Annual Report Fro Dabur India Limited

Annual Report Fro Dabur India Limited

DABUR INDIA LIMITED ANNUAL REPOR T w w w. d a b u r. c o m Report on Corporate Governance Directors’ Report 06 Auditors’ Report 13 Financial Statements 17 Consolidated Financial Statements 18 Statements as per US GAAP 25 31 CHAIRMAN’S MESSAGE Dear Shareholders, BOARD OF DIRECTORS Mr V C Burman Dr Anand Burman Mr Pradip Burman Mr Amit Burman Mr P D Narang Mr Sunil Duggal HH Maharaja Gaj Singh Mr R C Bhargava Mr P N Vijay Mr Stuart Edward Purdy Dr S Narayan Chairman Vice Chairman Director Director Director Director Director Director Director Director Director T day India is at the forefront of global economic activity and investments on account of its strong economic growth and stellar corporate performance. The GDP in India has grown at 8. 5 per cent, 7. 2 per cent and 8. 1 per cent in the last three years. The consensus among analysts is that India has gone beyond the point of inflexion and is poised for a period of sustained high growth. However, the FMCG industry had not kept pace with this overall economic growth. The period 20002004 saw low rates of growth in demand for FMCG products leading to intense competition between companies and severe pricing pressures.

It has often been postulated that a few consecutive years of sustained high growth is necessary for overall economic prosperity to translate into benefits for the FMCG sector. In 2005-06, on the back of 3 consecutive years of strong economic growth, the fortunes of the FMCG industry as a whole have started to look much better. The FMCG sector will continue to gain from the fact that domestic consumption is growing both on the urban as well as the rural front. Successful businesses of the future will have to reach out to the vast semi-urban and rural markets in India.

The low levels of FMCG market penetration in rural and semi-urban India coupled with improved economic conditions provide considerable scope of growth in these areas. Your company with its product mix and sales and distribution network is well positioned to leverage its strengths and consistently deliver high quality products at affordable prices in these markets. In addition the consumer spends in urban areas are increasing with rising affluence, changing lifestyles and a seeming up-gradation to premium / higher end products. Your company has a good portfolio of brands and products catering to this market as well.

In 2005-06, your Company has successfully leveraged the revival in the FMCG sector and combined it with laudable improvements in costs, productivity, efficiency and supply chain management to deliver superior growth in revenues and even more so in profits. Some key achievements areConsolidated net sales from operations increased by 23. 6 per cent from Rs. 1,537 crore in 2004-05 to Rs. 1,900 crore in 2005-06. I Consolidated profits after tax (PAT) after accounting for minority interests and exceptional items grew by 37. 5 per cent from Rs. 155. 8 crore to Rs. 214. 2 crore. I Return on capital employed (ROCE) increased from 31. per cent to 39 per cent. I Return on net worth (RONW) increased from 43. 5 per cent to 46. 1 per cent. I Fully diluted earnings per share (EPS-diluted) rose from Rs. 2. 71 to Rs. 3. 71. I I would like to touch upon some of the key developments that occurred during the year 2005-06. As you know, we had acquired the Balsara business in the current year. Integration is the key to any successful acquisition. I am delighted to inform you that due to the focussed efforts of your Company and the Balsara team, the integration was successfully completed within the first six months of acquisition.

Balsara’s home care and oral care products have been well positioned in the overall Dabur portfolio and have demonstrated good potential for growth. Also we have turned a loss making business into a profit making one. Operational integration completed, the process of merging the three Balsara entities with Dabur is underway and will further contribute to shareholders’ value. Dabur’s Consumer Care Division, which comprises of the core FMCG business has performed well during the year, driven by new product launches, innovation and marketing initiatives.

During the year your company forayed into the soap category by launching a herbal soap under the Vatika brand. While Dabur Chyawanprash further consolidated its market share and continued to be the market leader, its variant Chyawanshakti was also launched during the year. Toothpastes emerged as major drivers in the oral care segment. Focus on South India market added momentum to CCD growth. Dabur’s traditional ayurvedic business is undertaken by the Consumer Healthcare Division. This business consistently recorded high growths throughout the year. With sales of Rs. 148. crore, it has registered 38. 7 per cent growth. This growth has been led by a number of initiatives like reaching out to the consumers directly through Dabur Ayurvedic centers, organising health camps, vaid meets, collaborating with the academicia, etc. We identify our healthcare business as one of the growth drivers in future. Increasing preference for natural remedies is likely to ensure a sustained demand for our ayurvedic products. The group’s foods business under Dabur Foods Limited, a wholly owned subsidiary of your Company grew by over 46 per cent to reach sales of Rs. 90 crore. Today, many of its products, especially its juices under the brands Real, Real Activ and Coolers are found in every household and account for almost 57 per cent of India’s juice market. During the year, the business more than doubled its profit due to scale and operational excellence and has become a significant driver of growth of your Company. Changing lifestyles and modern retail formats are expected to benefit the foods business in future. I would also like to share with you your Company’s overseas business performance.

Overseas business grew at 19% with markets such as GCC growing at 27% and Egypt at 49%. There is a lot of potential for Dabur products in the international market. During the year, your company has reorganised its international business around the focus, potential and opportunistic markets to be able to tap its potential to the fullest. A subsidiary has been established for Pakistan market to leverage on Dabur’s equity there. On the operational front, the company’s manufacturing unit at Uttaranchal crossed Rs 500 crore production in a span of just 18 months.

Your company is the first company in Uttaranchal to achieve this milestone. It has become the largest employer in the region and has added to the region’s economic prosperity. Going ahead further capacity expansion has been planned for this unit. Also, the Silvassa unit that came with the acquisition of Balsara is being upgraded/transformed into an EOU to cater to the export requirements. During the year, the company spent its time and resources to migrate to an improved ERP platform- SAP to ensure best business practices. The target of going live on 1st April 2006 on SAP was successfully met.

The Institute of Companies Secretaries of India conferred upon Dabur the ‘National Award for Excellence in Corporate Governance’ for the year2005. The company’s CFO was recognised as one among the best three CFOs of the country for the year 2005 by Business India. Your company has always made concerted efforts to ensure highest levels of disclosures, transparency and corporate governance. Such recognition further motivates the Company towards continuing its efforts in this direction. A major survey conducted by two reputed HR consulting firms and published in the Business World listed your Company as one of the top ten ‘Great Places To Work’.

This is a creditable achievement for your company and recognizes its efforts to empower its employees and keep them fully motivated and aligned with the Company’s goals. During the year your Company made a bonus issue of one share for every share held thereby rewarding the shareholders for its outstanding growth in the past few years. The Company also declared a dividend of 350% on pre-bonus capital, the highest till date. I would like to take this opportunity to thank all the employees, vendors and distributors for their commitment and hard work leading to the Company’s success.

Also I would like to thank the shareholders for their continuing faith and support. Your company has performed well in the past and I can assure you that it will continue to aim for higher achievements in future too. Yours sincerely, V. C. Burman Chairman PERFORMANCE HIGHLIGHTS FMCG+Pharma Pharma FMCG 183. 8 1600 1200 800 400 0 200 189. 08 1369. 7 1268. 72 50 38. 7 160 148. 02 40 30 20 10 0 14. 5 27. 2 34. 9 1163. 2 1148. 0 1048. 5 120 80 40 64. 44 13. 1 2001 ’02- ’03 ’04 ’05-02 03 -04 -05 2006 0 72 101. 2 2001 ’02- ’03 ’04 ’05-02 03 -04 -05 2006 2001 ’02- ’03 ’04 ’05-02 03 -04 -05 2006 SALES (Rs crore)

PROFIT AFTER TAX (Rs crore) RETURN ON CAPITAL EMPLOYED (%) MANAGEMENT DISCUSSION & ANALYSIS F our years ago, Dabur India Limited (“Dabur”, ‘DIL” or “the company”) had laid down its long-term plan of transforming to focused and transformed FMCG player. The blueprint involved developing and implementing marketing initiatives based on a clear strategic plan with a restructured brand architecture, continuously introducing a stream of new products and creating a niche for the company in the FMCG segment based on the “herbal and natural” products platform. In 200506, Dabur has surpassed all the key milestones set out in this plan.

Today, these drivers are firmly entrenched in Dabur and continue to foster development of its business strategies and operations, as is evident in its stand-alone and consolidated results for 2005-06. Revenue from operations increased by 8 per cent from Rs. 1,269 crore in 2004-05 to Rs. 1,370 crore in 2005-06 Operating profit (EBIDTA) increased by 29. 5 per cent from Rs. 188 crore in 2004-05 to Rs. 243 crore in 2005-06 Profit after tax (PAT) increased by 27. 7 per cent from Rs. 148 crore in 2004-05 to Rs. 189 crore in 2005-06 Return on capital Stand-alone performance of DIL

The highlights of Dabur India Limited’s (DIL’s) stand-alone results for 2005-06 are: 05-06 43. 1 20 2 MANAGEMENT DISCUSSION & ANALYSIS Dabur India Limited Annual Report 2005-06 PERFORMANCE HIGHLIGHTS FMCG+Pharma Pharma FMCG FMCG-post bonus issue employed (ROCE) increased from 38. 7 per cent in 2004-05 to 43. 1 per cent in 2005-06 Return on net worth (RONW) increased from 44. 5 per cent in 2004-05 to 45. 5 per cent in 2005-06 care. With the Balsara acquisition, products under the home care segment have been added to this SBU. Chart B gives the relative contribution of each category to CCD’s sales.

Chart B: Category contributions to CCD (%) Home care Health supplements Consolidated performance of Dabur Dabur caters to the domestic personal care and health care markets through its parent company, DIL. The foods business operates through its wholly owned subsidiary, Dabur Foods Limited (DFL). The international operations have been streamlined under another subsidiary called Dabur International Limited (DIntL), which, in turn, has its subsidiaries in focus markets. While the three Balsara companies are being merged into DIL with effect from 1 April 2006, during 2005-06 they functioned as DIL’s subsidiaries.

Consequently, the full picture of Dabur’s overall performance can be best seen when viewed as a consolidated entity. The salient features of Dabur’s consolidated performance in 2005-06 are: Consolidated net sales from operations increased by 23. 6 per cent from Rs. 1,537 crore in 2004-05 to Rs. 1,900 crore in 2005-06 Consolidated profits after tax (PAT) after accounting for minority interests and exeptional items grew by 37. 5 per cent from Rs. 156 crore in 2004-05 to Rs. 214 crore in 2005-06 Return on capital employed (ROCE) increased from 31. 5 per cent in 2004-05 to 39 per cent in 2005-06 Return on net worth (RONW) increased from 43. per cent in 2004-05 to 46. 1 per cent in 2005-06. This year Dabur has undertaken a new initiative to prepare and present results as per US GAAP. The key points thereof are stated in the Financial section. In the beginning of 2005-06, Dabur had made its first major acquisition — the Balsara business. This consisted of three entities: Balsara Home Products Limited, Balsara Hygiene Products Limited and Besta Cosmetics Limited. Balsara’s oral care products complemented Dabur’s oral care range and its homecare products added a new segment to Dabur’s FMCG portfolio.

During the year, while the company consolidated and broad based the core FMCG business with this acquisition, it also strengthened its other growth drivers — the consumer healthcare business and the foods business. A key initiative undertaken during the year was renewed management focus and a fresh approach to developing the consumer healthcare business. This business segment, with an 8 per cent share in Dabur’s overall revenues, is an important part of the company’s portfolio, as it is the foundation of its Ayurvedic and herbal positioning and offers multiple growth avenues for Dabur’s healthcare franchise.

The reformulated strategy stressed on refurbishing product profiles, strengthening the sales and distribution channels, re-organising the workforce and developing the Ayurveda space in a scientific manner. The aim was to generate a quantum jump in growth and in 2005-06 the revenue from this business increased by 38. 7 per cent. The foods business, under the wholly owned subsidiary Dabur Foods Limited (DFL), had witnessed impressive growth in the last two years. However, this was largely driven by the top-line; profitability had been lower than optimal.

During 2005-06, with special focus on operations including investments in backward integration, the business has recorded a profit growth in excess of 100 per cent. Consequently, DFL has almost entirely wiped out its carried forward accumulated losses. With changes happening in consumption habits and the expected growth momentum in organised retail trade across the country, the foods business is expected to emerge as a potentially strong portfolio in Dabur’s business. After a few dull years, the FMCG sector in India has started to look up and a demand pick up is evident across most segments of this sector (see chart A).

This augurs well for Dabur, which is well positioned with a diversified and strong suite of products catering to different target segments and markets. 45. 5 25 20 17. 8 14. 8 50 40 38. 6 32. 3 44. 5 6 21 Hair care 15 10. 7 11 30 20 16. 2 10 5 0 12 10 2001 ’02- ’03 ’04 ’05-02 03 -04 -05 2006 33 10 0 Digestives & Confectionery 2001 ’02- ’03 ’04 ’05-02 03 -04 -05 2006 OPERATING MARGIN (%) RETURN ON NET WORTH (%) 8 22 Oral Care Baby & Skin Care 12 9 6 5. 2 3. 5 6. 5 250 213. 6 200 150 100 39. 8 3. 3 2. 3 2. 5 0 2001 ’02- ’03 ’04 ’05-02 03 -04 -05 2006 0 2001 ’02- ’03 ’04 ’05-02 03 -04 -05 2006 EARNINGS PER SHARE (Rs)

LOAN FUNDS (Rs crore) 500 398. 9 185. 8 300 261. 2 81. 6 415 48. 6 50 20. 6 3 CCD’s sales have increased by 22 per cent from Rs. 1089. 9 crore in 2004-05 to Rs. 1,328. 7 crore in 2005-06. This growth includes sales from Balsara products in the oral care and the home care segments, which account for 12 per cent of total sales of CCD. Dabur continued with its time-tested and successful strategy of product promotion through celebrity endorsements. In 2005-06, key brand endorsements by celebrities included Amitabh Bachchan for Dabur Chyawanprash and Rani Mukherji for Dabur Anmol and Vatika hair care portfolio.

The company also signed up Vivek Oberoi to endorse Babool toothpaste and Dabur Chyawanprash. The CCD business continues to lay emphasis on developing an efficient distribution channel and re-organising it according to the changing market requirements. We believe that the distribution channel has to increasingly cater to a varied set of customers such as grocery stores, chemists and organised retail outlets. Each of these has different needs, which can only be addressed by developing specialised teams that are focused on clear customer classifications and cater to their specific requirements.

Dabur has embarked upon an ambitious programme named DARE (Driving Achievement of Retail Excellence) to address these varied needs to achieve greater penetration and higher levels of service for a wide range of customers. The project also focuses on increasing Dabur’s penetration into rural markets through a combination of marketing and distribution strategies. HAIR CARE Our hair care category consists of hair oils and shampoos. It is the largest category in Dabur’s CCD portfolio with a 33 per cent share. For Dabur, 2005-06 was a challenging year in this category with sales growing by 3. per cent. Dabur’s hair oil portfolio, excluding institutional sales to the army and other channels, registered a 7 per cent increase in sales in 2005-06. However, there was poor off-take by institutional buyers due to issues arising out of VAT implementation in the first quarter of the year. These have been subsequently resolved. The company’s Anmol brand, which is on the economy platform, did well with sales of the mustard and coconut oil variants increasing by 13. 7 per cent and 33 per cent respectively. Dabur Amla Hair Oil, with a turnover in excess of Rs. 00 crore, grew by 5. 2 per cent in 2005-06. Decline in sales of value added coconut oils under the Vatika brand was a dampener in this category. A new communication package and marketing mix has been designed to re-vitalise this brand. In shampoos, sales of the Vatika shampoo portfolio grew by 8. 7 per cent for the year as whole. The good news is that by the second half of 2005-06, shampoos emerged from a phase of severe price cuts to experience a degree of price stabilisation. Consequently, the second half of 2005-06 saw the Vatika shampoo portfolio grow by 12. per cent — a significant increase from the 5 per cent growth in the first half of the year. ORAL CARE With the Balsara acquisition, the company’s oral care offerings now provide a wider choice to consumers across different price points. The brands are positioned as Dabur Red Toothpaste in the popular segment, Babool in the economy segment and Meswak in the premium segment. In the classical toothpowder category, Dabur has its flagship product, Dabur Lal Dant Manjan. During 2005-06, this portfolio (including Balsara sales) increased by 6 per cent.

With its range of existing and acquired brands, Dabur has been able to add market share in the toothpaste category and is now holding 7 per cent of the toothpaste market. Babool and Meswak toothpastes grew by 70 per cent and 72 per cent respectively. Babool’s success can be largely attributed to a carefully crafted strategy that brought about necessary changes in the product, its packaging, promotion schemes and advertising. The Meswak brand was revitalised and found a significant growth in the number of takers despite being in the premium segment. Red Toothpaste grew by 18. 6 per cent o Rs. 55 crore in 2005-06, which contributed to its market share increasing from 2 per cent to 2. 8 per cent. Sales of the toothpowder, Dabur Lal Dant Manjan, have been under pressure because of a general slowdown in the category — attributable to a shift in consumer preference from toothpowder to toothpastes. While this gradual shift to the toothpaste category may continue, we have in place a strong toothpaste portfolio to capture the migration and continue the growth momentum in the oral care category as a whole. HEALTH SUPPLEMENTS This category recorded a healthy growth of 15 per cent.

Sales of Dabur Chyawanprash, which in value terms is the largest product in this category, grew by 11. 8 per cent in 200506. This flagship product was promoted by a new advertisement campaign featuring Amitabh Bachchan and Vivek Oberoi. The company also did an extensive print campaign to educate consumers about the holistic benefits of consuming Chyawanprash. As a result, Dabur’s market share in this category has risen from 60. 9 per cent to 62. 6 per cent. During the year, the company launched Dabur Chyawanshakti, a unique mix of 47 herbs and natural ingredients like draksha, ashwagandha and kesar.

This health supplement is targeted at working adults to help them tackle work related stress and pressures of their daily lifestyle. Dabur Honey also witnessed good growth of 9. 4 per cent. Dabur Glucose increased by 40 per cent in value terms and gained significant market share. This was particularly heartening as it occurred at a time when the category itself had shrunk by 5. 8 per cent. DIGESTIVE AND CONFECTIONERIES This category had a disappointing year, with sales growing by 1. 6 per cent in 2005-06.

Hajmola candy’s sales remained almost stagnant — a factor that brought down the overall growth of the category. However, there were bright sparks: Hajmola tablet sales grew by 5. 8 per cent; the Pudin Hara brand also did well, with a growth of 15. 4 per cent. Within the Pudin Hara brand, Pudin Hara Pearls and Pudin Hara Liquid grew by 27. 2 per cent and 10. 6 per cent respectively. SKIN CARE/BABY OILS Although it is a small category, Dabur’s skin care/baby oils had a good year in terms of sales growth. In 2005-06, sales increased by 34. 3 per cent over the previous year and crossed Rs. 00 crore, with skin care products expanding at a much faster clip than baby oils. This was largely because of Dabur’s entry into the personal wash segment with the national launch of its new Vatika Honey & Saffron Soap in September 2005. With this, Dabur made its first foray into the Rs. 4,800 crore Indian soap market. Vatika Honey & Saffron is targeted at the beauty and skin care conscious consumer, who accounts for around 50 per cent of total soap demand in India. Within the first six months of its launch, the cumulative sales of this soap were Rs. 18. 9 crore.

Since the product is very competitively priced in its category and offers distinct benefits we expect the positive market response to continue. Sales of Gulabari, an extract of fragrant red roses, grew by 17. 7 per cent in 2005-06. The cold cream under the Anmol brand, which was test launched last year was successfully extended to other markets in North, East and Western India. In the Baby Care segment, Dabur Janamghunti sales increased by 15. 1 per cent while that of Dabur Lal Tail increased by 3. 1 per cent. HOME CARE The Home Care category came to Dabur’s fold after the Balsara acquisition.

Its contribution to CCD sales was the smallest, at 6 per cent, but it was the fastest growing portfolio with sales growth of 62. 9 per cent in 2005-06 over the previous year. Dabur’s Home Care brands include Odonil in air fresheners, Odomos in mosquito repellents, Sani Fresh in surface cleaning and Odopic in the dish washing powders category. 400 300 200 100 0 200 100 0 332. 3 222. 9 112. 3 262 81. 7 28. 3 -16. 9 -70. 3 2001 ’02- ’03 ’04 ’05-02 03 -04 -05 2006 -100 2001 ’02- ’03 ’04 ’05-02 03 -04 -05 2006 -22. 9 Chart A: Value growth in key FMCG segments (%) 0 25 20 15 10 5 0 NET WORTH (Rs crore) DIL stand alone financials NET WORKING CAPITAL (Rs crore) 30 28 11 8 3. 3 Perfumed hair oil Coconut oil Normal Shampoo Anti-Dandruff shampoo Toothpaste Source:AC Nielson Retail Audit Report (Apr-Mar 2006) COMPANY INFORMATION AUDITORS M/s G. Basu & Co. Charted Accountants Internal Auditors Price Waterhouse Coopers Pvt. Ltd. Addl. GM (Finance) & Company Secretary Mr A K Jain BANKERS Punjab National Bank Standard Charted Bank HSBC Ltd. State bank of India ABN Amro Bank Citibank NA United Bank of India HDFC Bank Ltd.

IDBI Bank Ltd. CORPORATE OFFICE Dabur India Limited Dabur Tower, Kaushambi, Sahibabad, Ghaziabad-201010, (U. P), India From a strategic perspective, 2005-06 can be considered a positive inflexion point in Dabur’s long-term growth path. Having delivered good results in the last four years, even while the industry was undergoing adverse demand conditions, the company has spelt out its intent of entering a new growth trajectory. The new four-year plan aims at continuing the growth momentum across businesses so as to outperform the sector as a whole.

Business strategies have been developed in consonance with the growth objectives, focusing on three key elements — expansion, innovation and acquisition. Expansion entails expanding the company’s footprint across platforms and markets. While the company will continue to leverage its “herbal specialist” platform and build on its core strength in Ayurveda, it will also explore newer platforms in the FMCG space that have potential and synergies with Dabur’s existing capabilities. Already, in 2005-06 the company has made a foray into skin care, home care and the OTC healthcare segment.

In terms of markets, the company has laid specific emphasis on south India by re-organising the distribution set up, reformulating marketing strategies and customising products to that region’s prevailing market needs. Innovation is about regularly introducing new products that can cater to the changing needs of the market. This is a continuation of the new product development thrust of the last few years. Dabur has successfully launched over 20 brands or variants across different segments in the last five years.

The new product portfolio is expected to contribute to over 5 per cent of sales every year. The company’s first major acquisition — Balsara — has come on line as planned during 2005-06. While Balsara had an impressive product portfolio, the business itself was generating losses. As in many such acquisitions, there were two clear tasks facing Dabur. First, was the financial challenge of turning these losses into profits. Second, was a much deeper and wider task of integrating the people and processes at Balsara with that of Dabur.

Both these tasks were successfully achieved during 2005-06. Today, there is total operational and business integration of the two companies; and on the financial front, the erstwhile loss-making Balsara entity has generated profits of Rs 14. 9 crore Success of this integration has provided the company with greater confidence in its ability to develop inorganic growth. With improvements in profitability leading to strong internal accruals, Dabur today has sufficient resources to pursue a concerted acquisition strategy. This will be implemented in a judicious anner keeping in view the right valuations and strategic synergies with Dabur. The approach would be to leverage the existing strengths of Dabur to drive significant value creation and quantum jump in growth. However, since this is dependent upon availability of the right opportunities at the right valuation, it cannot be built into the business plans and the growth of the Company at the moment is largely planned in organic terms. In the following sections we look at the developments in Dabur’s different businesses in India and abroad.

This is presented in terms of markets and operations across the three entities — Dabur India Limited (this includes the Balsara companies), Dabur Foods Limited and Dabur International limited. This is followed by the financials of DIL on a standalone basis and as a consolidated entity. MARKETS DOMESTIC BUSINESS Dabur India’s domestic business has been divided into three separate Strategic Business Units (SBUs): Consumer Care Division (CCD) and Consumer Healthcare Division (CHD), both of which are directly under DIL, and the foods business, which is undertaken by Dabur Foods Limited (DFL).

In terms of sales in 2005-06, CCD contributed 79 per cent of Dabur’s consolidated domestic revenues, while DFL contributed 11 per cent and CHD 9 per cent. CONSUMER CARE DIVISION (CCD) The consumer care division (CCD) is the largest SBU of Dabur, and its product portfolio covers hair care, oral care, health supplements, digestives and candies, baby oils and skin MANAGEMENT DISCUSSION & ANALYSIS Dabur India Limited Annual Report 2005-06 3 Odomos sales increased by 70 per cent in 2005-06.

Odomos has been identified as a strong brand with significant latent equity and various products will be offered under this brand with different delivery mechanisms like gels, mats, coils, lotions and liquid vaporisers. The Odomos mosquito repellent cream, which is the original product under this brand, has been re-furbished and is displaying good growth potential in the market. Likewise, the Odonil brand is well recognised in the air-fresheners category, and the company plans to expand the product portfolio under this brand by introducing aerosols and other contemporary formats.

In 2005-06, Odonil sales increased by a healthy 80 per cent. Sales of Sani Fresh were above expectations as well, with the brand showing good potential for growth. We believe that with low penetration in most of these categories and the increasing usage of home care products, there is significant scope of growth in this segment. tries were below expectations. Dabur has also made a foray into the Pakistan market through its subsidiary Asia Consumer Care (Pak) Ltd. The initial response has been good, and the company is optimistic about its prospects there.

A team has been put in place headed by a Pakistani national who has extensive experience in the local FMCG market. During the year, the company revamped the organisational structure of its international business and re-organised it to suit the emerging business requirements. Going forward, the international business will be split into two portfolios: Portfolio One: Comprises Asian markets including Pakistan, Bangladesh, Nepal, Sri Lanka Bangladesh and Malaysia, the developed markets including USA and UK; the healthcare business in CIS countries and the opportunistic markets in Asia Pacific.

This portfolio will be supported by the manufacturing facility at Silvassa, which will be remodelled into a state-of-the art export oriented facility. CONSUMER HEALTHCARE BUSINESS In last year’s annual report, we had noted that the company was renewing its focus on the consumer health care business. The business comprises pure grantha based products on the Ayurveda platform, which can be classified into OTC products, branded ethicals, and generics including Asavs and Classicals.

Renewed management focus and reformulated business strategy led to a strong revival in growth of this division. In 2005-06, the business achieved a milestone by registering 37. 8 per cent growth in sales — from Rs. 107. 8 crore in 2004-05 to Rs. 148. 6 crore in 2005-06, versus a CAGR of 8 per cent over the previous five years. There has been even and widespread growth across all segments of this business. Sales in the OTC category increasing by 65 per cent; Branded Ethicals by 81 per cent; Classicals by 32 per cent; and Asavs by 26 per cent.

Some of the well-known products offered by CHD are Dabur Churna, Honitus, Asavs: Ashokarishta and Dashmularishta, Shankhapushpi Syrup, Ring Ring, Nature Care and Shilajit. The Honitus brand, which includes Honitus cough drops, syrup and the recently launched cough lozenges, was actively promoted through television advertisements. Our Asavs — Ashokarishta and Dashmularishta — were also advertised through various media channels in order to reach the target consumer. Dabur Churna and other OTC products were promoted through print and outdoor advertisements through dealer boards and hoardings and bus panels.

Our new product launches for the year — including Dabur Mensta, a product for women’s healthcare, and Rheumatil, a product to prevent arthritis — were well received in the market. Dabur believes that this business is a key growth driver and constitutes a critical element of its long-term strategy. With a movement towards holistic Ayurveda-based health remedies, the industry is expected to enjoy sustained levels of high growth. We believe that Dabur will be able to fully leverage its Ayurvedic knowledge and equity in the healthcare space by developing this business.

The plan is to re-define the Ayurvedic space and develop strong OTC capabilities through healthcare promotion activities, pharmacy selling, media campaigns and trade promotion. The aim is to take Ayurveda to the patient. To give an example, in order to promote Ayurveda directly with patients, the company organised 1,500 health camps, developed 160 Dabur Ayurvedic Centres where Ayurvedic doctors provide free consultation, conducted 150 vaid meetings, apart from organising several seminars, exhibitions and events promoting Ayurveda among academia, doctors, vaids and consumers.

The business’ distribution network has been expanded to cover over 140,000 urban pharmacy outlets, and the sales organisation restructured to optimise sales and productivity. The strategy includes building a strong relationship with retail pharmacists, promoting merchandising and displays, creating in-shop promotion through Dabur Consumer Health Corners (DCHC) and stressing on pharmacist education. Table 1:Dabur’s Sales,Domestic and Overseas (Rs. crore) Domestic 2005-2006 Sales % of total Net Profit* % of total 1683. 5 88. % 208. 0 91. 8% 2004-2005 1355. 7 88. 2% 148. 5 94. 6% Overseas 2005-2006 216. 1 11. 4% 18. 6 8. 2% 2004-2005 181. 2 11. 8% 8. 5 5. 4% * Before exceptional items and minority interest. Portfolio Two includes the markets in the GCC countries, the African markets including Egypt, Nigeria, Sudan and Morocco, other Middle-Eastern countries like Iran and Iraq, the personal care business in the CIS and other opportunistic markets. This business will be supported by the manufacturing facilities in the Middle East and Africa.

The structure of the international business was further streamlined during the year by transferring Dabur India Limited’s shareholding in Dabur Nepal Private Limited and Dabur Overseas Limited to Dabur International Limited. With this, all international subsidiaries are now consolidated under a single entity, namely, Dabur International Limited. The strategy for growing the international business has the following elements: Making geographical expansions. Going forward, the expansion markets will be clearly identified based on strategic choice.

The company will commit major investments and human resources in focus markets. Leveraging the “natural” platform. This will make full use of the growing global demand for natural products by occupying differentiated competitive niches in the health care and the personal care segments. Acquiring international brands / businesses and forming strategic alliances. The company will also actively explore overseas acquisitions and alliances. With this reorganisation and strategic focus, the international business is expected to contribute over 15 per cent of the consolidated sales of Dabur in the course of the next four years.

FOODS BUSINESS DABUR FOODS LIMITED Dabur Foods Limited (DFL) is a wholly owned subsidiary of Dabur India Limited. DFL’s product range in the market includes juices under three brands (Real, Activ and Coolers), culinary items like Hommade cooking paste, sauces, and items for institutional sales under the Nature’s Best brand. DFL’s sales grew by 46. 3 per cent in 2005-06 to reach Rs. 190 crore. New product launches and institutional channel constituted 24 per cent of this growth. The top-line growth has been accompanied by a significant ncrease in profits. PAT for the business increased by 130. 3 per cent from Rs. 5. 3 crore in 2004-05 to Rs. 12. 1 crore in 2005-06. In the branded juice market, DFL was the leader with a 57 per cent market share, with the nearest competitor being at 24. 5 per cent. Chart C gives Dabur’s share in the juice market. Chart C: Dabur’s Market Share in Juice Market* (%) Godjej-Xs Parle-Appy 3. 3 13. 3 2 56. 9 Dabur-Real NDDB-Safal Pepsi-Tropicana 24. 5 Source:AC Nielson Retail Audit Report (Apr-Dec 2005)

DFL’s portfolio of fruit juices can be classified into the sweetened range under the Real brand, and higher end unsweetened range under the Activ brand. The Real brand has grown by 36. 2 per cent. There are nine different flavours available under Real, which includes pineapple, mixed fruit and orange and sweetened nectar range comprising litchi, guava, mango, apple and cranberry. The unsweetened or Real Activ brand is targeted at health conscious young adults in the premium segment, and has had an outstanding performance during 2005-06, with sales increasing by 98. per cent. Sales growth was also fuelled by introduction of new 330 ml packs. The product range has five flavours — two of which are fruit juices, and three being fruit and vegetable blends. Being the creator of this category, we definitely enjoy market leadership and intend to introduce newer variants under Real Activ. The economy segment of the portfolio consists of “Coolers” range of fruit beverage especially meant for summer. While Coolers sales increased by 58 per cent in 2005-06 over 2004-05, the base has been fairly small.

There are six flavours available in this category: Aam Panna, Watermelon, Pomegranate, Musk Melon, Lemon Barley and Jamoon. All these fruits have cooling properties, which protect the body from the ill effects of the summer heat. Our culinary category — which includes Hommade pastes like garlic and ginger, coconut milk, and tomato puree — has also done well, pushing the category sales by 26. 2 per cent. We also introduced a new mango drink under the Mango Twist brand and received a very positive response from the market. DFL made a major foray into the export market recoding export sales of Rs. 14. 7 crore.

The exports can be classified into bulk concentrates (which are largely sold to Middle East and Europe), and branded products (which go to Australia and also the Middle East). In the year, we received a one star export house certification from the Government of India. To strengthen its competitive position in the domestic market, the business has reorganised its sales and distribution teams to focus separately on retail and institutional marketing and sales. The company has also laid stress on investing to improve its manufacturing facilities at its three plants located at Siliguri, Nepal and Jaipur.

While the Nepal plant has been traditionally catering to the needs of this business, the Siliguri plant processes fruit pulp, and Jaipur plant is a blending and packaging plant acquired during 2005-06. INTERNATIONAL BUSINESS International business recorded a sales growth of 19per cent from Rs. 181. 2 crore in 200405 to Rs. 216. 1crore in 2005-06. This includes the exports of Balsara’s portfolio of products in the oral care and private label segments. Middle East and Egypt performed very well with growth of 27 per cent and 49 per cent respectively.

Sales in Bangladesh grew by 54 per cent led by Vatika and Anmol range of shampoos. However, performance in the developed markets of UK, USA and CIS coun- 4 MANAGEMENT DISCUSSION & ANALYSIS Dabur India Limited Annual Report 2005-06 MASTER BRANDS OPERATIONS Robust manufacturing and supply chain practices support Dabur’s widened presence in the FMCG market place with newer and increased product offerings. The company has been undergoing a structured change in it operations structure, with emphasis on enhancing in-house manufacturing capabilities, utilising innovative procurement tools and developing an efficient supply chain.

A clear reflection of gains from these functions is the fact that in an inflationary input market scenario, DIL managed to increase its operating profitability margin (PBDIT/Sales) from 14. 8 per cent in 2004-05 to 17. 8 per cent in 2005-06. The core operations are supported by a strong information technology (IT), human resources (HR) and research and development (R) backbone. a trusted name in natural healthcare for over 100 years, is known for providing a range of efficacious and time-tested healthcare products based on the principles of Ayurveda.

MANUFACTURING The manufacturing strategy has revolved around re-organising the company’s production facilities to increase in-house production and leverage maximum benefits from economies of scale. Over the last few years new plants have been set up and inefficient ones scaled down, including reduced exposure to third party producers. As an example, six years ago over 40 per cent of Dabur’s products were out-sourced; today, only 8 per cent is outsourced, while 92 per cent of the company’s requirements are manufactured inhouse.

This has allowed for much greater control on production and stricter adherence to best in class TQM and TPM practices. Dabur has nine production facilities organised around three main factories at Baddi (Himachal Pradesh), Pantnagar (Uttaranchal) and Nepal; and six support factories at Sahibabad (Uttar Pradesh), Jammu, Alwar, Katni, Narendrapur and Jaipur. These plants have stabilised and are in a position to be ramped up to cater to the company’s long-term growth plans. In addition, during 2005-06, with the acquisition of Balsara, the company inherited their plants at Baddi and

Silvassa. While the Baddi plant manufactures oral care products, Silvassa caters exclusively to exports. A totally integrated plant has been set up in Jammu to produce the erstwhile Balsara’s home-care line of products. All the processes of these plants have been streamlined with Dabur’s production systems and procedures. The company believes in cost and quality leadership through technology and innovation and being the best in the operations domain. These translate into focus on adopting best quality practices, enhancing productivity and improving asset utilisation.

Productivity improvements have been achieved by following best TQM and TPM practices, reaping benefits from economies of scale and increasing the sense of empowerment among factory-level management. In 2006, for the first time the company hosted a factory heads’ conference in Nainital — something that created much greater bonding among those who produce for the company. Some of the productivity gains were also the result of process improvements. For example, there were gains in productivity by increasing Amla hair oil batch sizes and reducing Vatika hair oil production cycle time. These improvements are paying off.

Consider, for instance, an example of this — the reduction in wastages as a percentage of turnover, as shown in Chart X. a premium brand and a leader in its category, is one of the flagship brands and a popular name in the natural personal care space. with each individual’s goals and performance. This year, the scorecard covered 325 managers. Using the Balanced Scorecard, the company has modified key performance indicators (KPIs) of the variable pay plan, which have been communicated to employees. The company has also hired top class persons from among the best management institutes.

In 2005-06 we recruited 17 such Management Trainees. They are undergoing rigorous training under the Young Managers’ Development Programme (YMDP), where each is put through a year’s cross-functional training programme while being mentored by a member of the senior management. During the year under review several other HR initiatives were undertaken, both at the corporate as well as the plant level. We provided learning opportunities to our employees through various programmes such as Prayas, Leading and Facilitating Performance, and Campus to Corporate.

An audiovisual-based module, SPORT, was used to train our own frontline sales personnel as well as those on the rolls of our stockists. Approximately 2,000 people have been trained through this module in 2005-06. A competency-based selection tool was also developed for selecting the right set of front line employees. In 2005-06, we were successfully able to integrate Balsara into our fold, which included the Balsara manpower and its HR policies and processes. At the plant level, the company enjoyed excellent industrial relations across all manufacturing locations in India.

INFORMATION TECHNOLOGY With rapid growth as well as the Balsara acquisition, there was a multitude of IT platforms for storing and analysing information. The aim of our IT initiative in 2005-06, therefore, was to bring the operations of the company under one platform — a user-friendly cohesive system that would give us maximum value for money in terms of information processing. The system also had to be flexible enough to be integrated with and applied to any existing system prevailing in any company that could be an acquisition target.

Keeping these objectives in mind, Dabur has installed the SAP ERP R3 system, which is the basic module. This has gone online, all at once in a “big bang” approach from 1 April 2006. The decision to invest in the SAP platform was taken six months before its implementation. Hence, in a very short span of time, we have moved from current practices to the best practice in managing IT. It was not an easy task. Integration required explaining the usage of new practice to all our employees across functions, ranging from manufacturing plants to sales, to logistics and finance teams.

In addition to SAP going online for Dabur India Limited, it was also rolled out to Balsara. Dabur International and Dabur Nepal will be integrated by the 1 May 2006. This initiative will be extended to all our international manufacturing and international sales operations in due course. In addition to the basic module we would be implementing various SAP products for using stored information for financial reporting and management decision-making. The SAP Business Warehouse would be used for data retrieval for management information systems (MIS), with an added functionality of integrating information from various sources.

SAP Business Consolidation System will enable us to report consolidated accounting numbers after taking care of inter-company transfers. For accounting purposes it is also multi-GAAP functional. We also intend to install Business Plan Simulation (BPS) software, which would help us in decision management by simulating the impact of any change in business environment on Dabur. For our employees we intend to deploy SAP-HR, a human resource information system that would store each individual’s information on the system. Each employee’s life cycle with the company, performance appraisal and other information would be available on this system.

This would also enable us to leverage technology for training our employees, as the system would flag employees that fit the training needs of a particular module. In doing so, it would form an integral part of the knowledge management programme for our employees. As a disaster recovery measure, the entire information stored on our central server at Dabur’s Kaushambi office is also stored in at a location in Mumbai. a tasty fun-filled digestive available in various forms-from tablets, traditional churans to modern formats like centre-filled candyappealing to all age groups. relatively new member in the family of Dabur’s key brands, provides a range of herbal and natural products across various FMCG categories with a focus on providing quality and affordability. country’s leading brand of packaged fruit juices, provides the largest range of refreshing and healthy fruit juices that are 100 percent natural and free of preservatives. Chart X: Wastage to turnover ratio (%) 1. 0 a leading provider of Oral Care and Household Care products in the Indian market, is a new member in the Dabur family.

With this acquisition, the company will further strengthen its Oral Care portfolio and make its debut in the high-growth Homecare segment. 0. 8 0. 79 0. 75 0. 63 0. 6 0. 68 RESEARCH AND DEVELOPMENT 0. 56 0. 4 01-02 02-03 03-04 04-05 05-06 All the plants have GMP certification. More significantly, four units including glucose, honey and Chyawanprash plants at Baddi and at Uttaranchal have Hazard Analysis and Critical Control Point (HACCP) certification, which requires adherence to significantly more stringent standards. The fruit juice plant at Nepal also has the HACCP certification.

In some of the formulations there is the issue of presence of heavy metals. To tackle the issue of heavy metals in certain formulations, a major quality initiative has been taken by installing atomic-absorption-spectrophotometer in its plants at Baddi, Uttaranchal and Sahibabad. This is used to test all products before despatch to prevent the presence of heavy metals beyond prescribed range in the company’s products. Your company continues to remain committed towards preserving and protecting the environment. The plants have efficient effluent treatment systems that prevent air, water and noise pollution.

Dabur also took a lead in rain water harvesting, which is being implemented in three units, in addition to preserving and utilising artesian wells in Uttaranchal. Research and Development (R) provides Dabur with critical edge in the market. The activities are focused around two basic domains. First, to continuously develop new products; and second, to test and guarantee their efficacy. R activities include research on Ayurvedic and herbal products, organic substances, phytochemicals, tissue culture, foods, cosmetics, oral care and other personal care.

During 2005-06, the company displayed its efficiencies in terms of high “speed to market” by successfully developing its Vatika Honey & Saffron soap. The entire development process from concept to delivery in the market was carried out in-house and at very fast pace. The company’s products regularly go through clinical research and toxicity studies. This is done in collaboration with external organisations like the Dabur Dhanwantry hospital in Chandigarh and a number of other renowned institutions.

Through its agronomy department, Dabur has continued with its initiative of preserving herbs and plants in the endangered list, especially those that the company uses in its formulations. Specific plants are identified; the company then develops sufficient scientific knowledge of such plants; and then promotes their contract or corporate farming. So far, 14 such plants have been identified and the knowledge base built. Some examples of these interventions include corporate or contract farming of ghorbotch, brahmi, chiraita and pipli.

The company has also leased in two wasteland areas to develop these herbs — Sandila in Uttar Pradesh and a private public partnership initiative in Uttaranchal. PROCUREMENT As the company grows in scale with a more diverse portfolio of products that include herbal and ayurvedic formulations, the specialised procurement function gains utmost importance. At Dabur, procurement has been regularly utilising customised IT tools, innovating on purchase negotiations and procurement systems like reverse auctions. These initiatives have led to the gradual decrease in material cost to sales ratio in the last few years.

The challenge in procurement is to predict the commodity price cycle and make strategic purchases. Dabur has built a fairly strong knowledge base in this domain. Empowered with technical tools of analysis, the procurement team has regularly made strategic buys and sells in the commodity market optimising on long term prices, while maintaining the minimum levels of inventory necessary to prevent stock outs. A second initiative being undertaken is to reduce material costs by venturing down the value chain and eliminating a layer of middlemen.

In effect, this initiative aims at building direct relationships with the actual supplier by becoming directly visible to “supplier’s supplier”. FINANCIALS The abridged financials of Dabur India Limited (DIL) for the year 2005-06 including revenue, expenditure and profits, are presented in Table 2. Table 2: DIL’s profit and loss account (Rs. crore) 2005-06 1 2 3 4 5 Net Sales Other Income Total Revenue Total Expenditure EBIDTA Depreciation Amortisation Interest PBIT PBT Current Tax & FBT Deffered Tax PAT(before exceptional item) Exceptional item PAT EPS EPS (Diluted) 1,369. 7 5. 4 1,375. 0 1,131. 7 243. 3 19. 4. 3 5. 7 220. 0 214. 4 21. 8 4. 0 188. 6 0. 51 189. 1 3. 3 3. 27 2004-05 1,268. 7 11. 5 1,280. 2 1,092. 3 187. 9 17. 1 1. 5 4. 3 169. 3 165. 0 13. 0 4. 0 148. 0 0. 0 148. 0 2. 58 2. 57 27. 7% 27. 9% 27. 2% Growth 8. 0% -53. 5% 7. 4% 3. 6% 29. 5% 11. 4% 185. 9% 31. 6% 29. 9% 29. 9% 67. 7% 0% 27. 4% RECOGNITION SUPPLY CHAIN The supply chain function at Dabur comprises production planning, despatch, warehousing and transportation. Since the front end of the supply chain ends at the Clearing Forwarding Agent (CFA) or the stockist, production planning and despatch is done to meet the requirements of the CFA.

This is done across all the units on a weekly basis in terms of SKUs. Decisions on warehousing and transportation rely on the despatch product mix and underlying dynamics of the transport markets. The entire supply chain has been knit together into an efficient unit through “ Project Garuda” —an initiative that integrates IT tools and compensation schemes that measure the health of the supply chain. In this, the first year of its implementation, Project Garuda lays down a set of measurable parameters to test the health of the supply chain.

The system is divided into two tiers and puts in an evaluation mechanism for each element of the supply chain from forecasting and production planning to inventory management. By utilising this matrix as a tool for monitoring performance, the company has been able to devise a variable pay structure that penalises negative deviations. On the IT front, there is complete internal networking through a new SAP platform. The company is exploring to move forward and reach out to stockists and integrate them into Dabur’s ERP. This will go a long way to improve the quality of forecasts provided for production planning.

During 2005-06, significant efficiency gains were realised from central ownership of warehousing and reverse auctions for transportation. Dabur’s ability to continuously service diverse markets while maintaining negative working capital bears testament to the efficiency of its supply chain management. 6 7 8 9 10 11 12 13 14 15 16 17 HUMAN RESOURCES Recognizing that people are key constituents of Dabur and represent the DNA of the organisation, we have been constantly raising our own standards of being an employeefriendly organisation.

The year under review witnessed a significant achievement: of being listed as a “Great Place to Work”, in a survey conducted by Grow Talent & Company and Great Place to Work Institute, USA. Dabur was listed as the 10th “Great Place to Work”. The results were published in Business World dated February2006. Dabur has adopted the Balance Scorecard for performance evaluation and strategy deployment. This tool ensures balanced performance by managers across multiple dimensions — financial performance, customer management, internal business processes and innovation and learning — and helps in sharper alignment of overall business strategy

As can be seen in Table 2, DIL continues to pursue its path of profitable growth. With the renewed strength of its brands, the company recorded a 8 per cent growth in net sales, from Rs. 1,268. 7 crore in 2004-05 to Rs. 1,369. 7 crore in 2005-06. This healthy top-line growth, accompanied by efficiencies in manufacturing and supply chain, has contributed to a 29. 5 per cent growth in operating profits (EBIDTA) from Rs. 187. 9 crore in 2004-05 to Rs. 243. 3 crore 2005-06. DIL continues to operate with negative working capital accompanied by reduction in inventory and sundry debtors levels.

Profit after tax (PAT) increased by 27. 7 per cent during the year from Rs. 148. 0 crore in 2004-05 to Rs. 189. 1 crore in 2005-06. As evident in Table 3, all profitability ratios of the company have increased in the year under review. There has been a significant improvement in operating margin (EBDITA/Total sales), which grew from 14. 8 per cent in 2004-05 to 17. 8 per cent in 2005-06. Net profit margin (PAT/Total sales) has also grown from 11. 7 per cent in 2004-05 to 13. 8 per cent in 2005-06. Improved margins have been primarily driven by two factors.

First, due to efficiency gains at our plants translating into better operating margins — be it wastage reduction, fiscal incentives or economies of scale. Second, procurement led initiatives that have resulted MANAGEMENT DISCUSSION & ANALYSIS Dabur India Limited Annual Report 2005-06 5 Table 3: DIL’s Profitability Ratios 2005-06 EBDITA/sales PBT/sales PAT/sales ROCE RONW 17. 8% 15. 6% 13. 8% 43. 1% 45. 5% 2004-05 14. 8% 13% 11. 7% 38. 7% 44. 5% RISK MANAGEMENT Dabur has a robust and well-structured risk management system in place.

The entire system is driven by its people and the process goes deep down into lower layers of management. The Chief Risk Officer (CRO) of the company, who is responsible for and ensures Effective Risk Management — both risk identification and mitigation, champions the risk management system. A team of risk officers at each company location supports the CRO. Each employee is entitled to identify risk and report it to the concerned risk officer who in turn reports it to the CRO. The risks are reported in the Risk Register and classified in terms of their impact and probability of occurrence.

The Risk Register is an inventory of risks affecting Dabur covering its various functions like marketing, operations, regulatory affairs, finance and human resource development. The risks are further mapped in terms of mitigation action to be taken and the people responsible for taking the actions. The Risk Register is reviewed periodically by senior management and is presented to the Audit Committee on a quarterly basis. While we have a systematic risk identification and mitigation framework in place, there are certain business risks, which are external and intrinsic to the company.

Over these risks the company has very little control. Some of these include a general downturn in market demand conditions, loss of value to the “ayurveda” equity due to false claims about the product constitution or efficacy, look-alike products in the market, escalation in raw material prices and changes in regulatory frameworks pertaining to health related issues. In the past, all our transactional data was stored in a central server at our corporate office in Ghaziabad, UP One of the important risk reduction initiatives taken during the year was . etting up of a disaster recovery site in Mumbai where all the data is stored as a back up. in decline in material costs as per cent of sales in spite of an inflationary environment. During the year, DIL extended loans to Dabur International Ltd and Dabur Foods Ltd. , which were, in turn, utilised to repay debt. While this has reduced the group’s overall exposure to outside debt, it has increased the working capital for DIL on a stand-alone business although the oveall working capital remains in the negative domain.

With its focus on core businesses, the company has sold its investment in Dabon International Private Limited, a non-core investment that was not yielding any returns. This has impacted the consolidated financials by Rs. 12. 7 crore, as an exceptional item. DIL’s investments in Dabur Nepal Pvt Limited and Dabur Overseas Limited have been transferred to Dabur International Limited for consolidating international operations under one entity. While this makes no difference to the consolidated financials, it re-states the subsidiary holdings along business and operational lines making it more efficient to manage them.

Consolidated Financials Table 4 gives the abridged financials of Dabur on a consolidated basis. INTERNAL CONTROLS AND THEIR ADEQUACY Dabur has a robust internal audit and control system which is a process overseen by the Board of Directors, management and other personnel, and provides reasonable assurance regarding the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. Price Waterhouse Coopers is the internal auditor for the company and its subsidiaries.

The Company’s Internal Audit function is staffed with qualified and experienced people. The Standard Operating Procedures (SOPs) put in place by the company are in line with the best global practices, and have been laid down across the process flows, along with authority controls for each activity. Dabur has implemented the COSO framework for internal controls and adequacy of internal audit. Under this framework, various risks facing the company are identified and assessed routinely across all levels and functions and suitable control activities are designed to address and mitigate the significant risks.

Table 4:Consolidated,abridged profit and loss account (Rs. crore) 2005-06 1 2 3 4 5 6 7 8 9 Net Sales Other Income Total Revenue Total Expenditure EBIDTA Depreciation Amortisation Interest PBIT 1,899. 6 13. 4 1,913. 0 1,608. 8 304. 2 26. 9 4. 3 16. 4 273. 0 256. 6 26. 5 3. 5 226. 6 (12. 7) 0. 3 214. 2 3. 74 3. 71 2004-05 1,537. 0 9. 2 1,546. 2 1,328. 1 218. 0 28. 0 1. 5 12. 4 188. 5 176. 1 15. 1 4. 0 157 0. 00 (1. 2) 155. 8 2. 72 2. 71 37. 5% 37. 5% 36. 9% Growth 23. 6% 45. 6% 23. 7% 21. 1% 39. 5% (4. 0)% 186. 6% 32. 2% 44. 8% 45. 7% 75. 5% (12. 5)% 44. 3% CAUTIONARY STATEMENT

Statements in this management discussion and analysis describing the company’s objectives, projections, estimates and expectations may be ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those expressed or implied. Important developments that could affect the company’s operations include a downward trend in the domestic FMCG industry, rise in input costs, exchange rate fluctuations, and significant changes in political and economic environment in India, environment standards, tax laws, litigation and labour relations. 0 PBT 11 Current Tax & FBT 12 Deferred Tax 13 PAT 14 Exceptional Item 15 Minority Interest 16 PAT after minority interest & exceptional items 17 EPS 18 EPS (Diluted) The net sales of the company on a consolidated basis registered a growth of 23. 6 per cent from Rs. 1, 537 crore in 2004-05 to Rs. 1, 899. 6 crore in 2005-06. Consolidated net profit (PAT after minority interest and exceptional items) also posted a strong growth of 37. 5 per cent increasing from Rs. 155. 8 crore in 2004-05 to Rs. 214. 2 crore in 2005-06.

As seen in Table 5, all profitability ratios calculated on a consolidated basis have shown a marked improvement in 2005-06. Table 5: Consolidated,Profitability Ratios 2005-06 EBDITA/ sales PBT/ sales PAT/sales ROCE RONW 16% 13. 5% 11. 3% 39% 46. 1% 2004-05 14. 2% 11. 5% 10. 1% 31. 5% 43. 5% The highlights of the consolidated performance are as follows: Operating profits (EBIDTA) increased by 39. 5 per cent from Rs. 218 crore in 2004-05 to Rs. 304. 2 crore in 2004-05. Operating margin (EBDITA/sales) also grew from 14. per cent in 2004-05 to 16 per cent in 2005-06 The interest coverage ratio (ratio of profit before interest and tax to interest payments) has increased from 15. 2 times in 2004-05 to 16. 7 times in 2005-06 Net profit margin (PAT/sales) increased from 10. 1 per cent in 2004-05 to 11. 3 per cent in 2005-06 Return on capital employed (ROCE) has gone up from 31. 5 per cent in 2004-05 to 39per cent in 2005-06 Return on net worth (RONW) increased from 43. 5 per cent in 2004-05 to 46. 1 per cent in 2005-06. This year Dabur has undertaken a major initiative to prepare and present results as per US GAAP.

Table 6 gives the results. The reconciliation of net income between Indian GAAP and US GAAP is as follows Table 6:Consolidated financials,US GAAP In Rs. crore (Except for earning per share,which is in Rs. ) Audited for the year ended on Particulars Revenue* Cost of Revenue Gross Profit Net Income Earning Per Share Basic Diluted Total Assets Cash and cash equivalents Liquid mutual funds *Revenues as per US GAAP are net of VAT/Sales tax and excise duty 31. 03. 2006 1720. 0 944. 8 775. 2 219. 0 31. 03. 2005 1368. 4 759. 9 608. 5 161. 2 3. 8 3. 8 1040. 4 48. 9 41. 0 2. 8 2. 943. 8 13. 9 43. 8 Audited for the year ended on Particulars Consolidated net profit as per Indian GAAP Loss on sale of long term investment net of deferred tax Additional depreciation on property,plant & equipments Deferred taxes adjustments Others Consolidated net profit as per US GAAP 31. 03. 2006 214. 2 8. 6 (7. 3) 2. 5 1. 0 219. 0 (0. 3) 6. 0 (0. 3) 161. 2 31