1. FIRST TIME ADOPTION OF IND AS
The Company has adopted Indian Accounting Standards (Ind AS) as notified by the Ministry of Corporate Affairs with effect from 1st April, 2016, with a transition date of 1st April, 2015. These financial statements for the year ended 31st March, 2017 are the first financial statements the Company has prepared under Ind AS. For all periods upto and including the year ended 31st March, 2016 , the Company prepared its financial statements in accordance with the accounting standards notified under the section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (‘Previous GAAP'''').
The adoption of Ind AS has been carried out in accordance with Ind AS 101, First-time Adoption of Indian Accounting Standards. Ind AS 101 requires that all Ind AS standards and interpretations that are issued and effective for the first Ind AS financial statements be applied retrospectively and consistently for all financial years presented. Accordingly, the Company has prepared financial statements which comply with Ind AS for year ended 31st March, 2017, together with the comparative information as at and for the year ended 31st March, 2016 and the opening Ind AS Balance Sheet as at 1st April, 2015, the date of transition to Ind AS.
In preparing these Ind AS financial statements, the Company has availed certain exemptions and exceptions in accordance with Ind AS 101, as explained below. The resulting difference between the carrying values of the assets and liabilities in the financial statements as at the transition date under Ind AS and Previous GAAP have been recognized directly in equity (retained earnings or another appropriate category of equity). This note explains the adjustments made by the Company in restating its financial statements prepared under previous GAAP, including the Balance Sheet as at 1st April, 2015 and the financial statements as at and for the year ended 31st March, 2016.
A. Optional Exemptions from retrospective application
Ind AS 101 permits first-time adopters certain exemptions from retrospective application of certain requirements under Ind AS. The Company has elected to apply the following optional exemptions from retrospective application:
(i) Business combinations
Ind AS 103 Business Combinations has not been applied to acquisitions of subsidiaries, or of interests in associates and joint ventures and transactions which are considered businesses for Ind AS, that occurred before 1st April, 2015. The carrying amounts of assets and liabilities in accordance with Previous GAAP are considered as their deemed cost at the date of acquisition. After the date of the acquisition, measurement is in accordance with Ind AS. The carrying amount of goodwill in the opening Ind AS Balance Sheet is its carrying amount in accordance with the Previous GAAP
(ii) Deemed cost for property, plant and equipment and intangible assets
The Company has elected to measure all its property, plant and equipment and intangible assets at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS.
(iii) Investments in subsidiaries and joint ventures
The Company has elected to measure its investments in subsidiaries and joint ventures at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS.
(iv) Share-based payments
The Company has elected not to apply Ind AS 102 Share-Based Payment, to equity instruments that vested prior to the date of transition to Ind AS.
B. Mandatory Exceptions from retrospective application
The Company has applied the following exceptions to the retrospective application of Ind AS as mandatorily required under Ind AS 101:
On assessment of the estimates made under the Previous GAAP financial statements, the Company has concluded that there is no necessity to revise the estimates under Ind AS, as there is no objective evidence of an error in those estimates. However, estimates that were required under Ind AS but not required under Previous GAAP are made by the Company for the relevant reporting dates reflecting conditions existing as at that date.
(ii) Classification and measurement of financial assets
The classification of financial assets to be measured at amortized cost or fair value through other comprehensive income is made on the basis of the facts and circumstances that existed on the date of transition to Ind AS.
C. Transition to Ind AS - Reconciliations
The following reconciliations provide the explanations and quantification of the differences arising from the transition from Previous GAAP to Ind AS in accordance with Ind AS 101:
I. Reconciliation of Equity as at 1st April, 2015
II. A. Reconciliation of Equity as at 31st March, 2016
B. Reconciliation of Statement of Profit and Loss for the year ended 31st March, 2016
III. Adjustments to Statement of Cash Flows for the year ended 31st March, 2016
Previous GAAP figures have been reclassified/regrouped wherever necessary to conform with financial statements prepared under Ind AS.
III. Adjustments to Statement of Cash flows
There were no material differences between the Statement of Cash Flows presented under Ind AS and the Previous GAAP
Notes to the Reconciliations (a) Investment in Controlled Trust
Under Previous GAAP, the investment in the Hindustan Unilever Limited Securitization of Retirement Benefit Trust (‘HURB Trust'''') did not qualify as plan asset under AS 15 and accordingly presented as non-current investment. Under Ind AS, the HURB Trust qualifies as a plan asset. Accordingly, the plan asset has been fair valued as per actuarial valuation carried in accordance with Ind AS on date of transition to Ind AS and as at each balance sheet date. The plan asset recognized has been netted off against provision for employee benefits. The interest income and remeasurement gain/(loss) on the recognized plan asset has been recognized in Statement of Profit and Loss and Other Comprehensive Income respectively.
(b) Current Investments
i. Investments in treasury bills and government securities - Under Previous GAAP, the investments in treasury bills and government securities were measured at cost or market value, whichever is lower. Under Ind AS, the Company has designated these investments as fair value through other comprehensive income (FVOCI). Accordingly, these investments are required to be measured at fair value. At the date of transition to Ind AS, difference between the fair value of the investments and carrying value under previous GAAP has been recognized in Other equity (Retained earnings for interest income component and Debt instruments through Other Comprehensive Income for fair value change). Interest income and fair value changes are recognized in the Statement of Profit and Loss and Other Comprehensive Income respectively for the year ended 31st March, 2016.
ii. Mutual funds - Under Previous GAAP, the mutual funds were measured at cost or market value, whichever is lower. Under Ind AS, the Company has designated these investments at fair value through profit or loss (FVTPL). Accordingly, these investments are required to be measured at fair value. At the date of transition to Ind AS, difference between the fair value of the instruments and the carrying value under Previous GAAP has been recognized in retained earnings. Fair value changes are recognized in the Statement of Profit and Loss for the year ended 31st March, 2016.
(c) Derivative Instruments - Foreign Exchange Forward Contracts
Under Previous GAAP, unrealized net loss on foreign exchange forward contracts, if any, as at each Balance Sheet date was provided for. Under Ind AS, foreign exchange forward contracts are mark-to-market as at Balance Sheet date and unrealized net gain or loss is recognized in profit and loss statement. Derivative assets and derivative liabilities are presented on gross basis.
(d) Proposed Dividend
Under Previous GAAP, proposed dividends and related dividend distribution tax was recognized as a provision in the year to which they relate, irrespective of when they are declared. Under Ind AS, dividends and related dividend distribution tax are recognized as a liability in the year in which it is approved by the shareholders in the Annual General Meeting of the Company.
(e) Other Non-Current Liabilities
Under Previous GAAP, non-current liabilities were recognized on undiscounted basis. Ind AS requires such liabilities to be recognized at present value (discounted value) where the effect of time value of money is material. This led to a decrease in the value of non-current liabilities on the date of transition which was adjusted against retained earnings. Ind AS also provides that where discounting is used, the carrying amount of the liability increases in each period to reflect the passage of time. This increase is recognized as finance cost. The interest cost on unwinding of discount and impact of change in discount rate are recognized in the Statement of Profit and Loss under ‘Finance costs'''' and ‘employee benefit expenses'''' respectively for the year ended 31st March, 2016.
(f) Employee Stock Option Plan
Under Previous GAAP, the intrinsic value of the employee stock option plan was recognized as an expense over the vesting period. Under Ind AS, the compensation cost of employee stock option plan is recognized based on the fair value of the options determined using an appropriate pricing model at the date of grant. The reduction in employee compensation cost for the unvested options as on the date of transition based on fair value method has been adjusted against retained earnings. The impact for the year ended 31st March, 2016 has been recognized in ‘Employee benefits expenses'''' in the Statement of Profit and Loss.
(g) Deferred Taxes
Under Previous GAAP, deferred taxes were recognized for the tax effect of timing differences between accounting profit and taxable profit for the year using the income statement approach. Under Ind AS, deferred taxes are recognized using the balance sheet for future tax consequences of temporary differences between the carrying value of assets and liabilities and their respective tax bases. The above difference, together with the consequential tax impact of the other Ind AS transitional adjustments lead to temporary differences. Deferred tax adjustments are recognized in correlation to the underlying transaction either in retained earnings or through other comprehensive income.
(h) Excise Duty
Under Previous GAAP, excise duty was netted off against sale of goods. However, under Ind AS, excise duty is included in sale of goods and is separately presented as expense on the face of Statement of Profit and Loss. Thus, sale of goods under Ind AS has increased with a corresponding increase in expenses.
(i) Revenue from Sale of Goods
Under Previous GAAP, revenue was recognized net of trade discounts, rebates, sales taxes and excise duties. Under Ind AS, revenue is recognized at the fair value of the consideration received or receivable, after deduction of any trade discounts, volume rebates and any taxes or duties collected on behalf of the government such as sales tax and value added tax except excise duty. Discounts given include rebates, price reductions and incentives given to customers, promotional couponing and trade communication costs which have been reclassified from ‘advertising and sales promotion'''' within other expenses under Previous GAAP and netted from revenue under Ind AS.
(j) Interest on Income Tax Refund
Under Previous GAAP, the interest on income tax refund was recognized as ‘other income''''. Under Ind AS, the Company has adopted the accounting policy to recognize interest income/expense related to income tax as part of income tax expense. Accordingly, the interest on income tax refund has been reclassified from ‘other income'''' to ‘tax expenses - current tax'''' for the year ended 31st March, 2016.
(k) Non-Current Provisions
Under Previous GAAP, non-current provisions were recognized on undiscounted basis. Ind AS requires such provisions to be recognized at present value (discounted value) where the effect of time value of money is material. This led to a decrease in the value of non-current provisions for the year ended 31st March,2016 which was recognized in ‘Exceptional items'''' in the Statement of Profit and Loss where the underlying provision was initially recognized. Subsequently, the present value is increased to reflect passage of time by recognizing finance cost.
(l) Defined Benefit Plans
i. Actuarial gain/(loss) - Under Previous GAAP, the actuarial gain/(loss) of defined benefit plans had been recognized in Statement of Profit and Loss as an exceptional item. Under Ind AS, the remeasurement gain/(loss) on net defined benefit plans is recognized in Other Comprehensive Income net of tax.
ii. Net interest cost on defined benefit plans - Under Previous GAAP, the interest cost on defined benefit liability and expected return on plan assets was recognized as employee benefit expenses in the Statement of Profit and Loss. Under Ind AS, the Company has recognized the net interest cost on defined benefit plans as finance cost.
4 PROPERTY, PLANT AND EQUIPMENT
Refer Note 2.4 (a) for accounting policy on Property, Plant and Equipment
The Company has elected to measure all its property, plant and equipment at the previous GAAP carrying amount i.e 31st March 2015 as its deemed cost (Gross Block Value) on the date of transition to Ind AS i.e 1st April 2015. The movement in carrying value of property, plant and equipment as per IGAAP is mentioned below:
(a) Buildings include Rs, 0 crores (31st March, 2016: Rs, 0 crores and 1st April, 2015: Rs, 0 crores) being the value of shares in co-operative housing societies.
(b) The title deeds of Freehold Land aggregating Rs, 0 crores (31st March, 2016: Rs, 1 crores and 1st April, 2015: Rs, 1 crores), Leasehold Land, net block aggregating Rs, 1 crores, (31st March, 2016: Rs, 1 crores and 1st April, 2015: Rs, 1 crores) are in the process of perfection of title.
(c) Additions in capital expenditure of Rs, 1 crores (2015-16: Rs, 1 crores) and Rs, 1 crores (2015-16: Rs, 1 crores) incurred at Company''''s inhouse R&D facilities at Mumbai and Bengaluru respectively are eligible for weighted deduction under section 35(2AB) of the Income Tax Act, 1961.
(d) The Property, Plant and Equipment in 4A includes assets given on lease given in the below table:
B Capital work-in-progress
Capital work in progress as at 31st March 2017 is Rs, 203 crores (31st March 2016: Rs, 386 crores and 1st April 2015: Rs, 479 crores) For contractual commitment with respect to property, plant and equipment refer Note 25.B.(ii).
The Company has elected to measure all its intangibles at the previous GAAP carrying amount i.e 31st March 2015 as its deemed cost (Gross Block Value) on the date of transition to Ind AS i.e 1st April 2015. The movement in carrying value of intangible asset as per IGAAP is mentioned below:
The goodwill and indefinite life intangible assets are tested for impairment and accordingly no impairment charges were identified for FY 2016-17 (Nil for FY2015-16)
SIGNIFICANT CASH GENERATING UNITS (CGUs)
The Company has identified its reportable segments, i.e. Home care, Personal Care, Foods, Refreshments and Others as the CGUs. The goodwill and brand (with indefinite life) acquired through business combination has been entirely allocated to CGU ‘Personal Care'''' segment of the Company. The carrying amount of goodwill and brand as at March 31, 2017 is Rs, 0 crores and Rs, 311 crores respectively.
The projections cover a period of five years, as we believe this to be the most appropriate timescale over which to review and consider annual performances before applying a fixed terminal value multiple to the final year cash flows. The growth rates used to estimate future performance are based on the conservative estimates from past performance. Segmental margins are based on FY 2016-17 performance.
Weighted Average Cost of Capital % (WACC) = Risk free return ( Market risk premium x Beta variant for the Company).
We have performed sensitivity analysis around the base assumptions and have concluded that no reasonable changes in key assumptions would cause the recoverable amount of the CGU to be less than the carrying value.
C. INVESTMENT IN ASSOCIATE
The Company holds 24% of equity holdings in Comfund Consulting Limited and 26% equity and preference capital holding in Aquagel Chemicals (Bhavnagar) Private Limited. The Company does not exercise significant influence or control on decisions of the investee. Hence, they are not being construed as associate companies.
b) Rights, preferences and restrictions attached to shares
Equity shares: The Company has one class of equity shares having a par value of Rs, 1 per share. Each shareholder is eligible for one vote per share held. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend.
B. Nature and purpose of reserves
(a) Capital Reserve: During amalgamation, the excess of net assets taken, over the cost of consideration paid is treated as capital reserve.
(b) Capital Redemption Reserve: The Company has recognized Capital Redemption Reserve on buyback of equity shares from its retained earnings. The amount in Capital Redemption Reserve is equal to nominal amount of the equity shares bought back.
(c) Securities Premium Reserve: The amount received in excess of face value of the equity shares is recognized in Securities Premium Reserve. In case of equity-settled share based payment transactions, the difference between fair value on grant date and nominal value of share is accounted as securities premium reserve.
(d) Employee Stock Options Outstanding Account: The fair value of the equity-settled share based payment transactions with employees is recognized in Statement of Profit and Loss with corresponding credit to Employee Stock Options Outstanding Account.
(e) General Reserve: The Company has transferred a portion of the net profit of the Company before declaring dividend to general reserve pursuant to the earlier provisions of Companies Act 1956. Mandatory transfer to general reserve is not required under the Companies Act 2013.
(f) Retained Earnings: Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve, dividends or other distributions paid to shareholders.
(g) Other Reserves: The Company has recognized Other Reserves on amalgamation of Brooke Bond Lipton India Limited as per statutory requirements. This reserve is not available for capitalisation/declaration of dividend/ share buy-back. Further it also includes capital subsidy and revaluation reserve.
(h) Debt Instruments through Other Comprehensive Income: The fair value change of the debt instruments measured at fair value through other comprehensive income is recognized in Debt instruments through Other Comprehensive Income. Upon derecognition, the cumulative fair value changes on the said instruments are reclassified to the Statement of Profit and Loss.
D. Capital Management
Equity share capital and other equity are considered for the purpose of Company''''s capital management.
The Company manages its capital so as to safeguard its ability to continue as a going concern and to optimize returns to shareholders. The capital structure of the Company is based on management''''s judgment of its strategic and day-to-day needs with a focus on total equity so as to maintain investor, creditors and market confidence.
The management and the Board of Directors monitors the return on capital as well as the level of dividends to shareholders. The Company may take appropriate steps iin order to maintain, or if necessary adjust, its capital structure.
a) There are no amounts due for payment to the Investor Education and Protection Fund under Section 125 of the Companies Act, 2013 as 31st March,2017 (31st March 2016: Nil, 1st April 2015: Nil).
(i) I t is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above pending resolution of the respective proceedings as it is determinable only on receipt of judgments/decisions pending with various forums/authorities.
(ii) The Company does not expect any reimbursements in respect of the above contingent liabilities.
(iii) The Company''''s pending litigations comprise of claims against the Company by employees and pertaining to proceedings pending with Income Tax, Excise, Custom, Sales/VAT tax and other authorities. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial results.
(iv) The Company has given Bank Guarantees in respect of certain contingent liabilities included above.
i) Operating lease commitments
The Company''''s significant leasing arrangements are in respect of operating leases for premises (residential, office, stores, god own etc.) and computers. These leasing arrangements which are cancellable (other than those specified below), range between 11 months and 10 years generally, or longer, and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as rent in the Statement of Profit and Loss.
The Company has entered into agreement to take certain land and building on operating lease for warehousing activities from a third party. The lease arrangement is for 10 years, including a non-cancellable term of 9 years. The lease rent of Rs, 14 crores (2015-16: '''' 13 crores) on such lease is included in Rent.
iii) Other commitments
During the year, the Company has issued letters of undertakings to the bankers of its below mentioned fully owned subsidaries to provide need based financial support :
i) Lakme Lever Private Limited
ii) Daverashola Estates Private Limited
iii) Jamnagar Properties Private Limited
(c) The Company has spent Rs, 104 crores (2015-16: Rs, 92 crores) towards various schemes of Corporate Social Responsibility as prescribed under section 135 of the Companies Act, 2013. The details are:
I. Gross amount required to be spent by the Company during the year: Rs, 102 crores (2015-16: Rs, 92 crores)
III. Above includes a contribution of Rs, 18 crores (2015-16: Rs, 8 crores) to subsidiary Hindustan Unilever Foundation which is a Section 8 registered Company under Companies Act, 2013, with the main objectives of working in the areas of social, economic and environmental issues such as water harvesting, health and hygiene awareness, women empowerment and enable the less privileged segments of the society to improve their livelihood by enhancing their means and capabilities to meet the emerging opportunities.
IV. The Company does not carry any provisions for Corporate social responsibility expenses for current year and previous year.
Proposed dividend on equity shares is subject to the approval of the shareholders of the Company at the Annual General Meeting and not recognized as liability as at the Balance Sheet date.
‘Dividend Distribution Tax (DDTj-net, pertaining to the current year comprises the DDT on interim and proposed final dividend and the credit in respect of tax paid under section 115 O of the Indian Income-tax Act, 1961 by the Company on dividend received from its domestic and foreign subsidiaries during the year.
2. FINANCIAL INSTRUMENTS
Refer Note 2.4 (g) for accounting policy on Financial Instruments.
The Company has disclosed financial instruments such as cash and cash equivalents, other bank balances, trade receivables, current account balances with group companies and joint venture, trade payables and unpaid dividends at carrying value because their carrying amounts are a reasonable approximation of the fair values due to their short term nature.
C. FAIR VALUE HIERARCHY
The fair value of financial instruments as referred to in note (A) above have been classified into three categories depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements).
The categories used are as follows:
- Level 1: Quoted prices for identical instruments in an active market;
- Level 2: Directly or indirectly observable market inputs, other than Level 1 inputs; and
- Level 3: Inputs which are not based on observable market data.
There were no significant changes in the classification and no significant movements between the fair value hierarchy classifications of assets and liabilities during FY 2016-17.
CALCULATION OF FAIR VALUES
The fair values of the financial assets and liabilities are defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Methods and assumptions used to estimate the fair values are consistent with those used for the year ended 31st March, 2016.
Financial assets and liabilities measured at fair value as at Balance Sheet date:
1. The fair values of investment in treasury bills, government securities and quoted investment in equity shares is based on the current bid price of respective investment as at the Balance Sheet date.
2. The fair values of investments in mutual fund units is based on the net asset value (‘NAV'''') as stated by the issuers of these mutual fund units in the published statements as at Balance Sheet date. NAV represents the price at which the issuer will issue further units of mutual fund and the price at which issuers will redeem such units from the investors.
3. The fair values of the derivative financial instruments has been determined using valuation techniques with market observable inputs. The models incorporate various inputs including the credit quality of counter-parties and foreign exchange forward rates.
Other financial assets and liabilities
- Cash and cash equivalents (except for investments in mutual funds), trade receivables, investments in term deposits, other financial assets (except derivative financial instruments), trade payables, and other financial liabilities (except derivative financial instruments) have fair values that approximate to their carrying amounts due to their short-term nature.
- Loans have fair values that approximate to their carrying amounts as it is based on the net present value of the anticipated future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.
3. FINANCIAL RISK MANAGEMENT
The Company''''s business activities are exposed to a variety of financial risks, namely liquidity risk, market risks and credit risk. The Company''''s senior management has the overall responsibility for establishing and governing the Company''''s risk management framework. The Company has constituted a Risk Management Committee, which is responsible for developing and monitoring the Company''''s risk management policies. The Company''''s risk management policies are established to identify and analyse the risks faced by the Company, to set and monitor appropriate risk limits and controls, periodically review the changes in market conditions and reflect the changes in the policy accordingly. The key risks and mitigating actions are also placed before the Audit Committee of the Company.
a. management of liquidity risk
Liquidity risk is the risk that the Company will face in meeting its obligations associated with its financial liabilities. The Company''''s approach in managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when due without incurring unacceptable losses. In doing this, management considers both normal and stressed conditions.
The Company maintained a cautious liquidity strategy, with a positive cash balance throughout the year ended 31st March, 2017 and 31st March, 2016. Cash flow from operating activities provides the funds to service the financial liabilities on a day-to-day basis.
The Company regularly monitors the rolling forecasts to ensure it has sufficient cash on an on-going basis to meet operational needs. Any short term surplus cash generated, over and above the amount required for working capital management and other operational requirements, is retained as cash and cash equivalents (to the extent required) and any excess is invested in interest bearing term deposits and other highly marketable debt investments with appropriate maturities to optimize the cash returns on investments while ensuring sufficient liquidity to meet its liabilities.
The following table shows the maturity analysis of the Company''''s financial liabilities based on contractually agreed undiscounted cash flows along with its carrying value as at the Balance Sheet date.
B. MANAGEMENT OF MARKET RISK
The Company''''s size and operations result in it being exposed to the following market risks that arise from its use of financial instruments:
- currency risk;
- price risk; and
- interest rate risk
The above risks may affect the Company''''s income and expenses, or the value of its financial instruments. The Company''''s exposure to and management of these risks are explained below.
POTENTIAL IMPACT OF RISK MANAGEMENT POLICY SENSITIVITY TO RISK 1. CURRENCY RISK
The Company is subject to the risk that changes The Company is exposed to foreign exchange A 5% strengthening of the INR against key in foreign currency values impact the Company''''s risk arising from various currency exposures, currencies to which the Company is exposed exports revenue and imports of raw material and primarily with respect to US Dollar and Euro. (net of hedge) would have led to approximately prepay, plant and equipment. The Company manages currency exposures an additional Rs, 0 crores gain in the Statement of As at 31st March, 2017, the net unhedged within prescribed limits, through use of Profit and Loss (2015-16: Rs, 0 crores gain). A 5% exposure to the Company on holding financial forward exchange contracts. Foreign exchange weakening of the INR against these currencies assets (trade receivables and capital advances) transactions are covered with strict limits would have led to an equal but opposite effect. and liabilities (trade payables and capital placed on the amount of uncovered exposure, if creditors) other than in their functional currency any, at any point in time. amounted to Rs, 2 crores payale(31st klsur The aim of the Company''''s approach to 2016: Rs, 3 crores and 1st April, 2015: Rs, 4 crores). management of currency risk is to leave the
Company with no material residual risk.
4. PRICE RISK
The Company is mainly exposed to the price risk due The Company has laid policies and guidelines A 1% increase in prices would have led to its investment in debt mutual funds. The price risk which it adheres to in order to minimize price risk approximately an additional Rs, 21 crores gain in arises due to uncertainties about the future market arising from investments in debt mutual funds. the Statement of Profit and Loss (2015-16: Rs, 12 values of these investments. crores gain). A 1% decrease in prices would have At 31st March 2017, the investments in debt mutual led to an equal but opposite effect. funds amounts to Rs, 2,060 crores (31st March, 2016: Rs, 1,196 crores and 1st April, 2015: Rs, 925 crores).
These are exposed to price risk.
5. INTEREST RATE RISK
The Company is mainly exposed to the interest The Company has laid policies and guidelines A 0.25% decrease in interest rates would have led rate risk due to its investment in treasury bills including tenure of investment made to approximately an additional Rs, 1 crore gain in the and government securities. The interest rate minimize impact of interest rate risk. Statement of Profit and Loss (2015-16: Rs, 1 crore risk arises due to uncertainties about the future gain). A 0.25% decrease in interest rates would have market interest rate on these investments. led to an equal but opposite effect.
In addition to treasury bills and government securities, the Company invests in term deposits for a period of less than one year. Considering the short-term nature, there is no significant interest rate risk pertaining to these deposits.
As at 31st March 2017, the investments in treasury bill and government securities amounts to Rs, 1,459 (31st March, 2016: Rs, 1,265 crores and 1st April, 2015: Rs, 1,946 crores). These are exposed to interest rate risk.
C. MANAGEMENT OF CREDIT RISK
Credit risk is the risk of financial loss to the Company if a customer or counter-party fails to meet its contractual obligations.
Concentration of credit risk with respect to trade receivables are limited, due to the Company''''s customer base being large and diverse. All trade receivables are reviewed and assessed for default on a quarterly basis.
Our historical experience of collecting receivables is that credit risk is low. Hence, trade receivables are considered to be a single class of financial assets. Refer note 2.4(g) for accounting policy on Financial Instruments.
Other financial assets
The Company maintains exposure in cash and cash equivalents, term deposits with banks, investments in treasury bills, government securities, money market liquid mutual funds and derivative instrument with financial institutions. The Company has set counter-parties limits based on multiple factors including financial position, credit rating, etc. The Company has given inter-corporate deposits (ICD) only to its subsidiaries amounting Rs, 198 crores (31st March, 2016: Rs, 162 crores and 1st April, 2015: Rs, 180 crores).
The Company''''s maximum exposure to credit risk as at 31st March, 2017, 2016 and 1st April, 2015 is the carrying value of each class of financial assets.
6. DEFINED BENEFIT PLANS
Refer note 2.4(k) for accounting policy on Employee Benefits.
Description of Plans
Retirement Benefit Plans of the Company include Gratuity, Management Pension, Officer''''s Pension and Provident Fund. Other Post-Employment Benefit Plans includes Post-Retirement Medical Benefits.
Gratuity is funded through investments mostly with an insurance service provider and partly through direct investment under Hind Lever Gratuity Fund. Pension (Management Pension and Officer''''s Pension) for most employees is managed through a trust, investments with an insurance service provider and for some employees investments are managed through Company managed trust. Provident Fund for most of the employees are managed through trust investments and for some employees through government administered fund. Post-retirement medical benefits are managed through investment made under Company managed trust.
The trustees of the trust fund are responsible for the overall governance of the plan and to act in accordance with the provisions of the trust deed and rules in the best interests of the plan participants. They are tasked with periodic reviews of the solvency of the fund and play a role in the long-term investment, risk management and funding strategy.
The Company''''s investment strategy in respect of its funded plans is implemented within the framework of the applicable statutory requirements. The plans expose the Company to a number of actuarial risks such as investment risk, interest rate risk, longevity risk and inflation risk. The Company has developed policy guidelines for the allocation of assets to different classes with the objective of controlling risk and maintaining the right balance between risk and long-term returns in order to limit the cost to the Company of the benefits provided. To achieve this, investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets.
During the year the Company has amended its discretionary increase clause with respect to post retirement benefit plan, which has resulted into Rs,115 crores credit to the Statement of Profit and Loss.
The sensitivity analyses above have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the year and may not be representative of the actual change. It is based on a change in the key assumption while holding all other assumptions constant. When calculating the sensitivity to the assumption, the same method used to calculate the liability recognized in the Balance Sheet has been applied. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the previous year.
7.Share BASED PAYMENTS
Refer note 2.4(k) for accounting policy on Share Based Payments.
The members of the Company had approved ‘2001 HLL Stock Option Plan'''' at the Annual General Meeting held on 22 nd June, 2001. The plan envisaged grant of share options to eligible employees at market price as defined in Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014.
This plan was amended and revised vide ‘2006 HLL Performance Share Scheme'''' at the Annual General Meeting held on 29th May, 2006. This scheme provided for conditional grant of Performance Shares at nominal value to eligible management employees as determined by the Compensation Committee of the Board of Directors from time to time, at the end of 3-year performance period. The performance measures under this scheme include group underlying sales growth and free cash flow. The scheme also provided for ‘Par'''' Awards for the managers at different work levels.
The 2006 scheme was further amended and revised vide ‘2012 HUL Performance Share Scheme'''' at the Annual General Meeting held on 23rd July, 2012. This scheme provided for conditional grant of Performance Shares at nominal value to eligible management employees as determined by the Nomination and Remuneration Committee of the Board of Directors from time to time, at the end of 3-year performance period. The performance measures under this scheme include group underlying sales growth, core operating margin improvement and operating cash flow.
The number of shares allocated for allotment under the 2006 and 2012 Performance Share Schemes is 2,00,00,000 (two crores) equity shares of '''' 1/each. The schemes are monitored and supervised by the Nomination and Remuneration Committee of the Board of Directors in compliance with the provisions of Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and amendments thereof from time to time.
The Employee Stock Option Plan includes employees of Hindustan Unilever Limited, its subsidiaries and a subsidiary of parent Company.
Weighted average equity share price at the date of exercise of options during the year was '''' 864 (2015-16: '''' 848).
Weighted average remaining contractual life of options as at 31st March, 2017 was 1.68 years (31st March, 2016: 1.34 years and 1st April, 2015: 1.34 years).
The risk free interest rates are determined based on the zero-coupon sovereign bond yields with maturity equal to the expected term of the option. Volatility calculation is based on historical stock prices using standard deviation of daily change in stock price. The historical period is taken into account to match the expected life of the option. Dividend yield has been calculated taking into account expected rate of dividend on equity share price as on grant date.
CASH SETTLED SHARE BASED PAYMENTS
The employees of the Company are eligible for Unilever PLC (the ‘Holding Company'''') share awards namely, the Management Co-Investment Plan (MCIP), the Global Performance Share Plan (GPSP) and the SHARES Plan. The MCIP allows eligible employees to invest up to 100% of their annual bonus in the shares of the Holding Company and to receive a corresponding award of performance-related shares. Under GPSP, eligible employees receive annual awards of the Holding Company''''s shares. The awards under MCIP and GPSP plans will vest after 3-4 years between 0% and 200% of grant level, depending on the satisfaction of the performance metrics. The performance metrics of both MCIP and GPSP are underlying sales growth, operating cash flow and core operating margin improvement. Under the SHARES Plan, eligible employees can invest up to EUR 200 per month in the shares of the Holding Company and after three years one share is granted free of cost to the employees for every three shares invested, provided they hold the shares bought for three years. The Holding Company charges the Company for the grant of shares to the Company''''s employees at the end of the 3 years based on the market value of the shares on the exercise date. The Company recognizes the fair value of the liability and expense for these plans over the vesting period based on the management''''s estimate of the vesting and forfeiture conditions.
The Company grants share appreciation rights (SARs) to eligible employees for all cash settled share based plans mentioned above that entitles them to a cash/shares after three years of service. The amount of payment is also determined basis increase in the share price of the Holding Company between grant date and the time of exercise.
Refer note 3.A.(i) for treatment of business combination on first time adoption of Ind AS.
Refer note 2.4(q) for accounting policy on Business Combination.
Acquisition of Indulekha Brand
On April 07, 2016, the Company completed the acquisition of the flagship brand ‘Indulekha'''' from Mosons Extractions Private Limited (‘MEPL) and Mosons Enterprises (collectively referred to as ‘Mosons'''' and acquisition of the specified intangible assets referred to as the ‘Business acquisition''''). The deal envisaged the acquisition of the trademarks ‘Indulekha'''' and ‘Vayodha'''', intellectual property, design and knowhow for a total cash consideration of '''' 330 crores (excluding taxes) and a deferred consideration of 10% of the domestic turnover of the brands each year, payable annually for a 5 year period commencing financial year 2018-19. The transaction is accounted as business combination under Ind AS 103.
The acquisition is in line with the Company''''s strategic intent to strengthen its leadership position in Personal Care by providing an impetus to its play in the evolving Premium Naturals segment. Indulekha brings to the Company, a premium brand with strong credentials around Ayurveda that will complement its existing portfolio and strengthen its presence in the Hair Care category.
Deferred contingent consideration
The contingent consideration arrangement requires the Company to pay 10% of the domestic turnover of the brands each year, payable annually for a 5 year period commencing financial year 2018-19. As on the acquisition date, the fair value of contingent consideration was valued at Rs, 44 crores.
The determination of the fair value as at Balance Sheet date is based on discounted cash flow method. Basis the projection of the domestic turnover of the brand, the contingent consideration is subject to revision on a yearly basis. As at 31st March 2017, the fair value of the contingent consideration is Rs, 49 crores which is classified as other financial liability.
Assets acquired and liabilities assumed:
The fair values of identifiable assets acquired and liabilities assumed as at the date of acquisition were:
The deferred tax asset mainly comprises the effect of depreciation on intangible assets deductible for tax purposes.
In addition to cash consideration mentioned above, acquisition-related costs of Rs, 12 crores paid towards professional and legal fees, stamp duty etc. are included in ‘Exceptional Items'''' in the Statement of Profit and Loss.
Impact of acquisition on the results
The acquired business contributed revenues of Rs, 75 crores and profit (before tax) of Rs, 7 crores to the Company for the year ended 31st March, 2017.
46 Related Party Disclosures
A. Enterprises exercising control
(i) Holding Company : Unilever Plc
B. Enterprises where control exists
(i) Subsidiaries : Daverashola Estates Private Limited (100%)
(Extent of holding) Hindlever Trust Limited (100%)
Jamnagar Properties Private Limited (100%)
Lakme Lever Private Limited (100%)
Levers Associated Trust Limited (100%)
Levindra Trust Limited (100%)
Pond''''s Exports Limited (90%)
Unilever India Exports Limited (100%)
Unilever Nepal Limited (80%)
Bhavishya Alliance Child Nutrition Initiatives (100%)
(with effect from March 12, 2015) (Section 8 Company)
Hindustan Unilever Foundation (76%) (Section 8 Company)
(ii) Trust : Hindustan Unilever Limited Securitization of Retirement Benefit
(iii) Joint Ventures : Kimberly Clark Lever Private Limited (50% control)
(iv) Key Management Personnel
(a) Executive directors : Sanjiv Mehta
Pradeep Banerjee Dev Bajpai Geetu Verma BP Biddappa Priya Nair
Sandeep Kohli (with effect from 1st June, 2016)
Sudhir Sitapati (with effect from 1st July, 2016)
Srinandan Sundaram (with effect from 1st September, 2016) Samir Singh (up to 31st May, 2016)
Punit Misra (up to 30th September, 2016)
(b) Non-executive directors : Harish Manwani
Aditya Narayan S. Ramadorai O. P Bhatt Sanjiv Misra Kalpana Morparia
(v) Employees'''' Benefit Plans where there is significant influence : Hind Lever Gratuity Fund
The Hind Lever Pension Fund The Union Provident Fund
Terms and conditions of transactions with related parties
All Related Party Transactions entered during the year were in ordinary course of the business and are on arm''''s length basis.
For the year ended 31st March, 2017, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (201516: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
9. The Company has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provision as required under any law/accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of accounts.
10. The Company has presented segment information in the consolidated financial statements which are presented in the same financial report. Accordingly, in terms of Paragraph 3 of Ind AS 108 ‘Operating Segments'''', no disclosures related to segments are presented in this standalone financial statements.