Dear Fellow Shareholders,
It is a pleasure to be with you at this 95th Annual General Meeting of
the Company. During the year, the world progressed hesitantly down a
path to regain economic stability as it emerged from the global
meltdown of 2008. While the Western world experienced modest recovery,
Asia led by India and China registered high levels of growth. Inflation
has, however, now emerged as the new global economic challenge,
manifested by a substantial rise in the prices of almost all
commodities. In India, despite large scale tightening of monetary
policy by the RBI and other steps taken by Government, inflation has
become the major cause of concern. High international oil and food
prices are some of the principal contributors which lie outside the
country''s direct control. A silver lining, is that Indian exports
registered a record growth of 37.7% in 2010-11 over the previous year,
marking a new high post independence.
In many ways, India stands at crossroads, with a unique potential to
seize the moment and set upon an extended period of high growth. But,
this will call for visionary statesmanship and long term leadership.
The people of India are crying out for a transformational policy
framework where accountability is placed in the centrepiece. The
wholesale public support for the Lokpal campaign is but one sign of
the changing times.
While one may question the methods adopted, I do believe that
addressing the angst pro-actively will help to develop a transparent
framework which is best suited to India, emerging from the shadows of
half a century of closed-door socialism into a new Indian Century led
by an empowered youth.
Even as policy tries to find its way in this exciting environment that
challenges many preconceived notions, we in the UB Group make our own
path towards serving all our constituents and stake holders with value
creation, good governance and transparency.
It has been a remarkable year for all our companies. Both United
Spirits & United Breweries have achieved landmarks with sales exceeding
100 million cases each. In the process, United Spirits has become the
world''s largest distiller in terms of volume and United Breweries has
attained market share exceeding 50% in the highly competitive brewing
space. Other businesses too have performed well and I shall cover each
United Spirits Limited (USL):
United Spirits Limited (USL), the flagship alcobev Company of the UB
Group, achieved global leadership of the alcoholic spirts industry by
volume, selling over 113 million cases in FY 11 - a 13% leap over the
previous year. The Company''s tally of millionaire brands (ie brands
that record annual sales in excess of a million cases) rose to 21. This
includes its premium grain based whisky McDowells No 1 Platinum, which
achieved this distinction in the first year of its launch. USL has
become India''s largest FMCG Company with retail value of sales
exceeding Rs. 34,000 crores.
The Global No. 1 slot achieved by the Company is an outcome of
visionary leadership and meticulous execution spanning a gigantic
network of manufacturing units, sales locations, brands and pack sizes.
Innovation continues to be the norm at USL, and every effort is made to
create unique lifestyle experiences for consumers. As the nation
captures the demographic dividend of a youthful population, USL too is
in the forefront of the race for value.
During the year, the Company has expanded its global reach by entering
a number of new markets. New brands have been launched and more are in
the pipeline to ensure that USL''s product offering always remains fresh
and contemporary, meeting the aspirations of an evolving customer base.
This focus on the front end of the business has not come at the cost of
the manufacturing and supply chain which are so essential to produce
and move the enormous quantities of product. Significant investments
have been made into primary distillation, both through acquisition as
well as by expansions and greenfield facilities. These new facilities
are all multi substrate distilleries and thus provide the Company with
enhanced strategic ownership of key inputs as also a natural hedge to
cyclical trends in input prices of raw materials such as molasses and
grain. By capturing the distillation margin, the Company will also be
able to structurally enhance future profitability. Other investments
are planned in the future to, not only enhance share of distillation
but also in the packaging area. These will ensure sustainable double
United Breweries Limited (UBL):
United Breweries Limited (UBL) had an outstanding year, achieving
majority market share for the first time in a highly competitive beer
market, where every bottle is a high pitched battle with all the
world''s leading brewers. It is testimony to the quality of the
Kingfisher brand offering and the skills of the management team, that
the Company has been able to increase share in such an environment.
While Kingfisher Strong continues to rule the roost as the nation''s
largest selling beer, the launch of the super premium Kingfisher Ultra
has met with unprecedented success in each of the markets that it has
Ultra is priced at a premium to major international brands and features
innovations such as an embossed bottle with a flip top crown. These
never seen before in India features, have made the brand the favourite
of the aspirant consumer.
The partnership with Heineken is going well, and the Company benefits
from the technological inputs provided by Heineken. These, together
with major initiatives such as a patented bottle have gone a long way
in ensuring that the cost structure remains under control even in a
trying global environment that sees constant increase in the price of
agricultural raw materials as well as energy.
UBL has commenced brewing Heineken Lager at its brewery in Taloja,
Maharashtra. Heineken will be positioned as a ultra premium lager
targeted at the affluent and discerning consumer. Its world class
packaging including many firsts in the Indian market and complements
the great international taste that global consumers are used to.
The Company has initiated a number of corporate reorganizations, which
are at various stages of regulatory or judicial approval. Once
completed, United Breweries Limited will have fully integrated the
various companies and breweries acquired in different States over the
last several years.
UBL Benefit Trust has in July 2011 placed out treasury shares amounting
to 2.36% of the paid up capital of UBL with a major global investment
institution. The proceeds of Rs. 283.57 crores has been remitted to UBL
to reduce the debt which now stands at a very comfortable 2.55 times
equity. This will enable the Company to readily source funds for its
expansion plans in the future.
Kingfisher Airlines Limited (KFA):
Kingfisher Airlines Limited (KFA) is the nation''s largest domestic
carrier, having served over 12 million passengers across 59 domestic
and 8 international destinations, on about 366 daily flights, last
The Airline has set new standards of service and customer satisfaction
as manifested in the numerous awards, both national and global, that
KFA has won in its six years since inception.
The industry continued to benefit from strong growth in passenger
traffic on the back of an improving economic environment. Capacity
creation has lagged demand growth and this helped to stabilise yields.
Several initiatives covering both revenue enhancement and cost
management have begun to take effect.
KFA recorded its first year of EBITDA profits despite the challenges
occasioned by grounding of part of the fleet on account of issues with
the engines (resolved before the end of the year, in cooperation with
the engine manufacturer) and upward trend in fuel costs.
The grounding of 14 Airbus aircraft progressively through the year
resulted in a loss of 10% of the domestic capacity. However, through
increased aircraft usage and sharply improved productivity, domestic
passenger traffic increased by 2.6%. Ten of the 14 grounded planes were
re-inducted into service before the end of the year and the rest have
also been commissioned since then.
The Kingfisher product is working well in the international markets
that the Company serves and several new routes have been launched
during the year.
Recognising the unparalleled network and service standards, KFA has
become the only Indian airline to be invited to a global alliance.
Becoming a member - elect of ONEWorld, the premier global alliance
comprising leading names like BA, AA etc is a feather in KFA''s cap and
will help accelerate the Company''s global footprint.
Following on the improved operating performance, the Company negotiated
a debt recast with its
lenders under which, a part of the bank loans have been converted into
Equity and Preference capital, the repayment of the balance loans
extended to a nine year term and interest rates reduced. As a part of
the whole package, our Company also converted loans extended to KFA
into equity. Certain business associates who had advanced funds to KFA
have also accepted Optionally Convertible Debentures in lieu of their
Mangalore Chemicals & Fertilizers Limited (MCF):
The financial year 2010-2011 was yet another year of growth and
improved performance for Mangalore Chemicals & Fertilizers Limited
(MCF). The Company registered the highest ever turnover and Profit
Before Tax, recording an increase of 21% and 33% respectively over the
previous year. MCF also achieved a record sale of 1 Million metric
tonnes of fertilizers for the second year in a row.
A state-of-the-art Sulphonated Naphthalene Formaldehyde (SNF) plant
with an annual production capacity of 21,450 MTs of liquid SNF was
commissioned in August 2010. SNF is predominantly used in the
construction chemical industry for manufacture of super plasticizers.
The demand for the product is expected to grow and the Company can ramp
up the production capacity to meet the market needs.
Under its Integrated Nutrient Management (INM) program, the Company has
been advocating adoption of a comprehensive approach for achieving
improvement in soil fertility and productivity. Under this initiative
the Company has been constantly engaged in educating farmers and
channel partners on INM techniques that includes soil health
management, water management, plant nutrition and plant protection.
As diversification and growth strategy, MCF introduced Plant Protection
(PP) Chemicals of reputed pesticide manufactures through its channel
partner network during July 2010 and registered a turnover of Rs.12
crores during the first 9 months of operations. Going forward, the
Company plans to also introduce its own brand of PP products for a few
MCF continued to engage in various community development activities.
During the year 2 specific schemes viz. Mangala Akshara Mithra for
providing basic infrastructure to rural schools and Project Eye care
for preventing/ eradicating eye ailments in rural areas were launched
which were highly appreciated.
UB Engineering Limited (UB ENGG):
With Government of India''s continued focus on infrastructure and power
as reflected in increased budgetary outlays, there is tremendous growth
potential for the Company.
Despite intense competition in the domestic Transmission and
Distribution business, the Company ended the year with a healthy order
book of nearly Rs.1200 crores as compared to Rs.850 crores in the previous
year recording an increase of 39.91%.
Considering the potential for pre-fabricated steel structures, the
Company is in the process of setting up a fabrication unit at
UB Infrastructure Limited, a wholly owned subsidiary of the Company is
now poised to undertake projects for construction of roads, highways,
bridges etc. This entity has already been awarded two road contracts.
The Company is also exploring avenues for overseas business ventures
and has now established a Joint Venture Company UB OSTAN (India)
Private Limited for manufacture of injection moulds, injection moulding
UB Global attained the highest ever profits despite severe economic
volatility in its key European markets. This was the result of
rationalising customers, prudent foreign exchange management and a
conscious climb in the value chain. Trading in wines from South Africa,
widened the revenue stream.
On a consistent basis, UB Global has been picking up the best export
performance award from APEDA in the Alcoholic Beverages category. For
the year, it was honored with the ‘Golden Trophy''. Also, this year, the
Federation of Karnataka Chambers of Commerce & Industry conferred on UB
Global, the Star Exporter Award in Merchant Exporter category.
THE COLLECTION - UB CITY
The super luxury high end Mall - The Collection at UB CITY in Bangalore
has transformed the luxury retail landscape in India, and increasingly
affluent Indian consumers shop here for a dazzling array of exclusive
products. Till the advent of this prestigious Mall, patrons of high-end
fashion had not been offered the right setting and ambience in India.
The Collection in UB CITY - the first of its kind in India, conceived
and developed by the UB Group is spread over 1,25,000 square feet of
sheer luxury, designed on the lines of a Venetian palazzo. It
comprises more than 40 retail outlets, most of which are international
high-end luxury brands as well as nine food and beverages outlets.
White Italian marble decorates almost every surface of the mall, while
the long corridors are dotted with recognizable designer names on
The brand that symbolizes luxury globally, Louis Vuitton, was the first
to open their doors to consumers in Bangalore. Others, like Ermenegildo
Zegna, Salvatore Ferragamo, Canali, Etro, Jimmy Choo, Bottega Veneta,
Kimaya, B & O, Corneliani, Paul Smith and Diesel occupy space at The
Collection. Lifestyle brands such as Good Earth, Daum, Lladro and
Rosenthal find numerous clients looking for sophisticated products to
adorn their homes. Horologie is represented by names like Mont Blanc,
Omega, Rolex and Tag Heuer. Estee Lauder, known for their premium
quality cosmetics and skin care products has an exclusive store at this
mall. Music concerts, art exhibitions, and many charitable events are
hosted at its elegant and exclusive space.
KINGFISHER TOWERS - RESIDENCES AT UB CITY
Finally, Bangalore can boast of upscale residences that will vie with
some of the premium addresses in the world. The UB Group''s proposed
super luxury residential project will come up soon on Vittal Mallya
Road within the vicinity of the lush green Cubbon Park.
KINGFISHER TOWERS will, undoubtedly, be the most sought after and
exclusive residential project to be
sold in Bangalore''s real estate history. With over seven lakh square
feet of saleable area, it will be as tall as UB Towers with over thirty
floors, housing 75 flats, with two basements, rooftop helipad and four
floors dedicated to parking over 500 cars … the list of firsts is
This will be an exemplary piece of contemporary architecture which will
add to the grandeur of UB CITY.
As part of UB''s commitment to society at large, we have consistently
initiated steps to improve the lives of the local communities that we
engage with by providing primary education, healthcare, conservation of
water and energy and renewal of the water tables.
In conclusion, I wish to thank my colleagues on the Board and the
Management team for their support and contribution during the year.
Shareholders, suppliers, customers, the financial community and
employees have all contributed to UB during the year and I thank them.
Dr. Vijay Mallya
August 25, 2011 Chairman