UNITED BREWERIES (HOLDINGS) LIMITED
ANNUAL REPORT 2010-2011
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
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 briefly.
United Spirits Limited (USL):
United Spirits Limited (USL), the flagship alcobev Company of the UB Group,
achieved global leadership of the alcoholic spirits 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
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
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 digit growth.
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 been
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
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 year.
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
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 select molecules.
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 Chhattisgarh.
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 components
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 either side.
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
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 exhaustive.
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