Tata Tea

The Directors are pleased to submit their report together with the
 audited statement of accounts for the year ended 31st March, 2008:
 
                                                   Rs. Crores
 1.     Financial Results
                                             2007-08            2006-07
 
 Total Income                                1263.29            1146.11
 Profit before interest,
 depreciation, exceptional items
 and tax                                     286.17             273.44
 Deduct:
 Interest (net)                     21.88             11.63
 Depreciation                       10.16             18.54
 32.04                                                           30.17
 Profit before tax
 and exceptional items                      254.13              243.27
 Exceptional items net of
 interest on loans for
 acquisitions                              131.73               106.50
 Profit before tax                         385.86               349.77
 Provision for tax                          73.00                43.20
 Profit after Tax                          312.86               306.57
 Add: Surplus brought forward
 from previous year                        150.61               132.57
 Amount available for
 appropriation                             463.47               439.14
 Proposed Dividend
            -  normal             92.76              92.76
            -  one-time special  123.68               -
 Income-tax on dividend           36.78              15.76
 Transfer to General Reserve      40.00    293.22   180.00      288.52
                                           170.25               150.61
 
 2.  Operating Results
 
 Highlights
 
 Your Directors are pleased to report that 2007-08 turned out to be yet
 another record year during which your Company achieved highest ever
 turnover and profits. The total income for the year at Rs.1263.29
 crores was 10 % higher than the previous year. Profit before tax
 improved to Rs.385.86 crores compared with Rs. 349.77 crores in the
 previous year. However provision for taxation in the current year was
 higher at Rs.73.00 crores (previous year Rs.43.20 crores) due to non
 -availability of certain tax incentives and consequently Profit after
 tax at Rs. 312.86 crores was marginally higher than the previous years
 achievement of Rs.306.57 crores. The results of this years performance
 were primarily driven by the record breaking growth in sales of our
 brands.  During 2007-08 the branded products business grew at an
 enhanced rate than in preceding years. Brand volumes grew by 15% and
 Brand values grew by 17% over the preceding year. It is heartening to
 report that during 2007-08 your Company emerged as the market leader
 for branded tea in terms of volume, surpassing all competitors. The
 Tata Tea brand is the market leader in Volume and Value terms in India.
 
 On 9th April 2008 the Honourable High Court at Calcutta passed
 judgement approving the Reconstruction Scheme of North India Plantation
 Division (NIPD) which takes effect from 1st April, 2007. In terms of
 the Scheme the business and undertakings of 24 tea estates comprised in
 NIPD as well as other support and ancillary facilities as specified in
 the Scheme stand transferred to Amalgamated Plantations Private Limited
 (APPL) . Both your Company and APPL had filed the Order of the Calcutta
 High Court with the Registrar of Companies, West Bengal on close of
 business on 30th April 2008 as required under the provisions of the
 Companies Act, 1956. However the Regional Director, Eastern Region,
 Ministry of Corporate Affairs had filed an appeal before the Division
 Bench of Calcutta High Court on 15th May 2008 praying , inter-alia, for
 stay of the judgement of the Single Judge . On 16th June 2008 the
 Division Bench considered the Appeal but did not find it necessary to
 interfere with the Order passed by the Single Judge and the Appeal was
 accordingly dismissed. Effect of this transaction has been given in the
 accounts and results in a one-time profit of Rs.162 crores to your
 Company. Details of the transaction are given later in the report.
 
 Even as the erstwhile tea estate operations are structured into a
 separate entity, the focus of your Company is now to -address the
 opportunity of transformation into a global beverage company, with an
 appetite for growth. On a consolidated basis in 2007-08 turnover of
 your Company from the domestic market was 26% while 74% of the
 consolidated turnover was contributed by overseas operations,
 reflecting the international nature of our current operations.
 
 3.  Dividend
 
 Your Directors are pleased to recommend for the approval of the
 shareholders a normal dividend of 150% (Rs.15 per share) on the paid-up
 equity share capital of the Company in respect of the financial year
 2007-08 compared with 150% (Rs.15 per share) declared last year. Your
 Directors also recommend for approval of the shareholders a special one
 time dividend of 200% (Rs. 20 per share) on account of substantial
 exceptional income earned by the Company & its subsidiaries during
 2007-08. The total outgo on account of dividend, inclusive of taxes, of
 Rs.253.22 crores is higher by Rs.144.70 crores over Rs.108.52 crores
 paid in the previous year and is the highest dividend distribution
 recommended in the history of your Company.
 
 4.  Preferential Issue
 
 On 2nd May 2007 the Company allotted 28,10,000 Equity shares of Rs.10
 each to the main promoter Tata Sons Ltd by way of conversion of same
 number of Warrants allotted on 20th November 2006. After the allotment
 of these shares the shareholding of the promoter group stand enhanced
 to 35.31% of the paid-up capital of the Company.
 
 5.  Investment in Energy Brands Inc., USA, Mount Everest Mineral Water
 Ltd, and Zhejiang Tata Tea Extraction Company Limited, China As the
 Shareholders are aware last year the Company had acquired a 25% stake
 in Energy Brands Inc., USA through one of its subsidiary companies in
 the UK. Tata Sons Ltd had acquired 5% of equity. The Coca Cola Company,
 USA offered to acquire the entire shareholding of EBI at an enterprise
 valuation of US.2 billion which the management of EBI decided to
 accept. The Tata Group, being a minority shareholder in EBI, decided to
 agree to transfer its shareholding in EBI to The Coca Cola Company,
 USA. This transaction was completed in October 2007 for an aggregate
 consideration of .02 billion and has resulted in a pre-tax profit,
 net of transaction costs, of 1.54 million in the Tetley Group. After
 necessary adjustments for costs etc. the profit on sale of shares of
 EBI considered in the consolidated results is Rs.1607.52 crores.
 
 During the year the Company acquired shares of Mount Everest Mineral
 Water Ltd (MEMW) at a price of Rs.140 per share through subscription to
 preferential offer, Open Offer to the shareholders of MEMW (other than
 promoters) in accordance with the requirements of SEBI (Substantial
 Acquisition of Shares and Takeovers) Regulations, 1997 and purchase of
 shares from the former promoters of MEMW pursuant to a Share Purchase
 agreement. The Company currently holds 31.73% of the paid-up share
 capital of MEMW. In accordance with the Articles of Association of
 Mount Everest Mineral Water Ltd and the shareholders agreement with
 its promoters the Company presently controls the Board of Directors of
 the Company and has management control as well. Consequently based on
 legal opinion, MEMW is considered as a subsidiary of the company.  MEMW
 shares are listed with The Bombay Stock Exchange Ltd and the company
 owns the Himalayan brand of natural mineral water. Your directors
 believe that the bottled water market segment offers a growing business
 opportunity in the domestic as well as in international markets. Plans
 to significantly enhance the marketing and distribution reach of the
 products of MEMW are currently under implementation.
 
 During the year, your Company entered into a Joint Venture with The
 Zhejiang Tea Group for setting up a Green Tea Extracts and Polyphenol
 extraction unit in China. Your company holds 70% stake in this joint
 venture, company Zhejiang Tata Tea Extraction Company Limited and the
 balance 30% being held by the Chinese partner, Zhejiang Tea Import and
 Export Company Limited. Currently the construction of the plant is
 under progress.
 
 5.  Performance of Tetley
 
 The performance of Tetley in international branded tea markets is
 robust with volume of sales about 6% higher than during the previous
 year. The growth of the Tetley brand was enabled by customer and
 consumer insight relevant innovation, introduction of new products,
 cash generation and in pioneering the agenda for growth of the beverage
 portfolio. Despite global competition in all key markets, aggressive
 marketing efforts have grown Tetleys market share and profits in most
 key markets.
 
 6.  Global Branded Turnover of the Tata Tea Group
 
 Over the last few years your Company and its subsidiaries have
 transformed into a branded beverage company.  The consolidated turnover
 of the Company including all its subsidiaries was Rs. 4432 crores
 (previous year Rs.4103 crores) of which 90% was contributed by the
 Groups worldwide branded tea and coffee business.
 
 8.  Restructuring of North India Plantation Operations
 
 In the last years Directors Report, the Board informed shareholders
 that they had first approved and then submitted the scheme of
 reconstruction of Companys North India plantation operations before
 the Honble High Court at Calcutta in February 2007 for their approval.
 The Scheme was approved by the shareholders at the court convened
 meeting held on 5th April, 2007. The High Court at Calcutta vide its
 Order dated 9th April, 2008 approved the said Scheme . The
 reconstruction scheme envisages equity participation by strategic
 investors as well as your company in the capital of Amalgamated
 Plantations Private Limited (APPL), the new company floated for this
 purpose. The strategic investors of APPL will potentially include
 International Finance Corporation (an arm of the World Bank),
 Infrastructure Leasing & Finance Corporation Ltd., Globally Managed
 Services and Tata Investment Corporation Ltd. Your Company will hold a
 minority shareholding in APPL. In due course APPL will issue shares to
 its employees and work towards a social transformation of the
 organization.  The new company, in addition to production and marketing
 of tea, will develop a portfolio of non-tea based activities, to
 diversify its income and growth. Your Directors wish to record the
 cooperation of the State
 
 Governments of Assam and West Bengal who, appreciating the problems
 facing the plantation industry, recognized the merit of participative
 management of plantation operations and support the reconstruction
 scheme. Your Directors also wish to recognize and appreciate the
 positive approach of our trade unions and employees towards partnering
 and developing such action. As mentioned earlier, the Regional
 Director, Eastern Region, Ministry of Corporate Affairs had filed an
 appeal before the Division Bench of Calcutta High Court on 15 th May
 2008 praying, inter-alia, for stay of the judgement of the Single Judge
 which was dismissed by the Division Bench on 16th June 2008.
 
 It may be mentioned here that Kanan Devan Hills Plantation Company
 Private Limited (KDHP) in South India to whom 17 estates were
 transferred in 2005 continues to perform well during the last three
 years, improving profit generation during this year. In the first two
 years of operation KDHP had paid dividends.
 
 With the approval of the scheme of Reconstruction for the North India
 estates, your company now owns only two tea estates in South India
 which are managed by KDHP under a management contract.
 
 9.  Review of Activities
 
 A.  Branded Tea Operations
 
 The Branded tea business continued to maintain the volume growth that
 it had recorded in the last three years. It is heartening to report
 that the national and regional brands of your company recorded a volume
 growth of nearly 15% during the year under review. In terms of volume
 market share, according to reports of independent market survey
 agencies, your company is now the market leader having outperformed its
 nearest competitor. Growth in volume was achieved during 2007-08 across
 all the brands of your Company and the highest growth was achieved by
 Tata Tea Agni. Over the last three years the branded business has grown
 35% in volume and 47% in value terms.
 
 B.  Instant Tea
 
 Instant Tea unit at Munnar produced 39.59 lakh lbs during 2007-08
 compared with 41.41 lakh lbs in the previous year. Powders are being
 developed for customers as per their requirements on an ongoing and
 need basis. New product development such as High Clarity Tea is being
 pursued. During the year the Unit had achieved the capability to
 manufacture Organic Instant Tea which has been duly certified by IMO
 Control, Bangalore as per NPOP & EU guidelines. The Unit has
 commissioned the bio-gasification project with the spent tea waste from
 the process as bio- fuel. This is an initiative to convert the process
 waste to useful energy replacing fossil fuel in Boilers. The project
 was initiated out of your Companys consciousness to become environment
 friendly and will go a long way in conserving fossil fuel.
 
 C.  Exports
 
 Total exports during the year at FOB value at Rs. 144 crores were lower
 than Rs.161 crores achieved in the previous year due to decline in bulk
 exports. Tata Tetley unit continued to meet the groups requirements in
 Australia, Eastern Europe and Middle East and performed well during the
 year. Exports of instant tea powder continues to be strong though
 volume of sales during the year was marginally lower than in the
 previous year. In May 2007 the company has entered into a joint venture
 with a Chinese partner for setting up a manufacturing and marketing
 facility in China for Green Tea Polyphenols, tea extracts, instant tea
 and other value added tea beverage products. This joint venture company
 in China is a subsidiary of your company.
 
 D.  Community Development, Employees Welfare and Environment
 Conservation
 
 During 2007-08 your company was running the operations of 24 tea
 estates in the States of Assam and West Bengal in trust and on behalf
 of APPL.The community development and employees welfare activities
 during 2007-08 showed improvement compared with the previous year.These
 activities include organizing health exhibition, baby show, cataract
 camps, sports activities, Pulse polio immunization programme, Malaria
 awareness and health awareness programmes. Through distribution of
 banners and leaflets and by organizing street dramas on personal
 hygiene, cleanliness, worm infestation, anemia, diarrhea prevention etc
 awareness about health care has been inculcated among the workmen and
 local population.
 
 In South India your Company continued its support of welfare activities
 through the General Hospital, High Range School and Shristi even after
 transfer of most of the tea estates to Kanan Devan Hills Plantation
 Company Private Limited and Tata Coffee Limited. The General hospital
 at Munnar provides medical cover not only to the employees of the
 Company and of KDHP but also to the local population.  Steps have been
 taken to improve the quality of service in the hospital and its
 strength of doctors has been strengthened by employing new doctors
 including specialists. Outreach medical camps are held which cater to
 the requirements of the local community including tribals.The High
 Range School which provides quality education to nearly 500 students
 had 100% passes both in 10th and 12th standards students.Welfare
 centres under Shristi at Munnar continued to function satisfactorily
 providing education and vocational training to mentally and physically
 challenged dependents of plantation employees.
 
 E.  Industrial Relations
 
 During the year under review, industrial relations remained generally
 peaceful at all our offices and establishments. Your Directors wish to
 record their appreciation of the positive attitude of all the
 plantation employees of the North India plantations towards the
 reconstruction agenda.
 
 10.  The Indian Tea Industry
 
 The country produced 945 million kgs. of teas during 2007 which was
 just marginally lower than the previous years production of 956
 million kgs. Exports during the year at 157 million kgs. was lower by
 62 million kgs than the previous year. Accordingly approximately an
 additional 51 million kgs of teas were available in the domestic
 market. The Packet tea market is estimated to have grown to 360 million
 kgs. in 2007 and is growing at about 4% per annum.
 
 11.  United Nations Global Compact Compliance
 
 The Tata Group is a signatory to the Global Compact issued by the
 Secretary General of the United Nations in 1999 and the following
 describes the manner in which the company is supporting the key
 principles of the Compact.
 
 The Tata Code of Conduct serves as a guide to the Company and its
 employees about how they are expected to govern their conduct in
 business dealings and documents the standards of values, ethics and
 business principles that are expected from the employees at all levels.
 The employees can decide to form their associations and the company
 treats them with dignity. The company follows a process of dialogue and
 discussions with the unions representing the workforce for settlement
 of terms and conditions of service. The company does not engage child
 labour and the statutory provisions in this regard are complied with at
 all locations. There has been no violation of human rights. The company
 provides equal opportunities to all its existing employees as also to
 all applicants for employment with the company and does not make any
 discrimination on account of caste, religion, race, colour, ancestry,
 marital status, sex, age, nationality, disability etc. As a measure of
 environment protection several environment friendly practices have been
 adopted by the company such as use of biomass, maintaining and
 protecting renewable energy sources, supporting forest management,
 scientific disposal of medical and packing material waste etc. Very
 recently the Company has commissioned a new bio-gassification plant in
 the Instant Tea factory at Munnar which would significantly reduce use
 of fossil fuel.
 
 12.  Corporate Governance & MD &A
 
 A detailed report on Corporate Governance is separately attached
 together with a report on Management Discussion and Analysis.
 
 13.  Tata Business Excellence Model
 
 In the last financial year, significant improvements have been made by
 the company in its Business Excellence journey. After having received
 the Award for Serious Adoption of TBEM in 2005, the company registered
 a further increase in the score in the last two assessments. The
 company successfully achieved the next milestone - the Award of Active
 Promotion for a first score in excess of 500.
 
 Based on the report received from the External Assessors and keeping in
 view the strategic directions of the company, a major initiative of
 Project CROSS has been commenced. A cross functional team of executives
 has been identified to functional heads and process owners to make
 improvements in their respective areas.This initiative will assist in
 improvement and integration of existing processes.
 
 An increasing pool of External & Internal Assessors is in place to
 drive step change improvements across functions.
 
 14.  Directors Responsibility Statement
 
 Pursuant to the requirement of Section 217 (2AA) of the Companies Act,
 1956 (the Act) and based on the representations received from the
 operating management, your Directors hereby confirm that :-
 
 i) In the preparation of the Annual Accounts for 2007-08, the
 applicable Accounting Standards have been followed and there are no
 material departures.
 
 ii) They have selected such accounting policies with the approval of
 the Statutory Auditors and applied them consistently and made
 judgements 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 profit of the Company for the
 financial year.
 
 iii) They have taken proper and sufficient care to the best of their
 knowledge and ability for the maintenance of adequate accounting
 records in accordance with the provisions of the Companies Act, 1956.
 They confirm that there are adequate systems and controls for
 safeguarding the assets of the Company and for preventing and detecting
 fraud and other irregularities.
 
 iv) They have prepared the Annual Accounts on a going concern basis.
 
 15.  Subsidiary and Associate Companies
 
 (i) a. As required under the Listing Agreement with the Stock Exchanges
 the Audited Consolidated Financial Statements of the Company together
 with all its subsidiary and associate companies prepared in accordance
 with applicable Accounting Standards is attached.
 
 b.  The company has been granted exemption by the Ministry of Corporate
 Affairs, from attaching with its accounts the individual accounts of
 each of its subsidiary companies subject to certain conditions.
 However, keeping in view the large investment of the company in Tata
 Tea (GB) Ltd, UK, the Directors have decided to attach the consolidated
 accounts of Tata Tea (GB) Ltd and its subsidiaries with the accounts of
 the Company as part of its unabridged Annual Report. The consolidated
 accounts of Tata Tea (GB) Ltd attached voluntarily with these accounts
 have been prepared on the basis of UK GAAP and is for 52 weeks ended
 5th April, 2008.
 
 c.  Any shareholder may either ask for a copy or inspect at the
 Registered Office a copy of the audited accounts of the subsidiary
 companies (where required to be prepared).
 
 (ii) Tata Coffee Limited, a subsidiary of your Company, reported an
 increase of 16% in total income mainly due to higher volume of instant
 coffee sales. Profit after tax at Rs. 24.68 crores was higher than the
 previous years earning of Rs.21.22 crores.The Directors of that
 Company have recommended a dividend of 70% (previous year 65%). Eight
 Oclock Coffee Company, USA , a subsidiary of Tata Coffee which was
 acquired in August 2006 recorded 40% increase in turnover due to higher
 sales and effect of full years turnover as against about eight months
 in the previous year partly impacted by adverse exchange rates.
 
 (iii) The Companys wholly owned subsidiary in USA, Tata Tea Inc.
 reported a 9% higher turnover in 2007-08 and profit after tax also
 showed satisfactory improvement compared to the previous year.
 
 (iv) The Consolidated Accounts of Tata Tea (GB) Ltd. a copy of which is
 included in this Annual Report, reflects the financial performance of
 The Tetley Group during 2007-08 prepared in accordance with UK GAAP,
 wherein the turnover as well as profit have remained flat at previous
 years level. In the international markets where Tetley operates the
 competition is intense despite which at constant exchange rates, the
 Tetley Group recorded a 6% growth in turnover. Profit after tax at Rs.
 1698 crores included exceptional income of Rs.1608 crores arising from
 sale of shares of EBI.
 
 (v) Rallis India Ltd (RIL) which is an Associate of your company has
 reported improved performance in 2007-08 . Profit after tax increased
 by 125% compared with the previous year. Directors of that company have
 recommended a dividend of 160 % compared to 80 % in the previous year.
 
 (vi) Estate Management Services, Sri Lanka, where your Company holds
 shares and which is the holding company of Watawala plantations Ltd
 (WPL) has declared for 2007-08 a dividend of 12.50% against 19.50%
 declared last year.
 
 16.  Directors
 
 Mr. K. Prihgle, Vice Chairman & CEO of the Tetley Group decided to step
 down from the Board with effect from 1st March 2008. Mr. Pringle joined
 your Board in June 2000 soon after your Company acquired the Tetley
 Group. Your Directors wish to place on record their appreciation of the
 rich and valuable contributions of Mr. Pringle during his nearly 8
 years association with the company as a Director.
 
 At the Board meeting held on 28th January 2008 your Directors have
 appointed Mr P. D. Unsworth as an Additional Director of the company
 with effect from 1st March 2008. Mr. Unsworth holds office upto the
 date of the forthcoming Annual General Meeting and the Company has
 received a notice from a member informing her intention to propose the
 candidature of Mr Unsworth as a Director of the Company at the next
 Annual General Meeting.
 
 Mr. R. K. Krishna Kumar, Mr. U. M. Rao and Dr Amrita H Patel retire by
 rotation at the forthcoming Annual General Meeting and being eligible,
 offer themselves for re-election.
 
 Brief particulars and expertise of these Directors and their other
 directorships and committee memberships have been given in the annexure
 to the Notice of the Annual General Meeting in accordance with the
 requirements of Listing agreement with Stock Exchanges.
 
 All these directors have filed Form DD-A with the Company as required
 under the Companies (Disqualification of Directors under Section
 274(1)(g) of the Companies Act, 1956) Rules, 2003 .
 
 17.  Consolidated Financial Statements
 
 As required under the Listing Agreement with the Stock Exchanges,
 Audited Consolidated Financial Statements of your Company together with
 all its subsidiary companies prepared in accordance with Accounting
 Standard 21 issued by the Institute of Chartered Accountants of India
 are attached . These statements show the financial resources, assets,
 liabilities, income, profits and other details of the Tata Tea Group of
 Companies as a single entity, after elimination of minority
 interest.They have been prepared on the basis of Indian Accounting
 Standards currently prescribed in this regard and using generally
 accepted accounting principles followed in India (Indian GAAP). It will
 be noticed from the Consolidated Financial Statements that Tata Tea
 Group had a total income in 2007-08 of Rs.4432 crores (previous year
 Rs. 4,103 crores), and Profit before Tax and exceptional items was Rs.
 493 crores (previous year Rs. 428 crores) an increase of 15%. Profit
 before Tax after including exceptional income was Rs.2059 crores
 (previous year Rs. 566 crores) and the consolidated Net Profit was
 Rs.1543 crores (previous year Rs.  443 crores).The basic earnings per
 share at Rs.250.41 grew by 223% over the previous year mainly boosted
 due to large component of exceptional income.
 
 18.  Auditors
 
 The Members are requested to appoint the Auditors and fix their
 remuneration. Messrs. N. M. Raiji & Co. and Lovelock & Lewes, the
 retiring Auditors have furnished certificates of their eligibility for
 re-appointment as required under the Companies Act, 1956.
 
 19.  Particulars of Employees
 
 Information as required under Section 217(2A) of the Companies Act,
 1956 read with the Companies (Particulars of Employees) Rules, 1975, as
 amended, are given in the Annexure forming part of this report.
 
 20.  Conservation of Energy, Technology Absorption, Foreign Exchange
 Earnings and Outgo A statement giving details of conservation of
 energy, technology absorption, foreign exchange earnings and outgo in
 accordance with Companies (Disclosure of Particulars in the Report of
 Board of Directors) Rules, 1988 is annexed to this report.
 
 21.  Concluding Remarks
 
 Your Directors are sure that the shareholders would like to join them
 in conveying their appreciation to all employees of the Company for
 their sincere and dedicated services during 2007-08 without which such
 performance would not have been possible.
 
                                    On behalf of the Board of Directors
                                                             (R.N.TATA)
 Mumbai, July 14, 2008                                      Chairman