DIRECTORS' REPORT AND MANAGEMENT DISCUSSION AND ANALYSIS
To the Members
Your Company's Directors are pleased to present the 84th Annual Report of the Companyalong with Audited Accounts for the financial year ended 31st March 2017.
1. FINANCIAL PERFORMANCE (STANDALONE)
| || ||(Rs. crores) |
| ||For the year ended 31st March 2017 ||For the year ended 31st March 2016 |
|Revenue from operations (including excise duty) ||34487 ||33491 |
|Profit before exceptional items and tax ||6155 ||5977 |
|Profit for the year ||4490 ||4137 |
1.2 Category Wise Turnover
| || || |
| || |
For the year ended 31st March 2017
|For the year ended 31st March 2016 |
| ||Sales ||Others* ||Sales ||Others* |
|Home Care ||11123 ||223 ||10585 ||228 |
|Personal Care ||16078 ||226 ||15791 ||220 |
|Refreshments ||1102 ||22 ||1078 ||18 |
|Foods ||4795 ||53 ||4434 ||48 |
|Others (including Exports Infant and Feminine Care) ||797 ||22 ||1043 ||9 |
|TOTAL ||33895 ||546 ||32930 ||524 |
*Others include service income from operations relevant to the respective businesses.
1.3 Summarised Profit and Loss Account
| || ||(Rs. crores) |
| ||For the year ended 31st March 2017 ||For the year ended 31st March 2016 |
|Sale of products (including excise duty) ||33895 ||32929 |
|Other operational income ||592 ||562 |
|Total Revenue ||34487 ||33491 |
|Operating Costs ||28440 ||27742 |
|Profit Before Depreciation Interest Tax (PBDIT) ||6047 ||5749 |
|Depreciation ||396 ||321 |
|Profit Before Interest & Tax (PBIT) ||5651 ||5428 |
|Other Income (net) ||504 ||549 |
|Profit before exceptional items ||6155 ||5977 |
|Exceptional items ||241 ||(31) |
|Profit Before Tax (PBT) ||6396 ||5946 |
|Taxation ||1906 ||1809 |
|Profit for the year ||4490 ||4137 |
|Basic EPS (Rs.) ||20.75 ||19.12 |
The financial statements for the year ended 31st March 2017 are the first the Companyhas prepared under IND AS (Indian Accounting Standards).
The financial statements for the year ended 31st March 2016 have been restated inaccordance with IND AS for comparative information.
Your Directors are pleased to recommend a Final Dividend of Rs. 10/- per equity shareof face value of Rs. 1/- each for the year ended 31st March 2017. The Interim Dividend ofRs. 7/- per equity share was paid on 15th November 2016.
The Final Dividend subject to the approval of Members at the Annual General Meeting on30th June 2017 will be paid on or after Wednesday 5th July 2017 to the Members whosenames appear in the Register of Members as on the date of Book Closure i.e. fromSaturday 24th June 2017 to Friday 30th June 2017 (both days inclusive). The totaldividend for the financial year including the proposed Final Dividend amounts to Rs.17/- per equity share and will absorb Rs. 4394 crores including Dividend DistributionTax of Rs. 715 crores.
3. RESPONSIBILITY STATEMENT
The Directors confirm that:
in the preparation of the Annual Accounts the applicable accounting standardshave been followed and that no material departures have been made from the same;
they have selected such accounting policies and applied them consistently andmade judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe profits of the Company for that period;
they have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;
they have prepared the annual accounts on a going concern basis;
they have laid down internal financial controls for the Company and suchinternal financial controls are adequate and operating effectively; and
they have devised proper systems to ensure compliance with the provisions of allapplicable laws and such systems are adequate and operating effectively.
MANAGEMENT DISCUSSION AND ANALYSIS
To avoid duplication between the Directors' Report and the Management Discussion andAnalysis we present below a composite summary of performance of the various businessesand functions of the Company.
4. ECONOMY AND MARKETS
While the global economies continued to witness slow growth during the current year aswell the Indian economy on a macro basis stayed fairly robust. The below par performanceof global economy was reflected in a continued slowdown in growth in most emerging anddeveloping economies driven by weaker capital inflows and a subdued global trade. Indiahowever was one of the faster growing large economies in the world with a currency thatperformed better than most other emerging market currencies.
There was a significant upturn in commodity prices after a year of deflation. Consumerspending remained subdued during the early part of the year impacted by two years ofdrought. The gradual recovery of the market was temporarily impacted by adverse liquidityconditions post demonetisation and especially in the December quarter. Overall this was ayear of moderate growth rates across FMCG categories.
Given the backdrop of slow market growth volatile input cost environment andheightened competitive intensity the operating environment for your Company during theyear continued to be challenging.
Your Company's performance for the year 2016-17 has to be viewed in the context ofaforesaid economic and market environment.
5. PERFORMANCE OF BUSINESSES AND CATEGORIES
Your Company delivered yet another year of resilient performance aided by healthymarketing and trade investments exciting innovations and stepped up market developmentand sharper in-market execution. Your Company continued to leverage and benefit from theinputs received from Unilever across various aspects of the business includingtechnology innovation services and marketing mix that enabled your Company to launchseveral new offerings to serve the needs of consumers.
The year began with a sharp upturn in the commodity cycle with crude and vegetable oilprices rising significantly whilst the market continued to remain volatile. Your Companyhad proactively passed on the benefits of lower commodity costs to the consumers when thecommodity prices were deflationary last year. During the year your Company had to takecalibrated price increases as commodity prices increased sharply.
To fuel growth your Company continued to deploy effective cost savings programmes.These savings not only aid in deploying investments to build brands and capabilities butalso help the Company in delivering its profit objective. During the year an extensivereview of the business under the Zero Based Budgeting' project was conducted andyour Company has crafted some well-considered plans to further drive operatingefficiencies in the coming years.
Your Company strives to be the supplier of choice across the distribution channels itoperates in. During the year your Company continued to focus on quality of distributionin General Trade improving in-store presence in Modern Trade and building capabilities ine-commerce. Your Company continued to build upon the Winning in Many Indias' agendato benefit from geographical focus while leveraging scale. Your Company also continued tofocus on magnifying innovations in the marketplace through brilliant execution and onbuilding markets of the future or what we call as market development'.
During the year your Company re-organised its business under four major categoriesi.e. Home Care Personal Care Foods and Refreshments. The change in the reportingstructure is in compliance with the new Indian Accounting Standards (converged IFRSReporting). Home Care category comprises Fabric Wash Household Care and Water businesses.Personal Care category includes Personal Wash Skin Care Hair Care Oral Care ColourCosmetics and Deodorants. Foods category includes Packaged Foods and Popular Foods.Refreshments category comprises Tea Coffee Ice cream and Frozen Desserts. The residualsegment of Others includes Exports Infant and Feminine care.
5.1 Home Care
The year witnessed volatile crude oil prices coupled with significant competitiveintensity. Your Company optimised media and trade spends maintained competitive pricesand invested in developing new segments to ensure sustainable growth.
The Fabric Wash business delivered strong topline growth through premiumisation led bySurf. In the emerging segments of Machine Wash Surf excel Matic and Comfort FabricConditioner continued to perform well. Your Company successfully launched Surf excel Maticliquids during the year. Sunlight soap which has been protecting the colours of theconsumers' clothes for 75 years launched a unique mentorship programme -SunlightBanglar Guner Rang' to preserve the true colours of Bengal which is its rich culture.
In Household Care Vim continued to develop and premiumise the category through theliquids portfolio. The proposition of power of 100 lemons' combined with a superiorproduct and great activation helped the product become more appealing and desirableamongst consumers. Domex brought its social mission alive by actively driving awarenessabout the issue of open defecation in India through the See-Through ToiletInstallation' in Mumbai during the Global Citizen event. The activation provided consumerswith first-hand exposure to the difficulties and hardship associated with the practice ofopen defecation thereby driving the need for improved access to toilets.
Pureit the world's largest selling water purifier continued to strengthen itsposition as a responsible and purpose-driven brand. Pureit's mission is to provide safedrinking water to 100 million people by 2020. By 2016 Pureit provided over 74 billionlitres of safe drinking water. Pureit continued to target potential consumers from thebottom of the pyramid and partnered with Micro Finance Institutions (MFIs) to provide themaccess to safe drinking water through affordable instalments. Pureit expanded its play inthe growing branded Reverse Osmosis (RO) segment with a successful launch of Classic ROrange of water purifiers. This has democratised the segment by providing consumers aquality range of RO water purifiers at an affordable price.
5.2 Personal Care
The strategic thrusts of Personal Care business include strengthening the coreaccelerating premiumisation investing in developing segments of the future and buildingcapabilities such as digital and e-commerce for the future. This was achieved throughinnovations cut-through advertising brand engagement platforms and touching millions ofconsumers through market development efforts. Your Company believes that there issubstantial potential that exists in all segments within its Personal Care business. Themission of this business is to inspire a billion Indians to attend better to theirpersonal care.
The year witnessed a significant inflation in key raw material prices for the PersonalWash Category. Your Company took calibrated pricing actions to offset the cost increases.The price increases in this category impacted the volumes. The business witnessed mutedgrowth in this category for most part of the year. With steps taken to address some issuesaround Lux Hamam and Lifebuoy soap brands the growth trend was reversed in the lastquarter with the category registering reasonable growth. Lux was supported by a bigintervention the 'Lux Golden Rose Awards' a buzz-creating brand engagement platform.Your Company continued to invest behind market development of handwash and bodywash.
Skin Care category grew well on the back of both core as well as premium offerings.Fair & Lovely drove consumption through a focussed campaign based on local insightsand premium offerings like BB cream. Pond's sustained its momentum by strengthening itsproposition of Spotless Radiance' while Lakm continued to lead with innovationslike the colour-transform' cream. Your Company continued to lead market developmentof body lotions with Vaseline through the healing power' activation of the brand.Your Company refreshed the portfolio play in Facial Cleansing across Fair & LovelyPond's and Lakm. Towards the end of the year your Company made a foray into the BabyCare segment with the launch of a range of products under the brand Baby Dove'.
Hair Care sustained its strong performance with all brands growing ahead of themarket. Innovations and well-crafted activations have led to a preference for Hair Carebrands with Dove Clinic Plus Sunsilk and TRESemm all doing well.
Oral Care had a subdued performance. Closeup was relaunched with an improved producttowards the latter part of the year and the brand continued to build the youth-orientedcampaign on making your First Move'. Pepsodent has also been strengthened with animproved flavour and an activation built on the insight of children craving for sweetsduring festive occasions. The Oral Care category is undergoing a shift in its constructwith naturals' freshness' and care & problem solution' segmentsmoving towards equal proportions in the market. This reshaping of the category has creatednew growth opportunities for your Company especially in the naturals' segment.
Lakm Colors continues to drive premiumisation by upgrading users through the longlasting 9 to 5' platform and taking the latest trends from the runway to theconsumers under the Absolute' platform. The brand has continued to pioneer thelaunch of the best makeup innovations with the launch of Argan Oil variant as well asEnrich Matte Lipsticks which have been well received.
In Deodorants through Axe your Company has further strengthened its position at thepremium-end with the launch of fine fragrances under the Signature range while buildingits current assortment with new variants in the perfume sprays segment.
During the year your Company made its foray into the fast-evolving naturalssegment' by reviving the brand LEVER Ayush and through the acquisition of Indulekha. LEVERAyush was first launched in the year 2002 both in product and services space. LEVER Ayushhas been re-launched with new mixes in select geographies as a master brand across majorcategories like Skin Cleansing Skin Care Hair Care and Oral Care and promises the 5000year old wisdom of ayurveda for modern day beauty problems. Indulekha has started off wellpost acquisition gaining distribution and through improved marketing under your Company.Your Company will continue to expand the footprint of this brand. Your Company alsointroduced naturals' variants in core brands such as Fair & Lovely AyurvedaClinic Plus Ayurveda and TRESemm Botanique to ensure your Company builds acomprehensive portfolio at scale in this fast growing segment.
The Foods business of your Company comprises culinary products such as jams ketchupsand squashes under Kissan; soups soupy noodles meal makers and seasonings under Knorrand staple foods comprising atta and salt under Annapurna. While your Company continued togrow ahead of the markets in most categories the overall growth of the categories andconsequently our business slowed down as compared to the previous years.
Kissan maintained its leadership across categories while increasing penetration andreaching more households than ever before. Both ketchup and jam showed strong distributionincrease and strengthening of consumer preference. The launch of three exciting newvariants of premium jams helped the brand reach new households while contributing to thegrowth of the jams category.
Knorr brand had a healthy performance with the convenient instant soups singleserve' format performing particularly well. Your Company expanded its cook up' soupofferings with the launch of international flavours in a 4 serve' format. Thissupported by widespread sampling ensured that the soup category has grown in relevance asa healthy in-between meal option. The Knorr Meal Maker portfolio continued to be led byin-store sampling and activations.
Your Company continued its focus on improving the profitability of the Annapurnabusiness by driving efficiencies across the value chain.
Your Company also scaled up its experiential marketing initiatives. Given the relevanceof market development it is critical that consumers sample your Company's products anddiscover the great taste and convenience that the products offer. As an important playerin the industry your Company continues to partner with the Regulator towards a morebalanced approach to foods regulations which takes care of the consumer's interest whilefostering innovation.
The Refreshments business delivered a good year with both Beverages and the Ice cream& Frozen Desserts portfolio registering healthy growth. Most of the brands continuedto grow well and improved their brand equity scores. There were new products and variantslaunched across categories which were received well by consumers.
The Beverages segment delivered broad based growth across both Tea and Coffee. Thegrowth across key brands was driven by leveraging the Winning in Many Indias'approach.
Brooke Bond Red Label walked the talk on its purpose of making the world a morewelcoming place' by sponsoring India's first transgender music band Brooke Bond RedLabel 6-Pack Band. This initiative was lauded as a path-breaking one and was conferredwith several prestigious national and international awards including a Grand Prix at theCannes Lions Festival.
Brooke Bond Red Label and 3 Roses Natural Care Tea with its differentiated immunitybenefit of using the goodness of ayurvedic ingredients continued to delight consumers.Your Company continued to grow the Green Tea category under the brand Lipton on the backof sustained market development.
The Coffee business under the brand BRU delivered strong growth led by the instantcoffee franchise. The brand continued its pioneering task of consistently drivingpenetration of instant coffee through innovative sampling methods and a compellingproposition. The pure coffee franchise of BRU Gold continued to lead categorypremiumisation.
The Ice cream & Frozen Desserts business continued to deliver strong performancewith double-digit growth and improved profitability. During the year there was increasedfocus on widening distribution and making brands more accessible for consumers. Theimpulse portfolio continued to grow faster with improved brand equity across Cornetto andFeast. New variants of Cornetto as well as Kulfi performed well in the market.
5.5 Subsidiaries and Joint Venture
The summary of performance of the subsidiary and joint venture companies is providedbelow:
Unilever India Exports Limited
Unilever India Exports Limited (UIEL) is a 100% subsidiary of your Company and isengaged in FMCG exports business. The focus of the FMCG exports operation is two-fold: todevelop overseas markets by driving distribution of ethnic brands such as Kissan BRUBrooke Bond Lakm Pears among the Indian diaspora in international markets and toeffectively provide cross-border sourcing of FMCG products to other Unilever companiesacross the world.
The topline growth of the Company was driven by robust growth in Personal Productssegment. Brands like Pears Lakm Fair & Lovely and Vaseline have registered healthyperformance in the focussed markets. Overall the business delivered healthy profit duringthe year. UIEL continued to be one of the most preferred sourcing companies for otherUnilever countries.
Lakme Lever Private Limited
Lakme Lever Private Limited (LLPL) is a 100% subsidiary of the Company and has 355salons of which 54 salons are LLPL owned / managed and 301 are franchisee salons. LLPLalso operates a manufacturing unit at Gandhidham which carries out job work operations foryour Company manufacturing toilet soaps bathing bars and detergent bars.
In a market witnessing lower discretionary spends LLPL expanded its salons businesswith a net addition of 75 salons. The Customer Club was reinvented as Runway Rewards withdelightful introductions like a Showstopper tier along with thematic promotion campaignswhich helped drive footfall growth. The Show Stopping Bridal Collection was launched atLakm Fashion Week and activated with the Cover Bride campaign with the winning bridegracing the cover of a leading women's magazine. The business is implementing anintegrated IT platform which will leverage technology to drive growth and optimiseresources. Your Company will continue to support LLPL to drive growth in this attractivemarket opportunity.
The Gandhidham unit of LLPL is one of the largest Dove Bar manufacturing units of yourCompany. During the financial year the unit doubled the manufacturing capacity of Dove.The unit has performed well and has delivered key financial parameters. This unit has alsopioneered end-of-line operations through high speed lines and auto-bundling machines forPersonal Wash category.
Pond's Exports Limited
The leather business under the subsidiary Pond's Exports Limited faced a tough yeardue to challenging economic conditions in Europe-its main market which was exacerbated bya weaker Euro.
During the year your Company sold the movable assets and inventory of the leatherbusiness to M/s. Hindustan Foods Limited and thereby discontinued the businessoperations.
Unilever Nepal Limited
Unilever Nepal Limited (UNL) a subsidiary of your Company is engaged inmanufacturing marketing and sale of detergents toilet soaps personal products andlaundry soaps in Nepal.
In circumstances that remained tough in Nepal UNL has delivered profitable growth.Unilever Nepal brands continue to have very good equities and are well admired. Thestrength of brands and continued investments behind these brands have enabled UNL tomaintain leadership across categories in the market.
Hindustan Unilever Foundation
Hindustan Unilever Foundation (HUF) is a not-for-profit Company that acts as a vehicleto anchor water management related community development and sustainability initiatives ofHindustan Unilever Limited. HUF operates the Water for Public Good' programme withspecific focus on farm based livelihoods in 54 districts across India in partnership with20 NGOs. HUF also supports several knowledge initiatives in this area. This partneredprogramme of HUF has achieved the following community benefits:
Water conservation: Cumulative and collective water potential of more than 300billion litres has been created through improved supply and demand management of water.
Crop yield: The projects undertaken have generated additional agricultureproduction of more than six lakh tonnes.
Person days: These projects have generated more than 37 lakh person days ofemployment.
Capacity building: Over one lakh and seventy thousand people have been trainedin water conservation activities better agricultural practices and related areas.
The cumulative impacts of these projects initiated by HUF have been independentlyassured.
Bhavishya Alliance Child Nutrition Initiatives
Bhavishya Alliance Child Nutrition Initiatives (BACNI) is a not-for-profit subsidiaryof the Company and conducts hand washing behaviour change programme with an aim to reducediarrhoea and pneumonia in children under the age of five years.
During the year the Bihar Handwashing programme (BHP) reached out to 3.3 millionchildren across 8482 schools and conducted 7600 sessions to educate mothers who are thekey influencers for their children. Through our sustained efforts under this programmethe Government of Bihar has issued a directive to include Handwashing Session beforeMid-Day Meals thereby assisting in inculcating the habit of handwashing with soaps.
Daverashola Estates Private Limited is a subsidiary of the Company which has beenexploring opportunities to enter into appropriate business activities.
Jamnagar Properties Private Limited is a subsidiary of the Company whose land isunder litigation.
Levers Associated Trust Limited Levindra Trust Limited and Hindlever TrustLimited subsidiaries of the Company act as trustees of the employee benefits trustsof the Company.
Kimberly Clark Lever Private Limited
Kimberly Clark Lever Private Limited (KCLL) is a joint venture between your Company andKimberly-Clark Corporation (KCC) USA with infant care diapers as its primary productcategory sold under the brand Huggies and feminine care products sold under the brandKotex. The business continued to face tough competitive environment especially on pricingand trade spends. There is a continuing shift in the market from regular diaper to thepants version which had an adverse impact on the growth. During the year your Companyannounced its intention to divest its stake in KCLL to the JV partner KCC. This decisionis in line with the Company's objective to focus on the core business. In the interimboth parties remain committed in ensuring that the business operations continue as usualand the transition is smooth.
Pursuant to the provisions of Section 129(3) of the Companies Act 2013 (Act) astatement containing salient features of financial statements of subsidiaries associatesand joint venture companies in Form AOC 1 is attached to the Accounts. The separateaudited financial statements in respect of each of the subsidiary companies shall be keptopen for inspection at the Registered Office of the Company during working hours for aperiod of 21 days before the date of the Annual General Meeting. Your Company will alsomake available these documents upon request by any member of the Company interested inobtaining the same. The separate audited financial statements in respect of each of thesubsidiary companies are also available on the website of your Company athttps://www.hul.co.in/investor-relations/annual-reports/.
Your Company has not made any downstream investments in subsidiaries or joint ventureduring the year.
6. CUSTOMER DEVELOPMENT
The Customer Development eco-system of your Company encompasses capturing the demandfulfillment of demand and generation of demand. As far as demand capturing is concernedthe focus of your Company has been on driving quality of coverage and increasing theassortment using data-centric and analytical approach. Your Company has also set up anintegrated front-end system for performance and presence management. With respect todemand fulfillment process and technology interventions have been used for improvingservice and efficiencies. For demand-generation the strategy of your Company encompasseswinning in traditional trade in both open and closed formats winning in route tomarket' as well as winning in emerging channels like Modern Trade and e-commerce.
In traditional trade the focus has been on optimal servicing with appropriate beatlengths and in improving the in-store visibility. In route to market' your Companyhas been driving the distribution of the market development portfolio throughdifferentiated investment pattern.
In Modern Trade the foundation of your Company's success is based on collaborativeplanning with key customers. Your Company has also significantly improved investments inassisted selling'. Building brands in store' remains a key thrust in thischannel and has yielded good results and translated into healthy growth during the year onthe back of growing brand penetrations. The e-commerce space is growing exponentially inIndia. Your Company has made significant investment in capability building in e-commerceand is committed to being the best FMCG player in this channel. A specialised team isworking closely with all key e-commerce partners to create competitive advantage for thebusiness and scaling up the business at a rapid pace.
Your Company has derived the benefits of tailor-made consumer and customer plans acrosscategories as part of Winning in Many Indias' agenda due to strengthened connectwith customers consumers and shoppers. This will continue to be a source of competitiveadvantage for your Company.
Your Company continues to focus and drive Project Shakti' the initiative fordriving social responsibility and sustainability aimed at enhancing livelihoods andbuilding opportunities for small scale entrepreneurs in rural India. Your Company has nowclose to 72000 Shakti Entrepreneurs (Shakti Ammas) across 16 states making a respectableliving by distributing your Company products.
Your Company has been a thought leader in the area of big data and analytics as a toolto drive sustainable growth. The Company uses intelligent analytics at the back end todeliver better on-shelf availability in stores. Your Company continues to strengthen thiscapability to stay ahead of the competition.
7. SUPPLY CHAIN
Your Company's Supply Chain agenda was centered on five core areas - Customer ServiceExcellence Creating Consumer Delight by dedicated end-to-end Quality Focus CreatingValue through cost savings programme Sustainability and Supplier Partner to WinProgramme.
The service levels improved steadily with Customer-Case Fill-On-Time (CCFOT) increasingto more than 95%. This was achieved by developing a segmented approach and having a clearroadmap developed for Category Geography and Channels. Your Company continues to focus onlast-mile delivery improvement programme and on strengthening the Sales and OperationPlanning (S&OP) process to facilitate shorter planning cycles and response to marketdemands. This capability helps to align goals across Finance Customer DevelopmentMarketing Research & Development and Supply Chain.
During the year your Company set up a new state-of-the-art manufacturing facility inDoom Dooma Industrial Estate Assam in record time and has already commenced commercialproduction. The first despatch was completed on 15th March 2017. This unit will augmentthe production capacity of Personal Care products and make it a strategic sourcing sitefor the Company. The unit reinforces the Company's long-term commitment to the state ofAssam and to Make in India'.
Your Company acknowledges the excellent support it received in this regard from theGovernment and the local community. Your Company continued its focus on quality by linkingand improving on-shelf consumer relevant quality standards thereby bringing togetherevery part of the business to work on improving overall consumer experience.Delighting consumers everyday' is core to how your Company drives quality in itsproducts and has been able to substantially improve the on-shelf quality by 37% over 2015.
With a robust funnel of savings programme your Company continued on its path ofdelivering consistent end-to-end cost savings and achieved savings of six per cent of thetotal cost. Your Company brought down its inventory holding by 2.7 days.
Your Company has increased its renewable energy share to 28% in line with the UnileverSustainable Living Plan commitments. This was achieved by converting agricultural processwaste from its operations into fuel besides increasing the utilisation of traditionalbiofuels like agri-waste. Your Company installed equipment to convert process wastes suchas spent coffee and tea from beverages factories into fuel for boilers and air-heaters.Specialised burners were installed to utilise heavy vegetable oil residue from DFAoperations as fuel substituting furnace oil. Factory teams also worked to reduce specificenergy consumption by eliminating idle operation of equipment rightsizing of drives andinstallation of digital controllers. This has also contributed to reduction in yourCompany's CO2 footprint by 13% over the previous year.
All factories and warehouses continue to maintain zero non-hazardous waste tolandfill site' status. Year-on-year reduction of water usage continues to be a keypriority for your Company. Increase in harvested rain water utilisation in processesreuse of treated effluent water reduction of water losses from boiler and cooling towerblowdown process water requirement optimisations etc. have all contributed to reductionof fresh water abstraction and lowering of water consumption across factories by nine percent over previous year.
Your Company continues to progress on world-class manufacturing journey and covers 25%of production cost perimeter. Factories started delivering more than 10% cost savings onperimeter by eliminating non-value added activities.
Your Company's Partner to Win' programme aims at developing Joint Business Planswith suppliers and business partners. It has resulted in reduced lead-time and costsimproved reliability and new innovation- delivery.
8. RESEARCH & DEVELOPMENT
Your Company continues to derive sustainable benefit from the strong foundation andlong tradition of Research & Development (R&D) at Unilever which differentiatesit from many others. New products processes and benefits flow from work done in variousUnilever R&D centres across the globe including India. The Unilever R&D labs inMumbai and Bengaluru work closely with the business to create exciting innovations to helpus win with our consumers. With world-class facilities and a superior science andtechnology culture your Company is able to attract the best talent to provide asignificant technology differentiation to its products and processes.
The R&D programmes undertaken by Unilever globally are focussed on thedevelopment of breakthrough and proprietary technologies with innovative consumerpropositions. The R&D team comprises highly qualified scientists and technologistsworking in the areas of Home Care Personal Care Foods Refreshments and WaterPurification and critical functional capability teams in the areas of RegulatoryClinicals Digital R&D Product & Environment Safety and Open Innovation.
Your Company has an existing Technical Collaboration Agreement (TCA) and a Trade MarkLicense Agreement (TMLA) with Unilever which was entered in the year 2012. The TCAprovides for payment of royalty on net sales of specific products manufactured by yourCompany with technical know-how provided by Unilever. The TMLA provides for the paymentof trade-mark royalty as a percentage of net sales on specific brands where Unileverowns the trademark in India. The pace of innovations and the scope of services haveexpanded over the years. Unilever's global resources are providing greater expertise andsuperior innovations. Your Company is enjoying the benefits of an increasing stream of newproducts and innovations backed by technology and know-how from Unilever such as thosementioned below. This has helped in bringing to the Indian consumers bigger better andfaster innovations.
During the year your Company introduced several innovations across categories. Dove abeauty brand trusted by women and mothers around the world recently marked its entry intothe Baby Care category in India with the launch of Baby Dove during the year. Developedfor babies with normal to dry skin the range includes the Baby Dove Rich Moisture BabyBar Baby Lotion Diaper Rash Cream Baby Wipes and a Sensitive Moisture Baby Bar to takespecial care of babies with sensitive skin. The range is built on its heritage ofmoisture mildness and care to develop cleansers enriched with Dove's iconic moisturising cream - a technology to protect the skin's natural barrier.Dermatologist-tested and pediatrician-approved Baby Dove range is formulated uniquely toreplenish essential nutrients and is hypoallergenic and pH-neutral for skin types of allbabies.
Lifebuoy continued to delight consumers by creating winning mixes and raising the baron its germ protection technologies through Active Silver Formula to give strongestprotection against both ordinary and stronger infection-causing germs.
In the Fabric Wash business Surf excel Hand wash and Matic powders were relaunchedwith increased stain-removal efficacy thereby driving better in-wash tough and oilystain removal. Fabric conditioner was also relaunched with improved performance andfragrance delivery.
In the Water business your Company launched Classic RO' - a range of fiveproduct variants in the affordable reverse osmosis (RO) devices' segment of themarket. The R&D team developed a novel manufacturing process for making carbonfilters which resulted in a 60% reduction in emissions with a significant reduction inelectricity consumption CO2 manpower and water-use compared to the earlierprocess.
In the Skin Care business Pond's for the first time launched pimple-clear face washbased on thymol-terpineol technology to visibly clear pimples such that the differencecould be seen in just three days.
Next generation skin-lightening molecule Hexyl Resorcinol' and diamond'powder was introduced in Lakm Perfect Radiance Serum portfolio to claim Hi-ResCrystal Radiance'. Lakm also for the first time introduced a transformation technologyin the form of Lakm 9 to 5' CC transform cream with key claim of Fairnesscream that changes color to give a make-up finis'.
In Hair Care TRESemm offered Beauty-full Volume' where unique Reverse WashSystem was developed for consumers seeking voluminous hair. TRESemm was awardedProduct of the Year' for its range of shampoo and conditioners.
LEVER Ayush introduced 16 products and 23 SKUs as part of the launch across Skin Careand Cleansing Body Oral and Hair Care.LEVERAyushproductsformulatedwithayurvedicingredientswritteninthe 5000-years-oldgranthas' use ingredients that are highly beneficial to the skin hair and teeth.The goodness of ingredients like turmeric saffron cow's ghee cardamom rock salt etc.are authentic solutions to modern day beauty problems.
In Foods the year saw the launch of new variants of premium jams of Kissan. These havemet with strong initial success and we continue to expand their availability footprint.
In Beverages your Company launched for the first time boilable tea bags in 3 Rosescalled tasty tea buds' in Tamil Nadu as a value-added tea proposition. As part ofyour Company's commitment to sustainable sourcing your Company contributes towardsdefining Maximum Residue Limits (MRLs) for pesticides in tea through the Plant ProductionCode Committee an initiative of the Tea Board of India. Unilever has commissioned aresearch project with Centre for Agriculture and Biosciences International (CABI) and TeaResearch Institutes in India to evaluate ecological approaches for pest management in tea.
R&D has further contributed to the Company's sustainability agenda. Your Companywas ranked 2nd in the first-ever India Access to Nutrition Index (ATNI). YourCompany continues to work on improving the taste and nutritional quality of its productsusing globally recognised standards. 100% of the children's Frozen Desserts and edible iceproducts have 110 kilocalories or fewer per portion.
With access to strong scientific expertise and the capability to deliver high valuetechnologies developed globally by Unilever your Company is well-placed to leverage theopportunities to drive faster growth on the back of strong support from R&D as well asbrand development capabilities. At the same time your Company is equipped to meet thechallenges of increased competition.
8.1 Technology Absorption
Your Company maintains strong and healthy interactions with Unilever through awell-coordinated management exchange programme which includes setting out governingguidelines pertaining to identifying areas of research agreeing timelines resourcerequirements; scientific research based on hypothesis testing and experimentation whichleads to new / improved / alternative technologies; supporting the development oflaunch-ready product formulation based on research and implementation of the launch readyproduct formulations in markets. Your Company continuously imports technology fromUnilever under the Technical Collaboration Agreement and the same is fully absorbed. Thebenefits derived by your Company through technology absorption and R&D have beendetailed earlier in this report.
Your Company also receives continuous support and guidance from Unilever to drivefunctional excellence in marketing supply management media buying and IT among otherswhich help your Company to build capabilities remain competitive and further step-up itsoverall business performance. Unilever is committed to ensuring that the support in termsof new products innovations technologies and services is commensurate with the needs ofyour Company and enables it to win in the marketplace.
The details of expenditure on scientific Research and Development at the Company'sin-house R&D facilities eligible for a weighted deduction under Section 35(2AB) of theIncome Tax Act 1961 for the year ended 31st March 2017 are as follows:
|Capital Expenditure ||: Rs. 2 crores |
|Revenue Expenditure ||: Rs. 28 crores |
9. ENVIRONMENT SAFETY HEALTH AND ENERGY CONSERVATION
Your Company upholds Safety Health and Environment as non-negotiable values. TheCompany's Safety approach not only encompasses employees and assets but also thecommunities that it operates in. An environment of safe work safe behaviour and safetravel is achieved through implementation and internalisation of your Company's vision ofan injury-free organisation. This is reflected in the continually reducing injury rateswhich came down by over 20% in 2016 as compared to 2015. The absolute injury rate in 2016was less than 0.4 injuries per million man-hours worked.
To further improve the safety performance your Company has introduced WCM RiskAssessment Tools' at specific sites in addition to the existing BeSafE initiatives acrossall factories and offices. BeSafE is a behavioural safety framework which helps inbringing about a change in the behaviour patterns and aims to eliminate unsafe acts byimproving risk perception of the employees be it in factories offices or homes.
Your Company has a robust system of recording and investigating safety incidents. Allcases of injuries requiring medical intervention are reported in Unilever's global safetyportal and the same is audited by an external agency. Learnings from safety incidents arecascaded top-down for mitigation of risks which can avoid repeat incidents.
Your Company celebrates National Safety Day each year across all sites. Specialprogrammes are designed by the Corporate Safety Team jointly with the sites and many ofthem extend the events to a full Safety Week.
Your Company has a Central Safety Health and Environment Sub-Committee which is ledby the Managing Director and Chief Executive Officer of the Company. In this forumperformances of specific safety and environment related sub-committees each of which isled by a Managing Committee (MC) member are reviewed. This helps in bringing newerinsights and direction from the top management.
As part of Unilever Sustainable Living Plan (USLP) your Company strives to grow thebusiness whilst reducing environmental footprint and increasing positive social impact.Accordingly your Company has taken ambitious targets of year-on-year reductions inemissions (kg per CO2 tonne of production) groundwater abstraction (cubicmeter per tonne of production) and waste generation (kg per tonne of production) in itsoperations. Some of the sustainability initiatives undertaken during the year were:
In order to reduce groundwater usage factories are working on direct use ofrainwater in plants and processes. In several sites make-up water for utilities is takenfrom rainwater harvested during monsoons. 2016 saw an impressive increase of 22% inrainwater re-use in operations over 2015. Water consumption in cubic meter per tonne ofproduction reduced by 53% as compared to 2008 baseline and by 9% over 2015.
In continuation of your Company's successful trials of using vegetable oilresidue as fuel in Orai similar equipment was installed in Pondicherry and Bhuj tomaximise in-house use of such residue as source of renewable energy.
Amli and Kandla factories installed solar thermal plants for heating of processwater utilising the high solar insolation. The project at Amli has also received partialsubsidy from Ministry of New and Renewable Energy (MNRE). More such installations havebeen planned.
Biogas plants for utilisation of canteen waste for gas generation were installedin five factories.
The contribution of renewable energy in total energy consumed for the year was28.5%. This was supported by sustained usage of biogenic fuels across factories. emissions(kg per tonne of production) CO2 reduced by 49% versus 2008 baseline and byover 13% versus 2015.
Over 23 million units (KWH) were reduced from your Company's energy footprintduring the financial year 2016-17 due to execution of various capital projects rangingfrom installation of energy efficient chillers and motors condensate recoveries aircompressor heat recoveries etc. Your Company has made investments totalling Rs. 17 croresin such projects in the above period.
Total waste generated from the factories reduced by 21.5% in 2016 as compared to2015. Factories identified newer avenues for re-use and energy recovery from waste inaddition to the current reduction and recycling streams within the purview of statutoryguidelines of waste disposals. Your Company maintained the status of zeronon-hazardous waste to landfill' from all factories and offices.
With the continuous evolution of the USLP in a changing landscape in January 2017Unilever announced a commitment to ensure that all of our plastic packaging will be fullyre-usable recyclable or compostable by 2025.
Your Company's initiatives in the area of Safety and Environment were recognisedthrough awards from National Safety Council Shrishti Green Governance Karnataka StatePollution Control Board Confederation of Indian Industry (CII) GreenTech Frost &Sullivan etc.
10. HUMAN RESOURCES
Your Company considers Great Brands and Great People as its biggest assets. The HumanResource agenda continues to support the business in achieving sustainable and responsiblegrowth by building the right capabilities in the organisation. It continues to focus onprogressive employee relations policies creating an inclusive work culture and a strongtalent pipeline.
Your Company is known as the Leadership Factory' that exports talent to Unileverand to India Inc. the industry at large. The foundation of all your Company's learningpractices is based on a 70-20-10 approach to learning. 70% of learning is done throughon-the-job training building business-linked capabilities to achieve ambitious businesstargets. 20% of learning is coaching and 10% of learning is through formal development.Your Company's learning curriculum is designed to support the entire life cycle of anemployee's career.
Driven by the Leaders build Leaders' philosophy your Company's flagshipmanagement trainee programme the Unilever Future Leaders Programme (UFLP) has been thetraining ground for many inspiring leaders which provides extensive cross functionalexperience through live projects and assignments.
As per the latest Campus Track Business School Survey conducted by Nielsen forB-School students your Company has been chosen as the preferred employer across allsectors.
Your Company has also retained the Dream Employer' status. Your Company is knownfor having the best people practices for developing future leaders. The ability to attractthe best talent provides a competitive edge to the organisation.
A series of programmes like maternity and paternity support Career by Choice andlocation flexibility have helped in driving the Inclusion and Diversity agenda. YourCompany continues to focus on driving inclusion through building leadership capability andrecognising line managers who provide a simple flexible and respectful work environmentfor their teams.
Your Company has been recognised as one of the Top 10 Best Companies for Women inIndia' by The Best Companies for Women in India (BCWI) Study 2016. This award is arecognition of your Company's commitment towards creating a diverse and inclusivework-culture.
In the beginning of the year Unilever launched the Connected 4 Growth' (C4G)framework which entailed setting up of empowered Cluster Category Business Teams (CCBTs)with representatives from different functions. During the year the C4G framework has beenembedded well in the business through 15 fully functional CCBTs. Your Company is confidentthat this framework will help bring more speed and agility in its operations to compete inthe marketplace and strengthen the consumer connect.
Over the years the Industrial Relations function of your Company achieved manymilestones by strengthening its base through Institutional Capability DevelopmentInitiatives Gender Diversity Digitisation and Community Development. Your Company drivessustainable growth by leveraging employee-potential through capability developmentinitiatives in line with Unilever Production System and by reducing cost and complexity inSupply Chain units.
Your Company is focussed on building a high-performance culture with a growth mindsetwhere employees are engaged and empowered to be the best they can be. Developing andstrengthening capabilities of all employees in your Company has remained an ongoingpriority.
Disclosures with respect to the remuneration of Directors and employees as requiredunder Section 197 of the Act and Rule 5 (1) Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 (Rules) have been appended as Annexure to this report.Details of employee remuneration as required under provisions of Section 197 of theCompanies Act 2013 and Rule 5(2) and 5(3) of Rules are available at the Registered Officeof the Company during working hours 21 days before the Annual General Meeting and shallbe made available to any shareholder on request. Such details are also available on yourCompany's website https://www.hul.co.in/investor-relations/.
11. FINANCE ACCOUNTS & IT
The agenda for the Finance and Accounts function of your Company is to assist indriving superior performance of the business pioneer thought-leadership and developfuture-ready talent in Finance.
During the year your Company implemented projects to leverage technology for buildingbusiness intelligence thereby enabling growth and reducing costs through project Livewireand Zero Based Budgeting (ZBB). Massive simplification of processes led to deployingpeople on value partnering through projects like Finance Excellence Team (FET) AmazinglySimple and One Accounting Centre.
Project Livewire' was implemented for end to end business analytics. It continuesto evolve as a pioneering technology enabling your Company to drive business performancemanagement with speed and agility. The tool based on bringing together raw data fromdifferent sources delivers ready-made off-the-shelf analytics in pictorial and graphicalform and offers actionable insights that help us spot opportunities and challenges in afaster manner.
To enhance standardisation of accounting processes improve efficiency in operationsand enhance accounting expertise three accounting centers are being formed forconsolidating - Sales Accounting Head Office Accounting and Factory Accounting.
Your Company invested in a common distribution management system that has been furtherupgraded during the year to make it future-ready. The common mobility solution has alsobeen upgraded. These would enable a sharper and richer sales execution process in themarketplace.
The e-commerce capabilities have been further enhanced. Ability to manage the digitalcontent of our products and brands and to seamlessly publish the same to our partners havehelped improve the quality of consumer engagement online. Analytical solutions have beendeveloped for improved understanding of consumer sentiments and to engage with them in anagile manner.
Your Company has also invested in rewiring processes and tools to transform into anamazingly simple organisation. Investments in new technologies like Financial ClosingCockpit have cut timelines and improved predictability of the month-end close process.Expanding the SAP Global Available To Promise (GATP) capability to run the ordermanagement process has helped move the needle on customer service. Your Company hascontinued the active engagement with the external environment and is investing to enhancesolutions across the value chain thereby preparing itself for the Goods and Services Tax(GST) era. Your Company continues to drive resilience through targeted remediation of highrisk Information Technology (IT) components including hardware database operatingsystems and applications. Alongside the investment in technology your Company is alsoimproving its service management processes to prevent any defects in the IT environmentand to enable faster resolution of any such incidents with minimum business disruption.
Indian Accounting Standards (INDAS) IFRS Converged Standards
Your Company its subsidiaries and joint venture had adopted IND AS with effect from1st April 2016 pursuant to Ministry of Corporate Affairs notification dated 16thFebruary 2015 notifying the Companies (Indian Accounting Standard) Rules 2015. YourCompany has published IND AS Financials for the year ended 31st March 2017 along withcomparable as on 31st March 2016 and Opening Statement of Assets and Liabilities as on 1stApril 2015.
Your Company has proactively shared all four quarters re-stated IND AS Profit and LossStatement with Investors along with quarterly results for June 2016 for comparison.
Capital Expenditure during the year was at Rs. 1372 crores (Rs. 750 crores in theprevious year).
During the year your Company did not accept any public deposits under Chapter V ofCompanies Act 2013. In terms of the provisions of Investor Education and Protection Fund(Accounting Audit Transfer and Refund) Rules 2016 / Investor Education and ProtectionFund (Awareness and Protection of Investors) Rules 2001 Rs. 5.43 crores of unpaid /unclaimed dividends were transferred during the year to the Investor Education andProtection Fund.
Return on Net Worth Return on Capital Employed and Earnings Per Share (EPS) for thelast four years and for the year ended 31st March 2017 are given below:
| ||IGAAP ||IND AS |
|Particulars ||2012-13 ||2013-14 ||2014-15 ||2015-16 ||2015-16 ||2016-17 |
|Return on Net Worth (%) ||94.70 ||104.10 ||99.50 ||88.70 ||72.80 ||76.70 |
|Return on Capital Employed (%) ||109.10 ||130.20 ||127.70 ||128.40 ||105.80 ||105.90 |
|Basic EPS (after exceptional items) (Rs.) ||17.56 ||17.88 ||19.95 ||18.87 ||19.12 ||20.75 |
There were no material changes and commitments affecting the financial position of theCompany which occurred between the end of the financial year to which this financialstatements relate on the date of this report.
During the year your Company re-organised the businesses into four categories - HomeCare Personal Care Foods and Refreshments. Accordingly the Management Committee reviewsperformance of categories basis new segments.
Your Company identified five business segments in line with the Accounting Standard onSegment Reporting (IND AS-107) which comprises: (i) Home Care (ii) Personal Care (iii)Foods (iv) Refreshments and (v) Others including Exports Infant and Feminine Careetc. The audited financial results of these segments are provided as a part of financialstatements.
Details of loans guarantee or investments made by your Company under Section 186 ofthe Companies Act 2013 during the financial year 2016-17 is appended as an Annexure tothis report.
11.1 Risk and Internal Adequacy
Your Company has an elaborate Risk Management procedure which is based on threepillars: Business Risk Assessment Operational Controls Assessment and Policy Complianceprocesses. Major risks identified by the businesses and functions are systematicallyaddressed through mitigating actions on a continuing basis. The Company has set up a RiskManagement Committee to monitor the risks and their mitigating actions and the key risksare also discussed at the Audit Committee. Some of the risks identified by the RiskManagement Committee relate to competitive intensity and cost volatility. The Company'sinternal control systems are commensurate with the nature of its business and the size andcomplexity of its operations. These are routinely tested and certified by Statutory aswell as Internal Auditors and cover all offices factories and key business areas.Significant audit observations and follow up actions thereon are reported to the AuditCommittee. The Audit Committee reviews adequacy and effectiveness of the Company'sinternal control environment and monitors the implementation of audit recommendationsincluding those relating to strengthening of the Company's risk management policies andsystems.
During the year your Company started monitoring and reporting Controls throughLivewire - a comprehensive analytics tool that tracks compliance with internal controlsframework established by the management. The controls dash board allows the management toperform a thematic analysis of its control health across different processes andactivities time periods and responsibility centers. This will enable the management topro-actively protect value through implementation of a robust control environment.
Your Company manages cash and cash flow processes assiduously involving all parts ofthe business. There was a net cash surplus of Rs. 1671 crores (2015-16: Rs. 2759crores) as on 31st March 2017. The Company's low debt equity ratio provides ample scopefor gearing the Balance Sheet should the need arise. Foreign Exchange transactions arefully covered with strict limits placed on the amount of uncovered exposure if any atany point in time. There are no materially significant uncovered exchange rate risks inthe context of Company's imports and exports. The Company accounts for mark-to-marketgains or losses every quarter end in line with the requirements of Accounting Standard11. The details of foreign exchange earnings and outgo as required under Section 134 ofthe Act and Rule 8(3) of Companies (Accounts) Rules 2014 are mentioned below:
| || ||(Rs. In crores) |
| ||For the year ended 31st March 2017 ||For the year ended 31st March 2016 |
|Foreign Exchange earnings ||541 ||559 |
|Foreign Exchange outgo ||1214 ||1084 |
11.2 Mergers Acquisitions and Divestments
During the year your Company completed the acquisition of Indulekha Hair oil. Theaddition of this brand has further strengthened our position in the evolvingnaturals' segment. The brand is now fully integrated into our Personal Careportfolio and is performing well.
Your Company also completed the sale and transfer of its rice exports business carriedout under the brands Gold Seal Indus Valley' and Rozana' to LT foods MiddleEast DMMC a group Company of LT Foods Limited.
Your Company announced its intention to divest its shareholding in Kimberley ClarkLever Limited (KCLL) to its JV partner Kimberley Clark Corporation (KCC). The decision todivest from this business is in line with our strategy focus on core business.
11.3 Goods and Service tax
Goods and Services Tax (GST) is a landmark reform which will have a lasting impact onthe economy and on businesses. Implementation of a well-designed GST model that applies tothe widest possible base at a low rate can provide significant growth stimulus to thebusiness and contribute to the Prime Minister's mission of Make in India'. YourCompany has been preparing for migrating to GST for the past year; changes across ITsystems Supply Chain and operations have been made keeping in mind the sweeping changesthat GST would bring in. While there are a few areas that need to be addressed theGovernment has announced an intention to go live on GST on 1st July 2017 and your Companywill be ready for this transformative reform.
11.4 Scheme of Arrangement
Subsequent to the approval of the shareholders at the Court Convened Meeting held on30th June 2016 to the Scheme of Arrangement for transfer of the balance of Rs. 2187crores standing to the credit of the General Reserves to the Profit and Loss Account yourCompany had filed the petition for sanction of the Scheme of Arrangement with the Hon'bleHigh Court of Mumbai. Upon the Scheme becoming effective the amount so transferred isproposed to be distributed to the shareholders from time to time by the Board ofDirectors at its sole discretion in such manner quantum and at such time as the Boardof Directors may decide.
Consequent to the notification of certain pending sections of Companies Act 2013including sections related to the Compromise and Arrangements and National Company LawTribunal (NCLT) the jurisdiction for sanctioning the Scheme of Arrangement has beentransferred to the NCLT from High Court of Mumbai. The Scheme is currently pending withNCLT for sanction.
12. LEGAL GOVERNANCE AND BRAND PROTECTION
The Legal function of your Company continues to be a valued partner in facilitating thebusiness agenda in the areas of claims management legislative changes in both emergingand existing regulations effectively dealing with unfair competition and ensuringregulatory compliance. The Legal function also works closely with different stakeholderslike Industry Associations Regulators key opinion formers to develop a progressiveregulatory environment in the best interest of all the stakeholders.
The focus of the Legal function has been to partner the business on strategic issuesthat present either areas of opportunities or in mitigating risks besides focussing oncore legal work like litigation management combating unfair competition to protectCompany's brands from counterfeits look alike and grey imports. One of the activitiesthat the Legal function has engaged itself with across the country is in propagatingintellectual property awareness. Your Company believes that it is important to educatestudents on intellectual property and build awareness and understanding of the subject sothat students start respecting intellectual property rights from a young age. Your Companyis of the view that the menace of counterfeits can be effectively addressed if enforcementactions are supplemented with building awareness amongst the consumers of tomorrow.
12.1 Update on Kodaikanal Soil Remediation
Your Company had informed the shareholders about the long-standing dispute with theformer workers association of the former factory in Kodaikanal. A Memorandum of Settlementwas signed towards the end of the last financial year with the association bringing to anend this long-standing issue.
The other issue on this matter which is pending pertains to commencement of soilremediation in the premises of the former factory of your Company. Since this issue firstcame to light in 2001 your Company has actively sought to address it in a responsible andtransparent manner. During this year basis the decision from the Hon'ble Madras HighCourt Tamil Nadu Pollution Control Board (TNPCB) in December 2016 granted permission toyour Company to commence preparatory work and soil remediation on a trial basis for aperiod of three months after obtaining applicable local approvals. The grant of consent byTNPCB was challenged in the Southern Bench of the National Green Tribunal (NGT) Chennai.Through an interim order the NGT has directed that soil remediation should be commencedin accordance with the consent granted by TNPCB. The Company is committed to conduct soilremediation at the factory site at the earliest.
12.2 Corporate Governance
A separate report on Corporate Governance is provided together with a Certificate fromthe Statutory Auditors of the Company regarding compliance of conditions of CorporateGovernance as stipulated under Listing Regulations. A Certificate of the CEO and CFO ofthe Company in terms of Listing Regulations inter alia confirming the correctness of thefinancial statements and cash flow statements adequacy of the internal control measuresand reporting of matters to the Audit Committee is also annexed.
The extract of annual return in Form MGT-9 as required under Section 92(3) of the Actand Rule 12 of the Companies (Management and Administration) Rules 2014 is appended as anAnnexure to this Report.
12.3 Related Party Transactions
In line with the requirements of the Companies Act 2013 and Listing Regulations yourCompany has formulated a Policy on Related Party Transactions which is also available onthe Company's website at https://www.hul.co.in/investor-relations/corporate-governance/.The Policy intends to ensure that proper reporting approval and disclosure processes arein place for all transactions between the Company and Related Parties.
All Related Party Transactions are placed before the Audit Committee for review andapproval. Prior omnibus approval is obtained for Related Party Transactions on a quarterlybasis for transactions which are of repetitive nature and / or entered in the OrdinaryCourse of Business and are at Arm's Length. All Related Party Transactions are subjectedto independent review by a reputed accounting firm to establish compliance with therequirements of Related Party Transactions under the Companies Act 2013 and ListingRegulations.
All Related Party Transactions entered during the year were in Ordinary Course of theBusiness and at Arm's Length basis. No Material Related Party Transactions i.e.transactions exceeding 10% of the annual consolidated turnover as per the last auditedfinancial statements were entered during the year by your Company. Accordingly thedisclosure of Related Party Transactions as required under Section 134(3)(h) of theCompanies Act 2013 in Form AOC-2 is not applicable.
12.4 Prevention of Sexual Harassment at Workplace
As per the requirement of The Sexual Harassment of Women at Workplace (PreventionProhibition & Redressal) Act 2013 (Act') and Rules made thereunder yourCompany has constituted Internal Committees (IC). While maintaining the highest governancenorms the Company has appointed external independent persons who have done work in thisarea and have requisite experience in handling such matters as Chairpersons of each ofthe Committees. During the year one complaint with allegations of sexual harassment wasreceived by the Company and the same was investigated and resolved as per the provisionsof the Act.
In order to build awareness in this area the Company has been conducting programmes inthe organisation on a continuous basis.
13. SUSTAINABLE LIVING
Your Company's Vision is to accelerate growth in the business while reducingenvironmental footprint and increasing positive social impact. This vision has beencodified in the Unilever Sustainable Living Plan (USLP) launched in 2010 which is yourCompany's blueprint for achieving sustainable growth. By spurring innovationstrengthening Supply Chain lowering costs reducing risks and building trustsustainability is creating value for your Company as well as society.
Your Company has made good progress on the three USLP big goals to be achievedglobally: To help more than a billion people take action to improve their health andwell-being to halve the environmental footprint of the making and use of the productswhile growing the business and to enhance the livelihoods of millions of people whilegrowing the business.
Detailed information on the progress of your Company's USLP initiatives and CSRactivities is available in the Annual Report on CSR and Business Responsibility Reportwhich is appended as Annexure to this Report.
14. EMPLOYEE STOCK OPTION PLAN (ESOP)
Details of the shares issued under Employee Stock Option Plan (ESOP) as also thedisclosures in compliance with SEBI (Share Based Employee Benefits) Regulations 2014 areuploaded on the website of the Companyhttps://www.hul.co.in/investor-relations/annual-reports/. No employee has been issuedshare options during the year equal to or exceeding one per cent of the issued capital ofthe Company at the time of grant.
Pursuant to the approval of the Members at the Annual General Meeting held on 23rdJuly 2012 the Company adopted the 2012 HUL Performance Share Scheme' in place of2006 HLL Performance Share Scheme'. In accordance with the terms of the PerformanceShare Plan employees are eligible for award of conditional rights to receive equityshares of the Company at the face value of Rs. 1/- each. These awards will vest only onthe achievement of certain performance criteria measured over a period of three years. TheCompany confirms that the 2012 HUL Performance Share Scheme complies with the provisionsof SEBI (Share Based Employee Benefits) Regulations 2014.
Under the said Plan eligible Managers were given Conditional Performance Grant ofshares of Unilever and the Company in the ratio of 67:33 to mirror your Company'sshareholding where Unilever held 67% shareholding. During the year 203 employeesincluding Whole-time Directors were awarded conditional rights to receive 135721 EquityShares at the face value of Rs. 1/- each. It comprises conditional grants made to eligiblemanagers covering performance period from 2016 to 2018 and from 2017 to 2019.
The employees of the Company are eligible for Unilever PLC (the holding Company')share awards namely the Management Co-Investment Plan (MCIP) the Global PerformanceShare Plan (GPSP) and the SHARES Plan. The MCIP allows eligible employees to invest up to100% of their annual bonus in the shares of the holding Company and to receive acorresponding award of performance related shares. Under GPSP eligible employees receiveannual awards of the holding Company's shares. The awards under MCIP and GPSP plans vestsafter 3-4 years between 0% and 200% of grant level depending on the satisfaction of theperformance metrics. Under the SHARES Plan eligible employees can invest in the shares ofthe holding Company for specified amount and after three years one share is granted to theemployees for every three shares invested subject to the fulfillment of conditions of thescheme. The holding Company charges the Company for the grant of shares to the Company'semployees based on the market value of the shares on the exercise date.
15. BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL
Mr. Dev Bajpai Executive Director Legal & Corporate Affairs and Company Secretarywas appointed as an Additional Director on the Board of the Company with effect from 23rdJanuary 2017 to hold office till the conclusion of the next Annual General Meeting of theCompany. Mr. Dev Bajpai has also been appointed as a Whole-time Director on the Board witheffect from 23rd January 2017 for a period of five years subject to approval of Membersof your Company at the Annual General Meeting.
As per the provisions of the Companies Act 2013 Independent Directors have beenappointed for a period of five years and shall not be liable to retire by rotation. Allother Directors except the Managing Director will retire at the ensuing Annual GeneralMeeting and being eligible offer themselves for re-election.
The Independent Directors of your Company have given the certificate of independence toyour Company stating that they meet the criteria of independence as mentioned underSection 149(6) of the Companies Act 2013.
The details of training and familiarisation programme and Annual Board Evaluationprocess for Directors have been provided under the Corporate Governance Report.
The policy on Director's appointment and remuneration including criteria fordetermining qualifications positive attributes independence of Director and alsoremuneration for Key Managerial Personnel and other employees forms part of the CorporateGovernance Report of this Annual Report.
16. MANAGEMENT COMMITTEE
The day-to-day management of the Company is vested with the Management Committee whichis subjected to the overall superintendence and control of the Board. The ManagementCommittee is headed by the Chief Executive Officer and has Functional / Business Heads asits members.
During the year your Company re-organised the Foods and Refreshments (F&R)business into two separate businesses of Foods and Refreshments. Accordingly Mr. SudhirSitapati Category Vice President Refreshments (South Asia & Africa) was appointed asExecutive Director Refreshments and member of Management Committee. Ms. Geetu Verma whowas Executive Director (Foods & Refreshments) was designated as Executive Director(Foods) responsible for the Foods business of your Company.
During the year Mr. Punit Misra Executive Director Sales and Customer Developmentresigned from the services of the Company. Mr. Srinandan Sundaram was appointed asExecutive Director Sales and Customer Development and member of Management Committee ofthe Company.
M/s. BSR & Co. LLP were appointed as Statutory Auditors of your Company at theAnnual General Meeting held on 30th June 2014 for a term of five consecutive years. Asper the provisions of Section 139 of the Companies Act 2013 the appointment of Auditorsis required to be ratified by Members at every Annual General Meeting.
The Report given by the Auditors on the financial statements of the Company is part ofthe Annual Report. There has been no qualification reservation adverse remark ordisclaimer given by the Auditors in their Report.
M/s. RA & Co. Cost Accountants carried out the cost audit for applicablebusinesses during the year. The Board of Directors have appointed M/s. RA & Co. CostAccountants as Cost Auditors for the financial year 2017-18.
The global economy continues to remain under pressure from the ongoing politicalpolicy and economic uncertainties around the world. However it is expected that theglobal growth should stabilise in future.
The Indian GDP growth rate continues to be one of the fastest growing large economiesof the world. Economic growth is expected to further improve on the strengthening consumersentiment. The medium to long term secular trends based on urbanisation risingaspirations low level of penetration for most of our categories and improving consumptionlevels are positive for the FMCG sector. Your Company with its brands talent andinvestment in capabilities is well placed to leverage this opportunity.
The enactment of the GST legislation has been a milestone reform that will create awin-win environment for all stakeholders and heralds an integrated and productive economyand is expected to further boost economic growth. However there could be temporarytransition challenges during the cut-over.
18.1 Cautionary Statement
Statements in the Annual Report particularly those which relate to ManagementDiscussion and Analysis describing the Company's objectives projections estimates andexpectations may constitute forward looking statements' within the meaning ofapplicable laws and regulations. Although the expectations are based on reasonableassumptions the actual results might differ.
19. APPRECIATIONS AND ACKNOWLEDGMENTS
Your Directors place on record their deep appreciation to employees at all levels fortheir hard work dedication and commitment. The enthusiasm and unstinting efforts of theemployees have enabled the Company to remain as industry leaders.
Your Directors would also like to acknowledge the excellent contribution by Unilever toyour Company in providing the latest innovations technological improvements and marketinginputs across almost all categories in which it operates. This has enabled the Company toprovide higher levels of consumer delight through continuous improvement in existingproducts and introduction of new products.
The Board places on record its appreciation for the support and co-operation yourCompany has been receiving from its suppliers redistribution stockists retailersbusiness partners and others associated with the Company as its trading partners. YourCompany looks upon them as partners in its progress and has shared with them the rewardsof growth. It will be your Company's endeavour to build and nurture strong links with thetrade based on mutuality of benefits respect for and co- operation with each otherconsistent with consumer interests.
The Directors also take this opportunity to thank all Shareholders Clients VendorsBanks Government and Regulatory Authorities and Stock Exchanges for their continuedsupport.
| ||On behalf of the Board |
| ||Harish Manwani |
| ||Chairman |
|Mumbai 17th May 2017 ||(DIN : 00045160) |