The company has made a one-time charge to the profit-and-loss account of Rs 53.5 crore on account of the merger of ITC Classic with Industrial Credit & Investment Corp of India.

Gross income has gone up to Rs 6927.37 crore from Rs 5990.60 crore. Other income is lower at Rs 93.21 crore against Rs 97.56 crore. Net sales have risen to Rs 3074.85 crore from Rs 2814.95 crore. Profit after interest but before depreciation and tax has increased to Rs 877.33 crore from Rs 649.68 crore.

After providing for depreciation of Rs 85.85 crore, the profit before tax works out to Rs 791.48 crore against Rs 586.65 crore. In 1997-98, the company has provided Rs 265.28 crore for tax against Rs 239.75 crore in the previousyear.

Appropriations from profits include Rs 55.05 crore to debenture redemption reserve, Rs 200 crore to the general reserve and Rs 110 crore to the contingency reserve out of unappropriated profits leaving undistributed surplus of Rs 160.95 crore.

The company's export earnings increased in 1997-98 to Rs 759.08 crore from Rs 634.73 crore. Exports picked up momentum in the second half at Rs 413 crore against Rs 346 crore in the first half.

Talking to the press after the board meeting, ITC chairman Y C Deveshwar said the company had chalked out a long term direction to make the core businesses more competitive. "We would like to test this by exporting our produce to benchmark quality and cost competitiveness in these businesses."

On the conservative accounting policies of the company, Deveshwar said the dividend payout ratio had been consciously reduced to about 25 per cent of net profits against 50 per cent paid out consistently till two to three years back. "We would like to enhance our wealthgenerating capacity," he remarked.

He disclosed that the growth in revenues was largely the result of "moving the product mix up the value chain". He stressed that the company was continuing to invest in brands and the launch of BAT brands was intended to curb the grey market for foreign brands and hence prevent drainage of foreign exchange which he estimated was around Rs 300 crore through the "unofficial channel". Besides, the country was losing Rs 200 crore in excise revenue on account of smuggled brands.

Deveshwar maintained that foreign brands would continue to pose a threat as long as excise levies remained at current levels. "Our enforcement agencies need more teeth to prevent smuggling," he added.

INSIGHT

Lower payout ratio to continue

In 1997-98, ITC has registered a growth of 9.2 per cent in net sales, and a 51.7 per cent growth in net profit. Although the annual growth has been impressive, ITC's second half has not been as good as the first half. Net sales during the firsthalf amounted to Rs 1434.92 crore, and this increased to Rs 1639.93 crore during the second. However, net profits, which were Rs 301.73 crore during the first half, slumped to Rs 224.47 crore in the last six months of the year. Part of the reason was the restructuring charges for ITC Classic, which amounted to Rs. 53.5 crore, and was charged to profits. But even after adjusting for this amount of Rs 53.5 crore, there is a shortfall in net profit during the second half, when compared with the first. This shortfall is in spite of an increase of Rs 16 crore in "other income", and lower interest and depreciation charges. Operating profits, too, were lower during the second half.

ITC's contingency provisions as well as its expansion plans have also resulted in a lower dividend payout ratio, and this policy is likely to continue.