his
retirement from the Company. Your directors wish to record their
appreciation of the long and meritorious services rendered by him. Mr.
Murali Sivaraman was appointed as Vice-Chairman and Managing Director
of the Company with effect from October 3, 2007. The Central Government
has approved the appointment of Mr. Sivaraman which is valid till the
conclusion of the ensuing Annual General Meeting and will be further
extended subject to the approval of Shareholders at the said meeting.
Due notice has been received from members pursuant to Section 257 of
the Companies Act, 1956, of their intention to move resolution for the
appointment of Mr. Murali Sivaraman as a Director of the Company.
The Board extended the term of office of Mr. Vineet Kaul as a
Whole-time Director of the Company, for a further period of five years
from January 30, 2008 or till the age of retirement, whichever is
earlier. Appropriate resolution seeking your approval to such extension
and remuneration of Mr. Vineet Kaul appears in the Notice convening the
78th Annual General Meeting of the Company.
Mr. Alexius Collette retires by rotation at the ensuing Annual General
Meeting. The Board recommends his re- appointment.
15. AUDITORS
Messrs. BSR & Co. retire as auditors of the Company and, being
eligible, offer themselves for re-appointment Your Directors recommend
their re-appointment for the ensuing year.
16. COST AUDITORS
The Central Government has directed your Company to carry out an audit
of the Companys cost accounts in respect of electric lamps, pursuant
to the provisions of Section 233B of the Companies Act, 1956.
Accordingly, your Directors have approved the appointment of Messrs. R.
Nanabhoy & Co., a firm of cost accountants, to conduct the audit for
the year ending December 31, 2008.
17. GENERAL
Your Directors acknowledge the close cooperation and support your
Company has received during the year from the employees, members, its
parent company Koninklijke Philips Electronics N.V., its bankers, and
business partners including suppliers, co-makers and the trade.
On behalf of the Board
S. M. Datta
New Delhi, March 11, 2008 Chairman
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| Source : Religare Technova | |
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