contents · pdf filecorporate governance report 10 management discussion & analysis report...

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CONTENTSBoard of Directors, etc. 1

Financial Statistics 2

Financial Highlights 4

Directors’ Report 5

Corporate Governance Report 10

Management Discussion & Analysis Report 17

Auditors’ Report 20

Balance Sheet 24

Profit & Loss Account 25

Cash Flow Statement 26

Schedules 1, 2 28

Schedules 3, 4, 5 29

Schedules 6, 7, 8, 9 30

Schedules 10, 11, 12, 13 31

Schedules 14, 15 32

Schedule 16 33

Balance Sheet Abstract &Company’s General Business Profile 44

CHAIRMANS.J. Scarff, O.B.E

MANAGING DIRECTORNicholas J. Massey

DIRECTORSAshok Dayal

A.S. Lakshmanan

David S. Allen

G. K. Chakraborty

Ian McPherson

Kunal Kashyap

P. Dwarakanath

P. Murari

P.S. Mukherjee

Subodh Bhargava

Colin Handcock (till 30.04.04)

S.S. Dugal (till 30.04.04)

COMPANY SECRETARYSurinder Kumar

BANKERSBank of America

Citibank N.A.

Deutsche Bank

The Hongkong & Shanghai BankingCorporation Limited

Standard Chartered Bank

State Bank of Patiala

ABN Amro Bank

BNP Paribas

Andhra Bank

AUDITORSPrice Waterhouse

REGISTERED OFFICEPatiala Road

Nabha 147 201 (Punjab)

HEAD OFFICEDLF Plaza Tower

DLF City, Phase-I

Gurgaon-122 002

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TEN YEAR FINANCIAL STATISTICS

Rs. Lakhs

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

SOURCES AND APPLICATIONS OF FUNDS

SOURCES OF FUNDS

Share Capital 28,36 28,36 45,38 45,38 45,38 45,38 45,38 45,38 45,38 45,38

Reserves & Surplus 68,26 1,02,69 1,26,73 1,83,12 2,52,01 3,29,16 3,96,04 4,37,84 4,46,73 4,83,97

TOTAL SHARE HOLDERS’

FUNDS 96,62 1,31,05 1,72,11 2,28,50 2,97,39 3,74,54 4,41,42 4,83,22 4,92,11 5,29,35

BORROWINGS 7,29 8,00 - - 20,00 55,00 75,66 - - -

FUNDS EMPLOYED 1,03,91 1,39,05 1,72,11 2,28,50 3,17,39 4,29,54 5,17,08 4,83,22 4,92,11 5,29,35

DEFERRED TAX

LIABILITIES - - - - - - 28,16 35,63 28,16 31,98

TOTAL 1,03,91 1,39,05 1,72,11 2,28,50 3,17,39 4,29,54 5,45,24 5,18,85 5,20,27 5,61,33

APPLICATION OF FUNDS

Gross Fixed Assets 68,98 73,87 88,36 1,20,05 1,95,74 4,02,18 4,96,90 5,15,56 4,92,22 5,04,63

Depreciation 30,07 35,91 43,11 51,22 58,67 70,04 84,55 1,22,70 1,62,31 1,97,24

NET FIXED ASSETS 38,91 37,96 45,25 68,83 1,37,07 3,32,14 4,12,35 3,92,86 3,29,91 3,07,39

INVESTMENTS 36,41 29,00 29,00 29,00 29,00 - - - - -

Gross Current Assets,

Loans and Advances 78,03 1,37,88 1,72,08 2,03,41 2,42,90 2,56,80 2,98,15 2,93,43 3,63,02 4,32,25

Current Liabilities &

Provisions 49,44 65,79 76,99 83,37 1,12,69 1,78,12 1,80,04 1,77,28 1,77,57 1,78,31

NET CURRENT ASSETS 28,59 72,09 95,09 1,20,04 1,30,21 78,68 1,18,11 1,16,15 1,85,45 2,53,94

MISCELLANEOUS

EXPENDITURE - - 2,77 10,63 21,11 18,72 14,78 9,85 4,91 -

TOTAL APPLICATION 1,03,91 1,39,05 1,72,11 2,28,50 3,17,39 4,29,54 5,45,24 5,18,85 5,20,27 5,61,33

FINANCIAL STATISTICS

3

TEN YEAR TRACK RECORD

Rs. Lakhs

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

TURNOVER 3,66,89 4,96,58 5,62,30 6,45,62 7,20,48 8,75,12 9,92,14 8,71,06 9,08,95 9,81,72

PROFIT BEFORE TAX &EXCEPTIONAL ITEMS 60,02 79,31 94,70 1,16,51 1,38,33 1,51,73 1,93,96 1,26,71 99,58 1,15,68

NET PROFIT 36,10 46,94 62,02 81,35 97,61 1,12,02 1,26,63 85,01 76,35 73,15

DIVIDEND PAYOUT 16,31 17,02 19,06 22,69 25,87 28,59 31,77 31,77 31,77 31,77

CORPORATE DIVIDEND TAX - - 1,90 2,27 2,84 6,29 3,24 - 4,07 4,15

RETAINED EARNINGS 19,79 29,92 41,06 56,39 68,90 77,14 91,62 53,24 40,51 37,24

DIVIDEND - % 57.50* 60 42@ 50 57 63 70 70 70 70

EARNINGS PER SHARE (Rs.) 12.73* 16.55 13.66@ 17.93 21.51 24.68 27.90 18.73 16.82 16.12

BONUS ISSUE 1:1 - 3:5 - - - - - - -

NUMBER OF SHAREHOLDERS 28,836 28,831 30,145 29,413 31,690 33,019 31,442 30,607 28,914 28,048

* POST ISSUE OF BONUS SHARES IN THE RATIO OF 1:1

@ POST ISSUE OF BONUS SHARES IN THE RATIO OF 3:5

FINANCIAL STATISTICS

4

FINANCIAL HIGHLIGHTS

TURNOVER(RS. CRORES)

PROFIT BEFORE TAX(RS. CRORES)

NET PROFIT(RS. CRORES)

CURRENT RATIO (TIMES)(RS. CRORES)

SPLIT UP OF INCOME 2004

Turnover Growth (%) YOY PBT as a % to Sales

Net Proft as a % to Sales

%%

%

ADVERTISING ANDPROMOTIONS

10.07%

MATERIALS30.35%

OTHER EXPENSES25.47%

RETAINEDEARNINGS

3.70%

INCOME TAX, EXCISE DUTY& TURNOVER TAX

17.27%

DIVIDEND3.15%EMPLOYEES’ COST

9.99%

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DIRECTORS’ REPORT

Your Directors are pleased to present the Annual Reporton the business and operations of your Company andthe audited accounts of the Company for the year ended31st December, 2004.

FINANCIAL RESULTS

(Rs. Lakhs)

2004 2003

Sales 9,81,71.67 9,08,94.76Profit before Depreciation,Amortisation and Tax 1,62,05.15 1,50,09.49Less: Depreciation 36,85.76 35,78.12Less: Amortisation of :

- Patents and Trade Marks 4,60.62 9,80.33- Deferred Revenue Expenditure 4,91.25 4,93.32

Profit before Tax 1,15,67.52 99,57.72Less: Provision for Tax

- Current Tax 38,86.00 30,70.00- Deferred Tax 3,81.89 (7,46.85)- Adjustment of Previous Years (16.10) -

42,51.79 23,23.15Profit available forAppropriations 73,15.73 76,34.57

Previous year figures regrouped/reclassified wherevernecessary to conform to this year’s classification.

Appropriations

Dividends- First Interim 14,97.57 14,97.58- Second Interim 16,79.09 16,79.09Corporate Dividend Tax 4,15.14 4,07.01Transferred to GeneralReserves 37,23.93 40,50.89

73,15.73 76,34.57Earnings Per Share( Basic & Diluted) 16.12 16.82

PERFORMANCE OF THE COMPANY

Against a difficult trading background for most FMCGcompanies, your Company is pleased to report a 8.0%sales growth for 2004 over the previous year.

Your Company maintained its commitment of operatingwith minimum trade pipelines with selling as per marketdemand and closed the year with almost negligible tradestock.

The flagship Horlicks brand (including Powders, Shakes& Biscuits) showed a growth of 8.4 % over previous year.

During the year your Company has focused on bothtopline increase supported by aggressive advertisementand marketing initiatives to reposition the brands and alsoon various initiatives / process reengineering to reduceoperating costs in the business. Profit before Tax

amounted to Rs 1,15,67.52 Lakhs, representing a growthof 16.2% over the previous year. Profit after Tax amountsto Rs. 73,15.73 Lakhs, a decline of 4.2 % over the previousyear, attributable mainly to a one-time write back of adeferred tax amount in the previous year.

Profit before Depreciation, Amortisation and Tax as apercentage to sales has been maintained at 16.51% sameas last year. During the year Raw Material cost as apercentage to sales has increased to 22.84% as against22.58 % last year mainly due to higher input costs(particularly liquid milk and skimmed milk powder). Thisincremental cost has been to some extent mitigated byvarious in-company cost reduction programmes.

RESERVES

The total Reserves as on 31st December, 2004 stood atRs. 4,83,97.11 lakhs representing an increase of 8.3 %from last year.

DIVIDENDS

The Directors consider that the two Interim dividendsaggregating to Rs.7.00 per share declared, to bereasonable and commensurate with the results for theyear ended 31st December, 2004 and do not recommenda final dividend for the year.

BUY BACK OF SHARES

The Board of Directors in their meeting held on December10, 2004, passed a resolution, subject to the approval ofshareholders, to buy back equity shares of Rs. 10 eachof the Company, at a price not exceeding Rs. 370 perequity share and for an amount not exceeding Rs.1,23,02.81 Lakhs which constitutes 25% of the Paid UpEquity Share Capital and Free Reserves of the Companyas on December 31, 2003. As per the requirements ofSection 192 A of the Companies Act, 1956, the resolutionwas sent to the shareholders for their approval throughPostal ballot on December 15, 2004 which was returnableby January 19, 2005. Subsequent to the Balance Sheetdate the results of the Postal Ballot were declared andapproved at the meeting held on January 20, 2005 at theRegistered Office of the Company at Patiala Road, Nabha147 201 (Punjab).

The Company shall adopt the “Tender Offer” methodologyfor the proposed buy back of shares.

The buy back of shares is expected to enhance theearnings per share of the company and improve its returnon net worth and create long term shareholder value.

EXPORTS

During the year the Company’s export earnings amountingto Rs. 54,30.41 lakhs covering exports to Bangladesh,Myanmar, Sri Lanka, Middle East, Nepal and othermarkets represented an increase of 36.3% over theprevious year.

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DIRECTORS’ REPORT

RESEARCH AND DEVELOPMENT

Research & Development has continued to play a vitalrole in supporting the excellent performance of yourCompany. Besides continuing to provide the all-importantoperational and business support underlying the greatperformance and growth of Horlicks and Boost, R&D hasbeen instrumental in fuelling innovation through newproduct developments across all brands.

As a result, a number of new products have been launchedthis year. Ready-to-drink Horlicks & Boost as well as theHorlicks vending machines have helped the thrust ongrowing out-of-home business.

Development of Mother’s Horlicks as well as JuniorHorlicks with DHA have added to the scientific credentialsof our brands, besides giving us a great competitiveadvantage.

The new state-of-the-art R&D centre in Gurgaon is nowfully functional and is serving as a great enabler to sparkoff and support even higher levels of innovation into thefuture.

ISO CERTIFICATION

Your Company’s manufacturing facilities at Nabha,Rajahmundry and Sonepat continue to be certified to thelatest version of ISO 9001-2000 as well as ISO 14001 byDNV, a leading International certification Company.Sonepat production facility has also been certified forHACCP(Hazard Analysis Critical Control Point- For Foodsafety). Work is in progress at Nabha and Rajahmundryon HACCP implementation.

Third party contract manufacturing/packing sites i.e.Durandel Foods at Chennai, Pratap Health Foods Ltd. atHyderabad, Mann Feeds Ltd. at Ballabgarh, Parsons Ltd.at Ghaziabad and SRDN at Guwahati have already beenISO 9001-2000 certified by DNV.

In our pursuit for excellence, Rajahmundry & Sonepatsites have been certified on ISO-18000 (OHSAS) duringthe year.

These certifications indicate our commitment in meetingGlobal Quality, Safety and Environment Standards.

INFORMATION TECHNOLOGY

Your Company has always been at the forefront ofInformation Technology having implemented two ERPpackages and connecting up all its business locations allover the country via satellite and terrestrial links.

The Company has now automated 400 of its KeyFranchised Wholesalers under the wholesaler automationproject.

CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION AND FOREIGN EXCHANGEEARNINGS AND OUTGO

Information required as per the Companies (Disclosureof particulars in the Report of the Board of Directors)Rules, 1988, is given in the Annexure to this Report.

DIRECTORS

At the Annual General Meeting held on April 30, 2004,eight Directors were elected under the system ofproportional representation. Mr. Ashok Dayal, Mr. A.S.Lakshmanan, Mr. P. Murari, Mr. Kunal Kashyap, Mr. P.Dwarakanath and Mr. P.S. Mukherjee were re-elected asDirectors of the Company and Mr. Subodh Bhargava wasthe newly elected Director of the Company. Mr. IanMcPherson who was earlier nominated by Horlicks Ltd.was also elected as Director.

Mr. Colin Handcock and Mr. S. S. Dugal ceased to be theDirectors of the Company w.e.f. April 30, 2004. The Boardof Directors wish to place on record their sincereappreciation for the valuable advise and guidancerendered by them during their tenure as Directors.

Horlicks Limited nominated Mr. Gautam K. Chakrabortyand Mr. David S. Allen on the board of the Company.

AUDITORS

Messrs Price Waterhouse, Chartered Accountants, whoretire at the conclusion of the forthcoming Annual GeneralMeeting and being eligible, offer themselves for re-appointment.

HUMAN RESOURCE DEVELOPMENT

Harmonious industrial relations continued to prevail at allthe units throughout the Company. The Companycontinued its focus on training and developing peoplethrough internal and external management developmentprogrammes and overseas assignments.

The Company has been adjudged as the 5th BestEmployer in India in a survey conducted in 2004 by HewittAssociates.

ENVIRONMENT AND SOCIAL COMMITMENT

Your Company, in its endeavour to serve the community,extended its reach to the villages around the Company’sNabha factory in the form of medical camps and AIDSawareness camps. Moreover, vocational trainingprogrammes have been organised for the farmercommunity in Nabha and rural women in Rajahmundry.In Sonepat, the Company is trying to extend its help acrossage groups from organising deworming camps forchildren, to distributing clothes in old age homes. Roadsafety, has become an area of rising concern for thecommunity. Towards this end, traffic sign boards havebeen put up in Nabha and speed breakers have been

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installed in Sonepat. Addressing the needs of HIV affectedpersons, the Company is involved in helping women withAIDS in Bangalore and in organising therapeuticrecreation for HIV positive children.

As in previous years your Company had organized regularanimal welfare measures such as developing a fodderpark, subsidising vet medicines, organising dewormingcamps etc. around its factories at Nabha andRajahmundry.

PARTICULARS OF EMPLOYEES

Particulars of employees as required under Section 217(2A) of the Companies Act, 1956 are enclosed.

ACKNOWLEDGEMENTS

The Directors wish to extend their thanks and appreciationto all the employees of the Company at all levels, agentsand other business associates for their commitment,dedication and respective contributions to the Company’soperations during the year under review.

The Directors would also like to acknowledge the valuableguidance, technical assistance and advice being receivedfrom the Associate Company in the U.K.

Your Directors look forward to the future with confidence.

ANNEXURE TO THE DIRECTORS’ REPORT 2004

Particulars regarding Conservation of Energy,Technology Absorption, Foreign Exchange Earningsand Outgo.

A. CONSERVATION OF ENERGY

(a) Energy Conservation Measures Taken

1. Steam

Consumption of coal per ton of production hasincreased by 15.9 % compared to last year .Thisis driven by a reduction in production volumes inthe current year in our Nabha plant which hasconsequently resulted in under utilization ofcapacity and higher impact of fixed coalconsumption.

The above adverse factors were partially offsetby the various energy conservation measuresundertaken at the site.

2. Electricity

Electricity per unit of production has decreasedby 0.7 % in the current year despite an increasein Nabha Consumption. This is driven primarilyby various Operation Excellence projectsundertaken in our Sonepat Plant. Installation ofenergy efficient Vapour Absorption and HeatingSystem at Rajahmundry plant has also resultedin savings in electricity consumed during the year.

(b) Additional investments and proposals, if any,being implemented for reduction of consumptionof energy

Various steps and measures are being initiated tocontinuously improve on consumption of coal atNabha and Rajahmundry plants and electricity at allthe sites.

(c) In respect of measures at (a) and (b) above forreduction of energy consumption andconsequent impact on the cost of production ofgoods

As already mentioned in (a).(1) above, the coalconsumption per ton of production has increased inthe current year primarily due to reduced capacityutilization at Nabha Plant, which resulted in highercost of coal consumed per unit of production.

Further marginal decline in electricity consumed perunit of production had insignificant impact on cost ofproduction.

For and on behalf of the Board

S. J. Scarff Nicholas J. Massey G. K. Chakraborty

Chairman Managing Director Kunal Kashyap

P. S. Mukherjee

DirectorsGurgaon

Dated : 28th January, 2005

DIRECTORS’ REPORT

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(d) Total energy consumption and energyconsumption per unit of production as per Form“A” of the Annexure in respect of industriesspecified in the Schedule thereto:

FORM “A”

2004 2003

A. Power and Fuel Consumption

1. Electricity

a) Purchased Units (in Lakhs) 1,93.65 1,92.33

Total amount(Rs. Lakhs) 7,89.86 8,20.10

Rate/Unit (Rs.) 4.08 4.26

b) Own Generation-

1) DG SetsUnits (in Lakhs) 91.52 74.72

Units per litre of Diesel oil 3.93 3.88

Cost/Unit (Rs.) 5.50 5.12

2) TurbineUnits(in lakhs) * 18.90 21.07

2. Coal Used in Boilers

Quality (Calorific value rangingbetween 2500 to 3500BTU)

Quantity (Tonnes)* 23,668 22,295

Total Cost (Rs. Lakhs) 6,12.58 5,66.89

Average Rate (Rs.) 2,588.21 2,542.69

*Includes coal consumed to produce steam to generateelectricity from Turbine.

B. Consumption per unit of Production:

Current Year Previous Year

Coal Power Coal Power

MT Units MT Units

1. Malted Milkfood/Malted Food/Energyand ProteinHealth Food/Powdered Milk(Per Ton) 0.547 558 0.472 562

2. Ghee & Butter(Per Ton) 0.347 115 0.317 328

In case of Ghee, the allocation procedure has beenrevised and only the electricity consumption for gheemanufacturing section has been considered.

B. TECHNOLOGY ABSORPTION

RESEARCH & DEVELOPMENT (R&D)

(1) Specific Areas in which R&D was carriedout by the Company

The Research and Development Centre

continued to provide valuable support forimprovement in quality of existing products,development of new products, and processesfor better productivity, quality costeffectiveness, superior product claims andimproved packaging.

(2) Benefits derived as a result of the aboveR&D

Production processes have improved resultingin enhanced productivity, efficiency inthroughput and introduction of new variants.

(3) Further Plan of Action

Steps are continuously being initiated toupgrade the processing technologies,development of science based innovativeproducts of higher nutritional value and tomaximise production capacity at optimum cost.

(4) Expenditure on R&D

(Rs. Lakhs)

2004 2003

a) Capital 5,82.99 33.25b) Recurring 6,70.39 4,68.00c) Total 12,53.38 5,01.25d) Total R&D Exp.

as a percentageof total turnover 1.28% 0.55%

TECHNOLOGY ABSORPTION, ADAPTATIONAND INNOVATION

The Company is continuously taking steps to improvethe product and process technology in an effort toprovide better value for money to consumers.

C. FOREIGN EXCHANGE EARNINGS ANDOUTGO

(a) Activities relating to exports : Initiativestaken to increase exports: Development ofnew export methods for products andservices and export plans

The Foreign exchange earnings throughexports have substantially increased in thecurrent year covering exports to Bangladesh,Myanmar, Sri Lanka, Middle East and othermarkets. The efforts to broaden the export baseto other countries in South East Asia and theMiddle East are continuing.

(b) Total Foreign Exchange used and earned:

(Rs. Lakhs)

2004 2003

Foreign exchangeearnings 34,04.79 21,11.48

Foreign exchangeoutgo 24,20.43 8,42.02

DIRECTORS’ REPORT

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DIRECTORS’ RESPONSIBILITY STATEMENT AS PER SECTION 217(2AA) OF THE COMPANIES ACT, 1956

The financial statements of the Company for the year ended 31st December, 2004 have been prepared in conformity with the accountingstandards issued by the Institute of Chartered Accountants of India and the requirements of the Companies Act, 1956. All the financialstatements have been prepared on a historical cost convention, as a going concern and on the accrual basis. There have been no materialdepartures in the adoption and application of the accounting standards. The accounting policies used in the preparation of the financialstatements have been consistently applied except where otherwise stated in the notes to accounts.

The Board of Directors of GlaxoSmithKline Consumer Healthcare Limited (GSKCH) accept the responsibility for the integrity and theobjectivity of these financial statements. The estimates and judgements relating to the financial statements have been made on a prudent andreasonable basis in order to ensure that the financial statements reflect in a true and fair manner the form and substance of the transactionsand reasonably present the Company’s state of affairs and profits for the year. To ensure this, the Directors have taken proper and adequatecare for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956. The system ofinternal controls are reviewed, evaluated and updated on an ongoing basis. Our internal auditors have conducted periodic audits to providereasonable assurance that the established policies and procedures of the Company have been followed for safe-guarding the assets of theCompany and for protecting any form of fraud and irregularities, subject to the inherent limitations in any system and procedure and coveragethereof that should be recognized in weighing the assurance provided by system of internal controls and accounts.

The financial statements have been audited by Price Waterhouse, Chartered Accountants. The Audit Committee of GSKCH meets on aquarterly basis to review the manner in which the internal auditors are performing their responsibilities and to discuss auditing, internalcontrols and financial reporting issues. To ensure complete independence, the internal auditors have full and free access to the membersof the Audit Committee to discuss any matter of substance.


S. J. Scarff Nicholas J. Massey G. K. Chakraborty

Chairman Managing Director Kunal Kashyap

Gurgaon P. S. Mukherjee

Dated : 28th January, 2005 Directors

DIRECTORS’ REPORT

INFORMATION AS PER SECTION 217(2A) OF COMPANIES ACT, 1956 READ WITH THE COMPANIES (PARTICULARS OF EMPLOYEES ) RULES, 1975AND FORMING PART OF THE DIRECTORS’ REPORT FOR THE YEAR ENDED 31ST DECEMBER, 2004.

Name Age Date of Designation/ Gross Qualifications Experience Previous Employment/Position Held(Years) Commencement Nature of Duties Remuneration (Years)

of Employment Rs.

A. EMPLOYED THROUGHOUT THE YEAR AND IN RECEIPT OF REMUNERATION AGGREGATING TO RS. 24,00,000/- PER ANNUM OR MORE

1 B. Jagdish Rao 49 28-05-1981 General Manager - Rajahmundry Factory 26,39,544 B. Sc.(H) (Chem.), B. Tech. 24 Asstt. Manager, Proddatur Milkfoods, Proddatur.

2 David S. Allen 62 01-08-2003 Director - Operations 39,28,130 B. Pharm(H). M.R.Pharm.S. 36 Site Director-Stafford Miller U.K. Ltd.

3 G. K. Chakraborty 50 14-11-1983 Director - Finance & Information Technology 65,73,229 B. Com., F.C.A., A. I. C. W. A. 24 Admin. Officer, Rasoi Ltd., Calcutta.

4 K. G. K. Prasad 44 05-06-1982 General Manager - Sonepat Factory 29,46,452 B. Sc.(D.T.). 22 --

5 Leanne Cutts 39 01-04-2003 Vice President - Marketing 42,77,168 Bachelor in Economics, M.B.A. 17 Category Manager - Marketing, GlaxoSmithKline, U.K.

6 M. S. Chhachhi 50 16-08-1994 General Manager - Corporate Production Services 39,76,487 B.Tech.,P.G.D.M. 26 Factory Manager, Britannia Ind.Ltd.

7 N. Narasimha Rao 44 29-03-1993 General Manager - Human Resources 26,76,213 B. Sc., M.P.M. 20 Works Manager, Vishaka Ind.

8 Narotam Kumar Gupta 48 10-10-1977 Vice President - N.F.S.D. 62,15,661 B. Com. (H) 27 --

9 Nicholas J. Massey 50 01-11-2002 Managing Director 68,25,489 M.A. in Politics, Philosophy & Economics 22 Vice President & General Manager - GlaxoSmithKline plc, U.K.

10 P. Dwarakanath 58 22-06-1979 Director - Human Resources & Admin. 67,56,110 B.Sc.,B.L.,P.G.D.M.(P.M. & I.R.). 36 Law Officer,I.D.L. Chemicals Ltd.Hyderabad.

11 P. K. Chaudhry 48 01-12-1979 Vice President - R. & D. and Regulatory Affairs 41,79,036 M.Sc. 25 --

12 P. M. Mathai* 54 02-05-1986 General Manager - C.E.S. 39,36,787 B.Tech.,P.G.D.M. 30 Branch Manager,Voltas Ltd.

13 P. S. Mukherjee 55 01-04-1977 Director - Legal & Corporate Affairs 61,49,413 M.A.,L.L.B. 32 Legal Assistant,Indian Aluminium Co.Ltd., Calcutta.

14 Praveen Kumar Gupta 48 15-10-1976 General Manager - Nabha Factory 36,58,039 M. Com. 28 --

15 Sameer Goel 41 01-05-1988 Vice President - Sales 55,40,999 B.A.(H), P.G.D.M. 17 --

16 Shubhajit Sen 35 01-06-1992 General Manager - Marketing (N.H.C.) 38,76,277 B.A. (H), P.G.D.M. 12 --

17 Surinder Kumar 47 20-06-1984 General Manager Legal & Company Secretary 32,02,025 M.Com.,L.L.B., F.C.S. 22 --

18 V. K. Chopra 54 01-05-1970 Head of Central Quality 36,67,303 M.Sc. 34 Trainee Chemist,Indian Sugar & Gen.Engg. Co,Yamunanagar.

B. EMPLOYED FOR A PART OF THE YEAR AND IN RECEIPT OF REMUNERATION AGGREGATING TO RS. 2,00,000/- PER MONTH OR MORE

19 A. Pullayya 48 01-12-1979 Permanent Workman 6,24,854 -- 24 --

20 A. S. V. B. Sankardas 57 01-08-1975 Permanent Workman 4,29,881 -- 28 --

21 Alok Mehta 32 01-06-1997 Group Product Manager 2,85,169 B. E. (Electronics/Comm), P.G.D.M. 7 Zodiac Electronics & Scientific Company.

22 Ambati Venu 35 01-06-1992 General Manager - Sales Eastern Region 16,05,848 B. E. (Mech), P.G.D.M. 12 --

23 B. Yesu Ratnam 54 31-05-1977 Permanent Workman 7,20,970 -- 26 --

24 H. K. Bhattacharya 54 01-10-1980 Executive Secretary 18,90,074 B. Com. 27 Stenographer, Chemicals & Plastic Ind. Ltd.

25 I. S. Sawhney 55 15-07-1969 Manager - Production 25,38,307 Hr. Sec., I.D.D. (DT.) 35 --

26 K. B. G. Rao 57 01-07-1974 Permanent Workman 3,25,037 -- 29 --

27 K. D. Rao 55 01-08-1975 Permanent Workman 6,74,154 -- 28 --

28 K. P. Kumar 57 04-04-1973 Permanent Workman 4,39,709 -- 30 --

29 K. Raghav Rao 56 31-05-1977 Permanent Workman 4,35,699 -- 26 --

30 M. Satya Narayana 55 01-05-1977 Permanent Workman 6,47,353 -- 26 --

31 Mona Jain 38 01-07-2003 General Manager - Marketing 3,23,937 M. B. A. 1 --

32 P. Annavaram 56 01-10-1975 Permanent Workman 4,85,266 -- 28 --

33 P. Purneswar Roy 35 03-03-1993 Manager - C.E.S. 6,93,376 M. Sc.(Food Tech.) 12 Tr. Production Officer, Nestle India Ltd.

34 R. K. Bhatia 50 15-11-1977 Manager - Procurement 31,55,417 B. A., D.I.P. (Mat.Mgmt.) 28 Stenographer, Punjab Public School.

35 Sunil Jolly 47 10-04-1992 Manager - Environment & Safety 21,87,170 B. Sc. Engg. 14 Research Associate, Ranbaxy Laboratories Ltd.

36 Suparna Sarna 37 01-09-1997 Manager - Legal 2,96,586 M. A. (Pol. Sc.), L. L. B. 10 Associate with Arun Jaitely Sr. Advocate.

37 T. Kalidas 54 31-05-1977 Permanent Workman 6,87,922 -- 26 --

38 Umesh Malik 40 19-01-2004 General Manager - Procurement 24,72,668 B. A. 7 General Manager - Supply Chain, Hindustan Coca-ColaBeverages Pvt. Ltd.

39 Vijay Raizada 39 02-08-1994 Manager - Packaging Development 6,28,959 B. Sc. (H), P.G.(Pkg. Tech.) 10 Sr. Pkg. Dev. Technologist, Dabur India Ltd.

NOTES:

* Services seconded to another company.Remuneration comprises basic salary, allowances, taxable value of the perquisites, contribution to Provident Fund, Pension Fund, Medial Insurance Premium and Personal Accident InsurancePremium. The contribution to Gratuity funds, leave encashment and Superannuation fund on account of Grandfathering has been made on a group basis and separate figures applicable to anindividual employee are not available and therefore, contribution to Gratuity funds, leave encashment and Superannuation fund on account of Grandfathering have not been considered in the abovecomputation. None of these employee are related to any Director of the Company.

10

COMPANY’S PHILOSOPHY ON CORPORATE GOVERNANCE

GlaxoSmithKline Consumer Healthcare Ltd., an associate of GlaxoSmithKline plc., is committed to adopting the bestglobal practices of Corporate Governance. The Company’s corporate governance philosophy is based on the followingprinciples:

➣ Management should act as the trustee of the shareholders’ capital and not as the owner.

➣ Satisfy the letter and spirit of the law and ensure 100% compliance with all the applicable laws of the land.The Company believes that the corporate governance standards should go beyond the law.

➣ Maintain high degree of disclosure levels to ensure transparency in functioning.

➣ Communicate externally about the company’s internal functioning, in a truthful manner.

BOARD OF DIRECTORS

Composition of the Board of Directors and other details as on 31st December, 2004 are as under:

Name of the Category of No. of Board Attendance No. of No. of CommiteeDirector Directorship Meetings at last Directorships Position held in other

attended AGM held on in other Public Public Companies

30th April, 2004 Companies Chairman Member

Mr. S. J. Scarff NEC 6 Yes 2 Nil 1

Mr. Nicholas J. Massey MD 6 Yes Nil Nil Nil

Mr. Ashok Dayal NED - I 5 Yes 2 1 Nil

Mr. A.S. Lakshmanan NED - I 5 Yes 5 2 5

Mr. P. Murari NED - I 4 Yes 11 1 7

Mr. Kunal Kashyap NED - I 5 Yes 2 1 1

Mr. Subodh Bhargava(w.e.f. April 30, 2004) NED – I 3 Yes 10 3 5

Mr. Ian McPherson NED NIL No Nil Nil Nil

Mr. P. Dwarakanath WTD 6 Yes Nil Nil Nil

Mr. G.K. Chakraborty WTD 6 Yes Nil Nil Nil

Mr. P.S. Mukherjee WTD 6 Yes Nil Nil Nil

Mr. David S Allen(w.e.f. April 30, 2004) WTD 3 Yes Nil Nil Nil

Mr. S.S. Dugal(upto April 30, 2004) NED - I 2 Yes Nil Nil Nil

Mr. Colin Handcock (upto April 30, 2004) NED NIL No Nil Nil Nil

NEC - Non Executive Chairman MD - Managing Director WTD – Wholetime Director

NED - Non Executive Director NED-I - Non Executive Director – Independent

Dates of Board Meetings held during the year: January 23, 2004, March 05, 2004, April 30, 2004, July 23, 2004, October25, 2004 and December 10, 2004

AUDIT COMMITTEE

The Company has an Audit Committee comprising of three members all of whom are Independent Directors and all ofthem possess financial and / or accounting knowledge. Till April 30, 2004, the Committee comprised of Mr. Ashok Dayalas the Chairman with Mr. Kunal Kashyap and Mr. P. Murari as its members. On April 30, 2004, the Audit Committee wasreconstituted with Mr. Kunal Kashyap as the Chairman and Mr. A. S. Lakshmanan and Mr. Subodh Bhargava as itsmembers. Mr. Surinder Kumar, Company Secretary acts as Secretary to the Committee. The Finance Director, theconcerned partners of Price Waterhouse, the Statutory Auditors and the Cost Auditors are permanent invitees to theAudit Committee meetings. It has been the practice of the Chairman of the Audit Committee to extend an invitation to theChairman and the Managing Director to attend each Audit Committee Meeting.

The Company has a multi disciplinary Internal Audit Team which submits its report directly to the Audit Committee on aquarterly basis. The Head of Internal Audit Department reports to the Audit Committee. The Chairman of the AuditCommittee attended the last Annual General Meeting held on April 30, 2004 to answer shareholders queries.

CORPORATE GOVERNANCE REPORT

11

Brief Description of the terms of reference:

The functioning and terms of reference of the Audit Committee including the role, powers and duties, quorum for meetingand frequency of meetings, have been devised keeping in view the requirements of Section 292 A of the Companies Act,1956 and the Listing Agreement with the Stock Exchanges.

The Audit Committee:-

1. is responsible for effective supervision of the financial reporting process, ensuring financial, accounting and operatingcontrols and ensuring compliance with established policies and procedures.

2. determines adequacy of internal controls and ensures its effectiveness.

3. identifies, defines and categorises all the risks that the Company faces and evaluates the steps that the Companytakes to mitigate such risks.

4. comprehensively reviews, evaluates and updates the internal control systems on an ongoing basis. It facilitatesimbedding of the self audit process in the work flow alongwith supporting the business objectives.

5. reviews the financial results for each quarter/period before being placed to the Board of Directors for approval.

6. reviews on a quarterly basis the compliance certificates received from each locational/functional heads on compliancewith company’s laid down policies and practices, accounting standards, all fiscal, commercial and statutory laws, asapplicable.

7. provides an open avenue of communication between the internal audit team, the statutory auditors and the Board ofDirectors.

8. advises on the nature and scope of the audit work being done by the Internal Audit team. In order to ensure theindependence of the Audit team the Chairman of the Audit Committee also evaluates the performance of the Auditteam against their annual targets jointly with the management of the Company.

Four meetings of the Audit Committee were held during the year. Attendance at meetings during the year:

Director No. of meetings attended

Mr. Ashok Dayal (upto April 30, 2004) 2

Mr. P. Murari (upto April 30, 2004) 2

Mr. Kunal Kashyap 4

Mr. A. S. Lakshmanan (w.e.f. April 30, 2004) 2

Mr. Subodh Bhargava (w.e.f. April 30, 2004) 1

INVESTOR GRIEVANCE COMMITTEE

The Company has an Investor Grievance Committee which comprises of three members. Till April 30, 2004, the Committeehad Mr. A. S. Lakshmanan as the Chairman with Mr. S. S. Dugal and Mr. P. S. Mukherjee as its other two members. TheCommittee was reconstituted on April 30, 2004 when Mr. Ashok Dayal was appointed as the Chairman with Mr. Simon J.Scarff and Mr. P. S. Mukherjee as members. Mr. Surinder Kumar, Company Secretary acts as Secretary to the Committeeand also as the Compliance Officer.


The functioning and terms of reference of the Committee are as prescribed under the Listing Agreement with the StockExchanges with particular reference to transfer, dematerialisation, complaints of shareholders etc.

Four meetings of the Investor Grievance Committee were held during the year. Attendance at meetings during the year:


Mr. A.S. Lakshmanan (upto April 30, 2004) 2

Mr. S. S. Dugal (upto April 30, 2004) 2

Mr. Ashok Dayal (w.e.f. April 30, 2004) 2

Mr. Simon J Scarff (w.e.f. April 30, 2004) 2

Mr. P. S. Mukherjee 4


12

The total number of complaints received and replied to the satisfaction of the shareholders during the year under reviewwere 651. The Company attends to the investors correspondence expeditiously and usually a reply is sent within threedays of receipt, except in cases that are constrained by disputes or legal impediments. There are no pending sharetransfer complaints as on 31st December, 2004 and the shares after transfer are despatched within two days from theirapproval at the Share Transfer Committee.

REMUNERATION COMMITTEE

The Company has a Remuneration Committee which comprises of three members. Till April 30, 2004 the Committeecomprised of Mr. S. S. Dugal as the Chairman and Mr. Kunal Kashyap, an independent director, and Mr. P. Dwarakanathas the members. The Committee was reconstituted on April 30, 2004 when Mr. P. Murari, an Independent Director, wasappointed as the Chairman with Mr. Ashok Dayal, also an Independent Director, Mr. Simon J Scarff, and Mr. P. Dwarakanathas the other members of the Committee. Mr. Surinder Kumar, Company Secretary acts as Secretary to the Committee.


The functioning and terms of reference of the Committee are as prescribed under the Listing Agreement with the StockExchanges. It determines the Company’s policy on all elements of remuneration packages of all the Directors includingsalary, benefits, bonus, stock options, pension rights and compensation payment etc., details of fixed component andperformance linked incentives alongwith performance criteria, service contracts, notice period, severance fees, etc.,stock option details, if any, and also to determine the remuneration of the Non Executive Directors. It also reviews allother aspects of benefits and compensation to employees throughout the Company including policies on the same.

Three meetings of the Remuneration Committee were held during the year. Attendance at meetings during the year:


Mr. S. S. Dugal (upto April 30, 2004) 2

Mr. Kunal Kashyap (upto April 30, 2004) 1

Mr. P. Murari (w.e.f. April 30, 2004) 1

Mr. Ashok Dayal (w.e.f. April 30, 2004) 1

Mr. Simon J Scarff (w.e.f. April 30, 2004) 1

Mr. P. Dwarakanath 3

REMUNERATION PAID TO DIRECTORS IN THE YEAR 2004(Rs.)

S.No. NAME DESIGNATION/ SALARY BENEFITS PERFORMANCE LTA CONTRIBUTION GRANDPOSITION INCENTIVE TO SUPER TOTAL

ANNUATION1. Mr. Nicholas J. Massey Managing Director 42,00,000 34,05,489 - - - 76,05,489

2. Mr. G.K. Chakraborty Director -Finance & 45,24,000 11,78,948 11,16,000 2,25,000 4,30,200 74,74,148Information Technology

3. Mr. P.S. Mukherjee Director -Legal & 40,80,810 7,93,811 10,39,398 2,00,000 4,14,122 65,28,141Corporate Affairs

4. Mr. P. Dwarakanath Director - H.R. & Admn. 45,08,970 6,72,594 12,11,306 2,00,000 4,78,346 70,71,216

5. Mr. David S Allen Director - Operations 16,06,667 24,99,793 - - - 41,06,460

(Rs.)

S.NO NAME PARTICULARS SITTING FEES COMMISSION TOTAL

1. Mr. S. S. Dugal Non Executive Director - Independent 60,000 66,667 1,26,667(upto April 30, 2004)

2. Mr. Ashok Dayal Non Executive Director - Independent 1,10,000 2,00,000 3,10,000

3. Mr. A.S. Lakshmanan Non Executive Director - Independent 90,000 2,00,000 2,90,000

4. Mr. Kunal Kashyap Non Executive Director - Independent 1,10,000 2,00,000 3,10,000

5. Mr. Subodh Bhargava Non Executive Director - Independent 40,000 1,33,333 1,73,333

6. Mr. P. Murari Non Executive Director - Independent 70,000 2,00,000 2,70,000

7. Mr. Simon J. Scarff Non Executive Director 30,000 50,000 80,000


13

ANNUAL GENERAL MEETINGS

Location and time for the last three AGM’s:

Year Date Venue Time

2002 April 19, 2002 Punjab Public School Auditorium, 10.00 a.m.

The Punjab Public School (Senior Wing),

Nabha 147 201 (Punjab)

2003 April 17, 2003 - same as above - 10.00 a.m.

2004 April 30, 2004 - same as above - 10.00 a.m.

POSTAL BALLOT RESOLUTION

The Board of Directors in their meeting held on December 10, 2004, passed a resolution, subject to the approval ofshareholders, to buy back equity shares of Rs. 10 each of the Company, at a price not exceeding Rs. 370 per equityshare and for an amount not exceeding Rs. 1,23,02.81 Lacs which constitutes 25% of the Paid Up Equity Share Capitaland Free Reserves of the Company as on December 31, 2003. As per the requirements of Section 192 A of the CompaniesAct, 1956, the resolution was sent to the shareholders for their approval through Postal ballot on December 15, 2004which was returnable by January 19, 2005. Subsequent to the Balance Sheet date the results of the Postal Ballot weredeclared and approved at the meeting held on January 20, 2005 at the Registered Office of the Company at PatialaRoad, Nabha 147 201 (Punjab).

DISCLOSURE

During the year 2004, the Company has related party transactions as envisaged under the Corporate Governance Codewhich have been mentioned in Note 26 under Schedule 16 to the Accounts.

There has not been any non compliance, penalties or strictures imposed on the Company by the Stock Exchanges, SEBIor any other statutory authority, on any matter related to capital markets, during the last year.

MEANS OF COMMUNICATIONS

Half yearly Report to each household of shareholders

Half-yearly report is provided to shareholders on a request being made to the Company in this regard.

Quarterly Results

Wide publicity is accorded to the Quarterly Results by publishing them in a widely circulated English daily and aPunjabi daily as per the requirements of the Listing Agreement with the Stock Exchanges. The results are also faxedto the Stock Exchanges where the Company is listed. The Company also has its own official press releases invarious newspapers through its Public Relations agency.

Presentation made to institutional investors or to analysts

Regular meetings & teleconferences were held with the Financial Institutions, Foreign Institutional Investorsand Analysts. About seven meetings and seven teleconferences were held during the year with differentFinancial Analysts. They are also provided with a copy of the quarterly results after the same have been faxed tothe Stock Exchanges.

Management Discussion and Analysis is reported in this Annual Report

GENERAL SHAREHOLDER INFORMATION

Annual General Meeting: Date, time & venue

The Forty sixth Annual General Meeting is scheduled to be held on April 29, 2005 at 10.00 a.m. at the Punjab PublicSchool Auditorium, The Punjab Public School (Senior Wing), Nabha, 147 201 (Punjab) as per notice enclosed withthe Annual Report.


14

Financial Calendar

S. No. Particulars Date of Board Meeting

1. Quarter ending March 31, 2005 April 28, 2005

2. Quarter ending June 30, 2005 End July, 2005

3. Quarter ending September 30, 2005 End October, 2005

4. Quarter ending December 31, 2005 End January, 2006

Date of book closure

The books will be closed for the purposes of the Annual General Meeting from April 21, 2005 to April 28, 2005 (both daysinclusive).

Dividend payment date

No final dividend has been recommended by the Board of Directors for the year ended 31st December, 2004. Two interimdividends aggregating to Rs. 7/- per equity share of Rs. 10/- each were paid to the shareholders for the year endedDecember 31, 2004.

Dividend Date of Declaration Date of Payment Rate per equity share

1st Interim July 23, 2004 August 20, 2004 Rs. 3.30/-

2nd Interim October 25, 2004 November 11, 2004 Rs. 3.70/-

Listing on Stock Exchanges & Stock Code

Subsequent to the approval of the shareholders received in the Forty Fifth Annual General Meeting held on April 30, 2004,your Company delisted its equity shares from Delhi, Madras and Ludhiana Stock Exchanges. The application for delistingof shares is pending with Calcutta Stock Exchange. Presently, the shares of the Company are listed at three Stock Exchangesin India, the addresses of which are given below:

Stock Exchange Stock Code

The Stock Exchange, Stock Exchange Towers, Dalal Street, Fort, Mumbai - 400 023 Physical 676Demat 50676

The National Stock Exchange Ltd., Exchange Plaza, Bandra - Kurla Complex, Bandra (East) GSKCONSMumbai - 400 051.

The Calcutta Stock Exchange Assn. Ltd., Lyons Range, Kolkata – 700 001 Physical 29047Demat 10029047

The Listing Fee for the year 2004-2005 has been paid to the Stock Exchanges where the shares of the Companyare listed.

Market price data: High and Low during each month in last financial year from January, 2004 – December, 2004 on theStock Exchange, Mumbai.

MONTH HIGH LOW MONTH HIGH LOW

January, 2004 333.95. 282.00 July, 2004 254.95 223.20

February, 2004 310.30 271.25 August, 2004 250.00 208.00

March, 2004 289.00 214.15 September, 2004 269.00 236.60

April, 2004 281.00 237.00 October, 2004 269.50 248.10

May, 2004 254.00 210.00 November, 2004 300.00 256.00

June, 2004 247.00 215.50 December, 2004 348.70 277.30


15

Taking the January 2004 indexed at 100, the BSE sensex moved to 111 throughDecember 2004, whereas GSKCH scrip remained at 100 during the same period.

Registrar and Transfer Agents

We have no Registrar and Transfer Agents as we have an in-house share transfer system including Electronic connectivityfor both NSDL and CDSL located at:

GlaxoSmithKline Consumer Healthcare Ltd., DLF Plaza Tower, DLF City - I, Gurgaon – 122 002

We are also the Share Transfer Agents for GlaxoSmithKline Pharmaceuticals Ltd.

Share transfer system

We work on the share package “COSAC” developed by Dolphin Infotek (Pvt.) Ltd. and is adequately fulfilling our needs.

Distribution of shareholding as on 31st December, 2004

No. of Shares No. of Shareholders No. of Share Percent of total shares

01 to 250 19,035 17,18,126 3.786

251 to 500 5,932 20,14,747 4.440

501 to 1000 1,767 12,60,069 2.777

1001 to 2000 531 7,60,777 1.676

2001 to 3000 175 4,34,624 0.958

3001 to 4000 90 3,14,539 0.693

4001 to 5000 48 2,20,133 0.485

5001 to 10000 114 8,38,424 1.848

10001 and above 148 3,78,23,768 83.347

In transit - - -

Total 28,048 4,53,80,621 100.00

S.No. Particulars No of Shares Held Percent of shares held (rounded off)

1. Promoters - M/s Horlicks Limited 1,81,52,243 39.999

2. Mutual Funds & UTI 31,03,053 6.838

3. Banks, Financial Institutions & Insurance 79,85,248 17.596Companies

4. Foreign Institutional Investors 42,38,656 9.340

5. Private Corporate Bodies 24,97,200 5.503

6. Indian Public 92,85,581 20.462

7. NRIs / OCBs 1,18,640 0.261

8. Any others - -

Total 4,53,80,621 100.00


Performance in comparison to BSE Sensex

16

Dematerialisation of shares and liquidity

We have dematerialised 51.670% of our equity share capital, in addition to which 39.99% is held by Horlicks Ltd., henceonly 8.331% of the equity share capital is held in physical form.

Outstanding GDRs/ADRs/warrants or any convertible instruments, conversion date and likely impact on equity.

We have no GDRs/ADRs or any commercial instrument.

Plant locations

Nabha Plant: GlaxoSmithKline Consumer Healthcare Limited, Patiala Road, Nabha – 147 201 (Punjab)

Rajahmundry Plant: GlaxoSmithKline Consumer Healthcare Limited, Industrial Area,Dowleswaram 533 124, Andhra Pradesh

Sonepat Plant: GlaxoSmithKline Consumer Healthcare Limited, 14 km Stone, Sonepat – Meerut Road,Village Khewra, P.O. Bahalgarh – 130 121, District Sonepat (Haryana)

Address for Correspondence

Registered Office: GlaxoSmithKline Consumer Healthcare Limited, Patiala Road, Nabha – 147 201 (Punjab)

Head Office & Share Department: DLF Plaza Tower, DLF City, Phase I, Gurgaon – 122 002 (Haryana)

Name, Address and Contact numbers of the Compliance Officer:

Surinder Kumar, Company Secretary, DLF Plaza Tower, DLF City, Phase I, Gurgaon - 122 002Telephone: (0124) 509 7202 or (0124) 254 0724Facsimile: (0124) 254 0734

Email for Investors: [email protected]


Place : Gurgaon S. J. ScarffDated : January 28, 2005 Chairman


AUDITORS’ CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OF CORPORATE GOVERNANCEUNDER CLAUSE 49 OF THE LISTING AGREEMENT(S)

To the Members of GlaxoSmithKline Consumer Healthcare Limited

We have reviewed the implementation of Corporate Governance procedures by GlaxoSmithKline Consumer HealthcareLimited during the year ended December 31, 2004, with the relevant records and documents maintained by the Company,furnished to us for our review and the report on Corporate Governance as approved by the Board of Directors.

The compliance of conditions of corporate governance is the responsibility of the management. Our examination waslimited to a review of procedures and implementation thereof, adopted by the Company for ensuring the compliance ofthe conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements ofthe Company.

We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiencyor effectiveness with which the management has conducted the affairs of the Company.

On the basis of our review and according to the information and explanations given to us, the conditions of CorporateGovernance as stipulated in Clause 49 of the listing agreement(s) with the stock exchange(s) have been complied within all material respects by the Company and that no investor grievance is pending for a period exceeding one monthagainst the Company as per the records maintained by the Investors Grievance Committee.

V.NijhawanPartner

Membership No. F 87228For and on behalf of

Place : Gurgaon Price WaterhouseDated : January 28, 2005 Chartered Accountants

17

INDUSTRY STRUCTURE AND DEVELOPMENT

India’s vision, as one of the world’s major producers of food products, is to become the food factory of the world by thenext decade. The proposed Food Processing policy is striving to make this happen by providing enough incentives toFood Processing sector in achieving its goal. It is also the stated objectives to convert the surpluses of raw material intofinished products and to make the processed food more nutritious whilst providing a varied choice to the consumer. Thisindicates vast scope for the industry both in domestic as well as export market. The Milk and Milk Products segment israted as one of the most promising sectors which deserves foreign investment. The regulatory norms have beenprogressively liberalised over the decade and today food processing units can have up to 100% foreign direct investment.

The Ministry of Food Processing has recently released a draft integrated food law bill called The Food Safety andStandards Bill, 2005. This will replace the current Prevention of Food Adulteration Act, 1954 and repeal much older foodlegislation. The new Act is forward-looking, in line with the emerging needs not only of consumers but also satisfying thelong-standing requirements of industry.

OPPORTUNITIES & THREATS

The last twelve months or so have been a difficult time for the FMCG sector. Against this trend, your Company, as one ofthe leading healthcare companies in India, has continued to perform well with sales growth of 8.0 % over 2003.

Your Company’s key focus in 2004 has been the challenge of bringing innovation successfully to market. With newproduct ideas now centered on consumers and delivered by science, a robust ‘new products and innovation’ process isnow well established. Encouragingly, several new products were launched in 2004 e.g. Junior and Mother’s Horlicks withDHA; RTD Horlicks and Boost; Hot Vending machines.

Your Company has put in place a comprehensive programme with its trade partners to drive future business growth andprofitability. One key initiative has been to encourage its distributors to operate with the lowest possible inventory levels.In fact, our distributors closed 2004 with less than one week’s stock. This should strongly enable our partner’s profitabilitythereby helping us jointly to drive new business opportunities. Your Company also began the process of computerisationof its wholesalers operations, finishing 2004 with over 400 ‘hooked up’, representing about 70% of its total sales.

RISKS & CONCERNS

Your Company conducts regular ‘risk-mapping’ to identify potential business threats and develop appropriate risk mitigationplans. In today’s world, it is particularly important that a Company’s crisis management capability is well honed to protectits reputation with its stakeholders.

Your Company has always enjoyed a strong reputation in the FMCG industry for the quality of its people and HR practices.Our ability to attract, motivate and retain key talent is becoming increasingly important as new industries seek to targetFMCG-trained staff.

FINANCIAL RISK

The company has no loan outstanding as on December 31, 2004.

The Company has minimal import requirements for its production process. The Company exports during the year stoodas Rs. 54,30.41 lakhs (which includes Rs. 20,25.62 Lakhs exports to Nepal & Bhutan). Hence, no risk is envisaged to thebusiness on account of currency fluctuations.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

GlaxoSmithKline Consumer Healthcare Ltd. (GSKCH) has in place well documented and structured systems and processeswhich are totally in tune with the Global Best Practices in various functions. In GSKCH there are well-defined anddocumented roles and responsibilities for people in all functions at various levels. These, coupled with robust monthlyinformation systems, ensure appropriate information flow to facilitate monitoring and diagnosis of any variance from bestpractices. Adherence to these best practices is ensured through frequent internal audits. Additionally, the following measuresare in place to ensure proper control:

· Structured Self Assessment Questionnaires covering all functions in the company are filled in periodically by therespective Functional Heads. This is in confirmation of their compliance to the laid down internal control systems andprocedures and the global best practices

· Any material variance from budget has to be approved by the Management Team· Any major policy change is approved by the Managing Director· All Functional Heads submit reports of their functions and achievements every month at the Management Team

meeting and these are reviewed by the Managing Director· There is a well documented and structured Disaster Recovery policy in place. The Company has developed a structured

Business Continuity plan and has started testing the same in phases.The Directors consider the current internal control systems in place to be robust and adequate for the business.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

18

FINANCIAL PERFORMANCE AND RESULTS OF OPERATIONS

(A) Results of Operations

1. Sales

The sales increased by 8.0%, primarily due to volume increase. The Company took a marginal price increaseduring the year after a gap of 30 months. The export sales of Rs. 54,30.41 Lakhs (includes Rs 20,25.62 LakhsSales in Indian Rs. to Nepal and Bhutan) represents a remarkable 36.3% increase over the previous year.

2. Other Income

Other Income declined by Rs. 1,90.89 Lakhs primarily due to higher writeback of provisions in the previous yearwhich were no longer required.

3. Expenditure

The cost of Raw Materials including Purchased Finished Goods as a percentage of sales during the current yearhas increased to 22.84% as against 22.58% last year. This is mainly due to increase in input costs of Milk / SMP,two of our major Raw Materials.

Purchase of finished goods represents the quantum of finished goods stock worth Rs. 8,08.75 Lakhs of Viva /Maltova which was purchased outright from Jagatjit Industries Ltd for the purpose of exports.

In continuation of restructuring process, the Company has announced during the year exgratia payment to itstemporary workers at Nabha plant. The above said offer, being a present obligation which may result into outflowof Rs 4,33.50 Lakhs [net of Rs.15.51 Lakhs already paid] has been provided for in these financial statements.

The Company continued to invest behind the brands and consequently Advertisement and Promotion expensesincreased by Rs 3,53.38 Lakhs from the previous year. The Company continued to maintain A&P marginally over10% to sales.

The impairment of the Intangible Assets – Patents and Trade Marks in 2003 has resulted in decline in Amortisationof Patents and Trade Marks by Rs 5,19.71 Lakhs in the current year.

4. Profit before Taxation

Profit before Taxation amounted to Rs. 1,15,67.52 Lakhs and has increased by 16.2 % over previous year.

5. Provision for Taxation

The Company has made provisions for taxation for the year amounting to Rs. 42,67.89 Lakhs (Including deferredtax provision of Rs 3,81.89 Lakhs) on Profits before Tax. The effective tax rate for the year is 36.90% as against23.3% last year mainly due to the favourable impact on Deferred Tax for Impairment of Patents and Trademarksto the extent of 11.4 % last year.

(B) Financial Condition

Overview

The Financial statements have been prepared in compliance with the requirements of the Companies Act and thegenerally accepted Accounting Principles (GAAP) and the Accounting Standards issued by the Institute of CharteredAccountants of India.

1. Reserves and Surplus

The Reserves and Surplus increased by Rs. 37,23.93 Lakhs representing the transfers made from the Profit &Loss account to General Reserves during the year. The transfer was made after providing for a dividend paymentof Rs. 35,91.80 Lakhs including Dividend Tax for the year 2004.

2. Fixed Assets

Additions of Rs. 19,40.50 Lakhs during the year include primarily Plant and Machinery (Rs. 7,23.93 Lakhs) andFurniture & Fixture (Rs. 4,64.52 Lakhs).

3. Inventories

Inventories amounted to Rs. 85,16.79 Lakhs as at December 31, 2004 as against Rs. 92,33.47 Lakhs as atprevious year end. The decline is primarily on account of reduction in Work in Progress from Rs. 9,48.54 Lakhsto Rs. 5,11.05 Lakhs. The inventories do not include any obsolete and unserviceable items lying at the locations.

4. Sundry Debtors

Sundry debtors amounted to Rs. 25,22.77 Lakhs as at end December, 2004 as against Rs. 18,37.73 Lakhs as atend December, 2003. The debtors are net of provision for bad and doubtful debts amounting to Rs. 1,84.54Lakhs.


19

The debtors as at end December, 2004 represent 9 days sales value as against 8 days last year.

5. Cash and Bank Balances

Cash and Bank balances with scheduled banks amounting to Rs. 2,63,22.59 Lakhs includes the collections intransit for cheques which have been deposited in banks but not realised till December 31, 2004 and short termdeposits of Rs. 2,31,50.00 Lakhs with various scheduled banks.

The above balance includes an amount of Rs 1,23,02.81 Lakhs earmarked for the proposed Buy Back of shareswhich has been approved by the Board of Directors of the Company and subsequently approved by theshareholders through Postal Ballot.

6. Loans and Advances

Loans and advances amounting to Rs. 55,81.58 Lakhs includes advances paid for raw and packing materials,stores and services, pre-paid insurance, loans and advances paid to employees and advances paid to ExciseAuthorities and advance tax (Net of provisions). The total loans and advances increased by Rs. 11,83.99 Lakhscompared to last year mainly due to higher advance tax payments.

7. Current Liabilities

Sundry Creditors amounting to Rs. 1,28,09.51 Lakhs include creditors for advertising and promotion spends, rawmaterials, packing materials, creditors for capital purchases, amounts payable on account of consignment agencysales and liabilities to wholesalers for dedicated working capital retained.

Other liabilities amounting to Rs. 34,58.04 Lakhs include statutory dues for miscellaneous taxes and dutiespayable to various Government Agencies.

8. Net Working Capital

The Company had a negative Working Capital (excluding Cash and Bank balances) of Rs. 9,28.26 Lakhs as atDecember 31, 2004 mainly due to lower inventory and low levels of Debtors.

9. Provisions

Provision for Gratuity and accrued leave have been made in accordance with the actuarial valuation as atDecember 31, 2004.

10. Return on Capital Employed

Consequent to the increase in Profits of the Company, the return on capital employed (average) during the yearincreased to 22.6% from 20.4% last year.

For the purpose of computation of the above Return on capital employed, the capital employed includes anamount of Rs. 1,23,02.81 Lakhs which has been earmarked for the proposed Buy Back of Shares.

The percentage has been computed by dividing PBT by the average capital employed (shareholders’ funds plusloan funds) during the year.

11. Debt Equity Ratio

Your Company being a cash surplus organisation has no outstanding loan and consequently has zero debt equityratio.

MATERIAL DEVELOPMENTS ON HUMAN RESOURCE / INDUSTRIAL RELATIONS FRONT

Please refer to the Board of Directors Report on Human Resource Development.

The Company had 2,702 number of permanent employees on its payroll as on December 31, 2004.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report may contain certain statements that might be considered forwardlooking. These statements are subject to certain risks and uncertainties. Actual results may differ materiallyfrom those expressed in the statement as important factors could influence the Company’s operations such as Governmentpolicies, local, political and economic development, risks inherent to the Company’s growth and such other factors.



Place : Gurgaon S. J. ScarffDated : January 28, 2005 Chairman

20

AUDITORS’ REPORT

TO THE MEMBERS OF GLAXOSMITHKLINECONSUMER HEALTHCARE LIMITED

1. We have audited the attached Balance Sheet ofGlaxoSmithKline Consumer Healthcare Limited, asat December 31, 2004, and the related Profit andLoss Account and Cash Flow Statement for theyear ended on that date annexed thereto, whichwe have signed under reference to this report.These financial statements are the responsibilityof the Company’s management. Our responsibilityis to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with theauditing standards generally accepted in India.Those standards require that we plan and performthe audit to obtain reasonable assurance aboutwhether the financial statements are free ofmaterial misstatement. An audit includesexamining, on a test basis, evidence supportingthe amounts and disclosures in the financialstatements. An audit also includes assessing theaccounting principles used and significantestimates made by management, as well asevaluating the overall f inancial statementpresentation. We believe that our audit provides areasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report)(Amendment) Order, 2004 issued by the CentralGovernment of India in terms of sub-section (4A)of Section 227 of ‘The Companies Act, 1956’ ofIndia (the ‘Act’) and on the basis of such checks ofthe books and records of the company as weconsidered appropriate and according to theinformation and explanations given to us, we givein the Annexure a statement on the mattersspecified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referredto in paragraph 3 above, we report that:

a) We have obtained all the information andexplanations, which to the best of ourknowledge and belief were necessary for thepurposes of our audit;

b) In our opinion, proper books of account asrequired by law have been kept by the companyso far as appears from our examination of thosebooks;

c) The Balance Sheet, Profit and Loss Accountand Cash Flow Statement dealt with by thisreport are in agreement with the books ofaccount;

d) In our opinion, the Balance Sheet, Profit andLoss Account and Cash Flow Statement dealt

with by this report comply with the accountingstandards referred to in sub-section (3C) ofSection 211 of the Act;

e) On the basis of written representations receivedfrom the directors, as on December 31, 2004and taken on record by the Board of Directors,none of the directors is disqualified as onDecember 31, 2004 from being appointed as adirector in terms of clause (g) of sub-section(1) of Section 274 of the Act;

f) In our opinion and to the best of our informationand according to the explanations given to us,the said financial statements together with thenotes thereon and attached thereto give in theprescribed manner the information required bythe Act and give a true and fair view inconformity with the accounting principlesgenerally accepted in India:

i) in the case of the Balance Sheet, of thestate of affairs of the company as atDecember 31, 2004;

ii) in the case of the Profit and Loss Account,of the profit for the year ended on that date;and

iii) in the case of the Cash Flow Statement,of the cash flows for the year ended onthat date.

V.NijhawanPartner



ANNEXURE TO AUDITORS’ REPORT

[Referred to in paragraph 3 of the Auditors’ Report ofeven date to the members of GlaxoSmithKlineConsumer Healthcare Limited on the financialstatements for the year ended December 31, 2004]

i) (a) The company is maintaining properrecords showing full particulars includingquantitative details and situation of fixedassets.

b) The fixed assets are physically verified bythe management according to a phasedprogramme designed to cover all the itemsover a period of three years, which in ouropinion, is reasonable having regard to thesize of the company and the nature of itsassets. Pursuant to the programme, a

21

AUDITORS’ REPORT

portion of the fixed assets has beenphysically verified by the managementduring the year and no materialdiscrepancies between the book recordsand the physical inventory have beennoticed.

c) In our opinion and according to theinformation and explanations given to us,a substantial part of fixed assets has notbeen disposed of by the company duringthe year.

ii) a) The inventory (excluding stocks with thirdparties) has been physically verified by themanagement during the year. In respectof inventory lying with third parties, thesehave been confirmed by them. In ouropinion, the frequency of verification isreasonable.

b) In our opinion, the procedures of physicalverification of inventory followed by themanagement are reasonable andadequate in relation to the size of thecompany and the nature of its business.

c) On the basis of our examination of theinventory records, in our opinion, thecompany is maintaining proper records ofinventory. The discrepancies noticed onphysical verification of inventory ascompared to book records were notmaterial.

iii) The company has neither granted nor taken anyloans, secured or unsecured, to/fromcompanies, firms or other parties covered inthe register maintained under Section 301 ofthe Act.

iv) In our opinion and according to the informationand explanations given to us, having regard tothe explanation that certain items purchasedare of special nature for which suitablealternative sources do not exist for obtainingcomparative quotations, there are adequateinternal control procedures commensurate withthe size of the company and the nature of itsbusiness for the purchase of inventory, fixedassets and for the sale of goods and services.Further, on the basis of our examination of thebooks and records of the company, andaccording to the information and explanationsgiven to us, we have neither come across norhave been informed of any continuing failureto correct major weaknesses in the aforesaidinternal control procedures.

v) a) In our opinion and according to the

information and explanations given to us,the transactions that are required to beentered into the register in pursuance ofSection 301 of Act, have been so entered.

b) In our opinion and according to theinformation and explanations given to us,there are no transactions made inpursuance of contracts or arrangementsentered into the register in pursuance ofSection 301 of the Act which have beenmade at prices which are not reasonablehaving regard to the prevailing marketprices at the relevant time.

vi) The company has not accepted any depositsfrom the public within the meaning of Sections58A, 58AA or any other relevant provisions ofthe Act and the rules framed thereunder.

vii) In our opinion, the company has an internalaudit system commensurate with its size andnature of its business.

viii) We have broadly reviewed the books of accountmaintained by the company in respect ofproducts where, pursuant to the Rules madeby the Central Government of India, themaintenance of cost records has beenprescribed under clause (d) of sub-section (1)of Section 209 of the Act and are of the opinionthat prima facie, the prescribed accounts andrecords have been made and maintained. Wehave not, however, made a detailedexamination of the records with a view todetermine whether they are accurate orcomplete.

ix) a) According to the information andexplanations given to us and the recordsof the company examined by us, in ouropinion, the company is generally regularin depositing the undisputed statutory duesincluding provident fund, investoreducation and protection fund, employees’state insurance, income-tax, sales-tax,wealth tax, service tax, customs duty,excise duty, cess and other materialstatutory dues as applicable with theappropriate authorities.

b) According to the information andexplanations given to us and the recordsof the company examined by us, theparticulars of dues of sales-tax, income-tax, customs duty, wealth tax, service tax,excise duty and cess as at December 31,2004 which have not been deposited onaccount of a dispute, are as follows –

22

Name of the Statute Nature of dues Amount under Period to Forum wheredispute not which the the dispute

yet deposited amount relates is pending(Rs. Lakhs)

Excise Duty

The Central Excise Excess Refund Claim 35.31 1999-2002 Guwahati High CourtAct, 1944

The Central Excise Valuation cases – 62,48.90 1991-2002 Customs, Excise, ServiceAct, 1944 Captive Consumption Tax Appellate Tribunal,

New Delhi & Chennai

The Central Excise Dispute arising out 38.00 1983-1986 Customs, Excise, ServiceAct, 1944 of Proforma Credit Tax Appellate Tribunal,

Scheme New Delhi

The Central Excise Valuation cases- Post 41.01 1995-2003 First Appellate AuthoritiesAct, 1944 Manufacturing Expenses of Kolkata & Hyderabad

and others

The Central Excise Valuation cases- Capitive 1,95.98 1992 to 2001 Commissioner CentralAct, 1944 Consumption and others Excise (A)-Chandigarh,

Patiala, Vishakapatnam,New Delhi, Pune,Kolkata, Meerut, &Hyderabad.

Sub Total 65,59.20

Sales Tax

Kerala General Sales Delayed Payment of 4.31 1996-97 Kerala High CourtTax Act, 1963 penal interest

Andhra Pradesh Turnover Tax on Milk 13.18 1997-99 Hyderabad High CourtGeneral Sales Tax PurchasesAct, 1957

As per Statutes Deductibility of specified 40.21 1990-2001 Sales Tax Appellateapplicable in the expenses and usage Tribunal/ Revenue Boardfollowing states- of concessional forms.Chattisgarh, Bombay,Kerala, Tamil Nadu,Uttar Pradesh

As per Statutes Miscellaneous demands. 2,49.00 1991-2003 First Appellate Authoritiesapplicable in the of various states.following states-Punjab,Rajasthan,Uttar Pradesh,West Bengal, Orissa,Madhya Pradesh &Andhra Pradesh.

Sub Total 3,06.70

AUDITORS’ REPORT

23

V.NijhawanPartner



Name of the Statute Nature of dues Amount under Period to Forum wheredispute not which the the dispute

yet deposited amount relates is pending(Rs. Lakhs)

Income Tax

Income Tax Act,1961 TDS deducted under 6.44 2001-2005 Income Tax Appellatesection 194 C instead of Tribunal194 J

Income Tax Act,1961 Additions made during 1,37.23 2000-01 Commissioner ofscrutiny assessment Income Tax (A)primarily for 801A andother deductions

Sub Total 1,43.67

Grand Total 70,09.57

Note: The above details exclude Departmental Appeals to higher authorities as there is no stay on the order of lowerauthority favouring the Company and the amount is not ascertainable.

(x) The Company has no accumulated losses asat December 31, 2004 and it has not incurredany cash losses in the financial year ended onthat date and in the immediately precedingfinancial year.

(xi) According to the information and explanationsgiven to us and the records of the Companyexamined by us, the Company has not availedany loan from financial institutions or banks ordebenture holders as at the balance sheet date.Accordingly, there have been no default inrepayment of dues.

(xii) The Company has not granted any loans andadvances on the basis of security by way ofpledge of shares, debentures and othersecurities.

(xiii) The provisions of any special statute applicableto chit fund / nidhi / mutual benefit fund / societiesare not applicable to the Company.

(xiv) In our opinion, the Company is not a dealer ortrader in shares, securities, debentures andother investments.

(xv) In our opinion, and according to the informationand explanations given to us, the Company hasnot given any guarantee for loans taken byothers from banks or financial institutions duringthe year.

(xvi) The Company has not obtained any term loans.

(xvii) On the basis of an overall examination of the

balance sheet of the Company, in our opinionand according to the information andexplanations given to us, there are no fundsraised on a short-term basis which have beenused for long-term investment.

(xviii) The Company has not made any preferentialallotment of shares to parties and companiescovered in the register maintained underSection 301 of the Act during the year.

(xix) The Company has not issued any debentureduring the year accordingly, no securities havebeen created.

(xx) The Company has not raised any money bypublic issues during the year.

(xxi) During the course of our examination of thebooks and records of the Company, carried outin accordance with the generally acceptedauditing practices in India, and according to theinformation and explanations given to us, wehave neither come across any instance of majorfraud on or by the Company, noticed or reportedduring the year, nor have we been informed ofsuch case by the management.

AUDITORS’ REPORT

24

SOURCES OF FUNDS SHAREHOLDERS’ FUNDS Share Capital 1 45,38.06 45,38.06 Reserves and Surplus 2 4,83,97.11 4,46,73.18

5,29,35.17 4,92,11.24

DEFERRED TAX LIABILITIES (Net) 31,98.10 28,16.21 [Schedule 16 (Notes 1(i)(b) and 17)]

31,98.10 28,16.21

5,61,33.27 5,20,27.45APPLICATION OF FUNDS

FIXED ASSETS 3 Gross Block 4,97,32.72 4,85,86.19

Less: Depreciation 1,97,23.89 1,62,30.73

Net Block 3,00,08.83 3,23,55.46 Capital Work in Progress 7,30.06 6,35.86

3,07,38.89 3,29,91.32

INVESTMENTS 4 0.05 0.05

CURRENT ASSETS, LOANS AND ADVANCES Inventories 5 85,16.79 92,33.47 Sundry Debtors 6 25,22.77 18,37.73

Cash and Bank Balances 7 2,63,22.82 2,03,79.39 Other Current Assets 8 2,81.22 4,53.79 Loans and Advances 9 55,81.58 43,97.59

4,32,25.18 3,63,01.97Less: CURRENT LIABILITIES AND PROVISIONS

Current Liabilities 10 1,68,45.19 1,69,11.10 Provisions 11 9,85.66 8,46.04

1,78,30.85 1,77,57.14

NET CURRENT ASSETS 2,53,94.33 1,85,44.83

MISCELLANEOUS EXPENDITURE - 4,91.25(To the extent not written off or adjusted )[Schedule 16 (Notes 1(j) and 16)]

5,61,33.27 5,20,27.45

Notes to the Accounts 16

This is the Balance Sheet referred The schedules referred to above form anto in our Report of even date. integral part of the Balance Sheet.

AS AT DECEMBER 31, 2004

BALANCE SHEET

Schedule As at As atNo. December 31, December 31,

2004 2003 (Rs. Lakhs) (Rs. Lakhs)

V. Nijhawan S. J. Scarff G.K. ChakrabortyPartner Chairman Kunal KashyapMembership No. F87228 P. S. MukherjeeFor and on behalf of Nicholas J. Massey DirectorsPrice Waterhouse Managing DirectorChartered Accountants

Gurgaon Surinder KumarDated : January 28, 2005 Company Secretary

25

INCOMESales [Schedule 16 (Note 6)] 9,81,71.67 9,08,94.76Excise Duty on Sales 1,19,54.63 8,62,17.04 1,12,44.38 7,96,50.38

Other Income 12 25,48.82 27,39.71

8,87,65.86 8,23,90.09

EXPENDITUREConsumption of Raw Materials 2,16,17.25 1,97,24.00Purchased Finished Goods 8,08.75 8,02.84Packing Material Expenses 81,46.67 76,99.92Employees’ Cost 13 1,00,62.65 91,86.81Expenses 14 3,17,71.33 3,08,74.25Depreciation- On Patents and Trade Marks 4,60.62 9,80.33- On Other Fixed Assets 36,85.76 41,46.38 35,78.12 45,58.45Adjustment due to (Increase)/Decrease in Stock ofFinished Goods and Goods in Process 15 6,45.31 (4,13.90)

7,71,98.34 7,24,32.37

PROFIT BEFORE TAX 1,15,67.52 99,57.72Tax for the year - Current Tax (38,86.00) (30,70.00)

- Adjustment of Previous years 16.10 -- Deferred Tax (3,81.89) 7,46.85

[Schedule 16 (Notes 1(i) and 17)]

PROFIT AFTER TAX 73,15.73 76,34.57

APPROPRIATIONS:Dividend

- First interim 14,97.57 14,97.58- Second interim 16,79.09 16,79.09Corporate Dividend Tax 4,15.14 4,07.01Transferred to General Reserve 37,23.93 40,50.89

73,15.73 76,34.57

Earnings Per Share (Nominal value of Rs. 10 each)- Basic/Diluted (Rs.) [Schedule 16 (Note 19)] 16.12 16.82

FOR THE YEAR ENDED DECEMBER 31, 2004

PROFIT AND LOSS ACCOUNT

Schedule Year ended Year endedNo. December 31, December 31,

2004 2003(Rs. Lakhs) (Rs. Lakhs)

Notes to the Accounts 16

This is the Profit and Loss Account referred The schedules referred to above form anto in our Report of even date. integral part of the Profit and Loss Account.

V. Nijhawan S. J. Scarff G.K. ChakrabortyPartner Chairman Kunal KashyapMembership No. F87228 P. S. MukherjeeFor and on behalf of Nicholas J. Massey DirectorsPrice Waterhouse Managing DirectorChartered Accountants


26

Year ended Year endedDecember 31, December 31,


A. CASH FLOW FROM OPERATING ACTIVITIES

PROFIT BEFORE TAX 1,15,67.52 99,57.72

Add : Depreciation

- On Patents and Trade Marks 4,60.62 9,80.33

- On Other Fixed Assets 36,85.76 35,78.12

Amortisation 4,91.25 4,93.32

Diminution in the value of Fixed Assets - 10.67

Provision For Doubtful Debts 17.36 1,07.61

Provision For Doubtful Advances - 29.72

Provision for Obsolescence of Spares - 18.20

Spares Written off - 23.71

Stocks Written Off 1,33.73 -

Interest Expenses 5,25.41 4,99.31

Loss on Disposal of Fixed Assets 1.02 8.23

Idle Assets Written Off 40.30 -

Less : Interest Income 8,94.10 5,40.58

Release of accruals / refunds 6,25.02 9,40.21

Exchange Fluctuation Gain/ (Loss)(Unrealised) (23.71) 0.80

Operating Profit Before Working Capital Changes 1,54,27.56 1,42,25.35

Add/(Less): (Increase)/Decrease in Current Assets

Sundry Debtors (7,25.84) 2,486.49

Loans & Advances (2,23.81) 11,39.76

Other Current Assets 1,33.74 5,11.11

Inventories 5,82.96 (6,67.10)

Add/(Less): Increase/(Decrease) in Current Liabilities & Provisions

Current Liabilities & Provisions 25,47.68 39.69

Cash Generated from Operations 1,77,42.29 1,77,35.30

Less: Income Tax paid (Net) 48,30.07 31,89.83

Net Cash from Operating Activities 1,29,12.22 1,45,45.47

B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (22,37.03) (13,20.92)

Sale of Fixed Assets 99.40 90.55

Interest Received 9,32.94 4,23.50

Net Cash from Investing Activities (12,04.69) (8,06.87)

CASH FLOW STATEMENT


27

V. Nijhawan S.J. Scarff G.K. ChakrabortyPartner Chairman Kunal KashyapMembership No. F87228 P.S. MukherjeeFor and on behalf of Nicholas J. Massey DirectorsPrice Waterhouse Managing DirectorChartered Accountants


C. CASH FLOW FROM FINANCING ACTIVITIES

Interest Paid (5,27.61) (4,87.35)

Dividends Paid (48,21.34) (24,43.75)Dividend Tax Paid (4,15.15) (4,07.01)

Net cash from Financing Activities (57,64.10) (33,38.11)

Net Increase/(Decrease) in Cash and Cash Equivalents 59,43.43 1,04,00.49

Cash and Cash Equivalents at the beginning of the year

Cash and Bank Balances 2,03,79.39 99,78.90

2,03,79.39 99,78.90

Cash and Cash Equivalents at the end of the year

Cash and Bank Balances 2,63,22.82 2,03,79.39

2,63,22.82 2,03,79.39

Net Increase/(Decrease) in Cash and Cash Equivalents 59,43.43 1,04,00.49

NOTES:

1. The above Cash Flow Statement has been prepared under the ‘Indirect Method’ as set out in theAccounting Standard-3 on Cash Flow Statement issued by Institute of Chartered Accountants ofIndia.

2. Cash and Cash equivalents include balances with Scheduled Banks on Dividend accounts -Rs. 1,49.04 Lakhs (Previous Year Rs. 17,93.72 Lakhs ), Rs. 2.32 Lakhs in Margin Money (PreviousYear Rs. Nil) and Rs. 1.10 Lakhs (Previous Year Rs. 1.10 Lakhs) lodged as Security Deposits,which are not available for use by the Company.

3. Notes to the Accounts (Schedule 16) form an integral part of the Cash Flow Statement.

4. Previous year’s figures have been regrouped wherever necessary to conform to the current year’sclassification.

This is the Cash Flow Statement referred to in our report of even date.



CASH FLOW STATEMENT


28

As at As atDecember 31, December 31,


1. SHARE CAPITAL*

AUTHORISED

6,00,00,000 Equity Shares of Rs.10 each 60,00.00 60,00.00

ISSUED AND SUBSCRIBED

4,53,80,621(Previous year 4,53,80,621) Equity

Shares of Rs.10 each fully paid-up 45,38.06 45,38.06

Notes:

1. 2,17,386 Equity Shares of Rs. 10 each were allotted

as fully paid-up pursuant to a contract for

consideration other than cash.

2. 2,77,60,539 Equity Shares of Rs.10 each were allotted as

fully paid-up bonus shares by capitalisation of reserves

Rs. 27,10.02 Lakhs and share premium Rs. 66.03 Lakhs in the

year 1995.

3. 1,70,17,733 Equity Shares of Rs.10 each were allotted as

fully paid-up bonus shares by capitalisation of reserves

Rs.17,01.77 Lakhs in the year 1997.

* [Schedule 16 (Note 23)]

2. RESERVES AND SURPLUS

GENERAL RESERVE

As per last Balance Sheet 4,46,73.18 4,37,83.85

Transferred from Profit and Loss Account 37,23.93 40,50.89

Impairment charge of Patents and Trademarks asat December 31, 2003 - (31,61.56)

4,83,97.11 4,46,73.18

[Schedule 16 (Note 20)]

FORMING PART OF THE ACCOUNTS

SCHEDULES

29

3. FIXED ASSETS *

GROSS BLOCK DEPRECIATION NET BLOCK

Cost as at Additions Deductions Cost as at Upto Charged/ Deductions Upto As at As atJanuary during during December January Adjustments during December December December1, 2004 the Year the Year 31, 2004 1, 2004 during the Year the Year 31, 2004 31, 2004 31, 2003

(Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs)

Tangible Assets

Land (Freehold) 2,25.13 - - 2,25.13 - - - - 2,25.13 2,25.13Buildings**** 83,51.98 96.62 39.98 84,08.62 8,57.22 2,53.76 11.49 10,99.49 73,09.13 74,94.76Plant & Machinery ** 2,73,79.16 7,23.93 3,12.69 2,77,90.40 79,70.48 26,00.63 2,91.44 1,02,79.67 1,75,10.73 1,94,08.68Information TechnologyEquipment 28,99.85 1,00.80 1,06.35 28,94.30 23,79.99 2,88.12 1,03.30 25,64.81 3,29.49 5,19.86Furniture & Fixtures 21,32.39 4,64.52 59.51 25,37.40 7,79.02 3,00.60 48.07 10,31.55 15,05.85 13,53.37Motor Vehicles 7,45.49 2,08.82 1,34.80 8,19.51 2,83.78 1,46.48 98.58 3,31.68 4,87.83 4,61.71Leasehold Improvements 69.83 3,45.81 - 4,15.64 20.27 96.17 - 1,16.44 2,99.20 49.56Idle Plant andMachinery *** 1,40.64 - 1,40.64 - 1,00.34 - 1,00.34 - - 40.30

Intangible AssetsPatent and TradeMarks**** 66,41.72 - - 66,41.72 38,39.63 4,60.62 - 43,00.25 23,41.47 28,02.09

4,85,86.19 19,40.50 7,93.97 4,97,32.72 1,62,30.73 41,46.38 6,53.22 1,97,23.89 3,00,08.83 3,23,55.46

Previous Year 5,12,80.11 11,75.14 38,69.06 4,85,86.19 1,22,70.33 45,58.45 5,98.05 1,62,30.73

Capital work in progress includes Capital Advances Rs. 2,76.95 Lakhs (Previous Year Rs. 25.19 Lakhs) 7,30.06 6,35.86

3,07,38.89 3,29,91.32* Schedule 16 (Notes 1(b) and 20)** Includes Rs. 64.49 Lakhs (Previous Year Rs. 64.49 Lakhs) paid to State Electricity Board for electrical installations not represented by physical

assets owned by the Company and depreciated over a period of 5 years.*** Assets retired from active use written off during the year**** Includes Dwelling Units valuing Rs. 1,23.95 Lakhs ( Previous Year Rs. 1,23.95 Lakhs) and Patents and Trade Marks valuing Rs.66,41.72 Lakhs

(Previous Year Rs. 66,41.72 Lakhs) for which registration is awaited




SCHEDULES

4. INVESTMENTS *Long Term - Other InvestmentsUnquoted Government Securities at Cost 7 - Year National Savings Certificates(Lodged with Government Authorities) 0.05 0.05

0.05 0.05* Schedule 16 [Note 1(d)]

5. INVENTORIES *At lower of Cost and Net Realisable Value

Raw materials [Includes Goods in transit Rs. 68.75 13,00.73 13,69.91Lakhs (Previous year- Rs. 14.60 Lakhs)]Packing materials [Includes Promotional material 5,41.43 4,39.08Rs 68.04 Lakhs (Previous Year Rs Nil)]Goods in process 5,11.05 9,48.54Finished goods 55,33.32 56,48.49Purchased finished goods 0.75 41.58Stores and spare parts 5,82.29 7,69.45Less: Provision for Obsolescence - 5,82.29 (18.20) 7,51.25By-products (at Net Realisable Value) 47.22 34.62

85,16.79 92,33.47* Schedule 16 [Note1(e)]

30

6. SUNDRY DEBTORSOver six months

Secured - Considered good 26.37 24.24Unsecured - Considered good 1,98.69 50.82Unsecured - Considered doubtful 1,84.54 98.33Less: Provision for doubtful debts (1,84.54) 2,25.06 (98.33) 75.06

OthersSecured - Considered good 6,47.92 7,38.98Unsecured - Considered good 16,49.79 10,23.69Unsecured - Considered doubtful - 69.11

Less: Provision for doubtful debts - 22,97.71 (69.11) 17,62.67

25,22.77 18,37.73

7. CASH AND BANK BALANCESCash and Cheques in hand 3.00 4.18With Scheduled Banks:

On Current accounts 30,17.36 25,30.39[Net of book overdrafts -Rs. 1,23.94 Lakhs (Previousyear- Rs. 3,09.74 Lakhs)]On Dividend accounts 1,49.04 17,93.72On Deposit accounts 2,31,50.00 1,60,50.00On Margin Money 2.32 -With Post Office in Savings Bank Accounts (Lodgedas security deposits) [Maximum amount during the yearRs. 1.10 Lakhs (Previous year Rs. 1.10 Lakhs)] 1.10 1.10

2,63,22.82 2,03,79.39

8. OTHER CURRENT ASSETSAccrued Interest 1,05.50 1,44.33Others 1,75.72 3,09.46

2,81.22 4,53.79

9. LOANS AND ADVANCES(Considered Good, unless otherwise specifically indicated)Advances recoverable in cash or in kind or forvalue to be received

- Unsecured - Considered Good 37,62.63 35,72.08- Unsecured - Considered Doubtful - 29.72Less : Provision for doubtful advances - 37,62.63 (29.72) 35,72.08- Secured 2,90.06 3,12.99

Deposits with excise authorities 2,17.48 1,61.28Advance Tax, net of provisions of Rs. 4,31,29.12 Lakhs 13,11.41 3,51.24(Previous Year - Rs. 3,92,39.58 Lakhs)

55,81.58 43,97.59

Incuded in advances, amount due from Directors and anofficer of the Company. - -Maximum amount due during the year 11.66 19.85




SCHEDULES

31

10. CURRENT LIABILITIESSundry creditors:

- Total outstanding dues of small scale industrialundertakings * 1,87.00 1,40.98

- Total outstanding dues of creditors other thansmall scale industrial undertakings 1,26,22.67 1,20,57.02

Other liabilities 34,58.04 28,20.94Advances from customers 4,28.44 98.44Unclaimed dividend 1,49.04 1,14.63Second interim dividend - 16,79.09

1,68,45.19 1,69,11.10

* There are no amounts due and outstandingfor more than 30 days.

11. PROVISIONS *Gratuity 82.15 72.63Accrued leave 9,03.51 7,73.41

9,85.66 8,46.04* Schedule 16 [Note 1(g)]



12. OTHER INCOME

Scrap sales 2,94.39 2,75.57Insurance and other claims 2,90.46 3,46.34Interest Income

[Tax Deducted at Source- Rs. 1,69.79 Lakhs(Previous Year Rs. 76.85 Lakhs)] -Loans/Advances 20.05 23.08-Bank deposits 7,89.80 4,93.73-Income tax refunds 61.70 --Others 22.55 8,94.10 23.77 5,40.58

Miscellaneous income * 4,44.85 6,37.01Release of accruals/refunds 6,25.02 9,40.21

25,48.82 27,39.71* [Schedule 16 (Note 10)]

13. EMPLOYEES’ COST *Salaries, Wages and Bonus 82,45.14 75,52.65Contribution to Provident and Other Funds 8,38.72 7,90.89Welfare Expenses 16,72.41 16,26.23Less : Recoveries made (6,93.62) (7,82.96)

1,00,62.65 91,86.81* [Schedule 16 (Note 15, 21 & 27)]


SCHEDULES



32

14. EXPENSESStores consumed 94.59 93.44Conversion charges paid to third parties 35,56.67 35,15.77Repairs - Building 1,19.11 2,31.37

- Machinery 4,46.67 5,54.92- Others 5,54.27 4,95.66

Power and fuel 24,85.19 23,51.87Rent 10,15.83 10,27.71Rates and taxes 18,98.04 17,21.62Insurance 7,10.58 7,87.56Travelling expenses 9,95.42 10,49.94Carriage and freight 39,25.61 36,21.78Service charges paid to selling agents 11.29 10.36Discounts - Sales 4,21.57 3,60.98Donations 15.15 -Advertising and promotions* 1,01,45.01 97,91.63Royalty 33,27.72 30,37.65Idle Assets written off 40.30 -Loss on sale of Fixed Assets 1.02 8.23Exchange fluctuations 49.06 37.89Development and Scientific research 64.98 32.28Interest paid - others 5,25.41 4,99.31Amortisation ** 4,91.25 4,93.32Provision for Doubtful Debts and advances 17.36 1,37.34Diminution in the value of Fixed Assets - 10.67Stocks Written off 1,33.73 -Spares Written off - 23.71Provision for obsolescence of Spares - 18.20Other general expenses* 23,31.03 25,91.04Less : Recoveries made *** (16,05.53) (16,30.00)

3,17,71.33 3,08,74.25* [Schedule 16 (Note 10)]** [Schedule 16 (Notes 1(j) and 16)]*** [Schedule 16 (Note 15)]

15. ADJUSTMENT DUE TO (INCREASE) / DECREASE INSTOCK OF FINISHED GOODS AND GOODS IN PROCESSOpening Stock

Finished Goods 56,48.49 57,56.78Goods in Process 9,48.54 3,95.75Purchased Finished Goods 41.58 -By-products 34.62 66,73.23 43.45 61,95.98

Less: Closing StockFinished Goods 55,33.32 56,48.49Goods in Process 5,11.05 9,48.54Purchased Finished Goods 0.75 41.58By-products 47.22 60,92.34 34.62 66,73.23

Excise duty adjustment for movementof Finished Goods Inventory 64.42 63.35

Net (Increase)/Decrease 6,45.31 (4,13.90)


SCHEDULES



33


16. NOTES TO THE ACCOUNTS

1. Significant Accounting Policies:

a. Accounting Convention

The financial statements are prepared under the historical cost convention on an accrual basis andin accordance with the mandatory accounting standards issued by the Institute of CharteredAccountants of India.

b. Fixed Assets and Depreciation

All tangible fixed assets are stated at cost less accumulated depreciation. Cost includes all incidentalexpenditure net of MODVAT/CENVAT wherever applicable. The Company follows the Straight LineMethod of charging depreciation, on all its tangible fixed assets, on pro-rata basis. The Companyhas provided depreciation at higher of the rates determined by the management or those specified inSchedule XIV to the Companies Act, 1956. The depreciation rates which are different from the principalrates specified in Schedule XIV to the Companies Act, 1956 are as follows :

(Rates in Percentages)

Assets acquired Assets acquired Assets acquired Assets acquiredafter December 31, after April 30, after March 31, upto March 31,

1994 1986 but upto 1983 but upto 1983December 31, 1994 April 30, 1986

Buildings

- Factory - - 3.5 2/3.5/5.5

- Non - factory 2 2 2 2/2.5

- Tubewells 10 10 10 10/100

Plant and Machinery

- Triple Shift 12.5 12.5 - -

- Double Shift 10/12.5/14.28 10/12.5 - -

- Single Shift 10/12.5/14.28/33.33 10/12.5 - -

Information TechnologyEquipments 25/33.33 25 25 25

Motor Vehicles 14.28/20 14.28/20 14.28/20 14.28/20/25

Furniture and Fixtures 10/20/25 10/20 10/20 10/20

Patents and Trade Marks are accounted at their cost of acquisition and amortised over their estimatedeconomic life not exceeding 10 years. Leasehold improvements are charged to the Profit and LossAccount over the primary period of lease.

c. Foreign Currency Transactions

Transactions in Foreign Exchange other than those covered by forward contracts are accounted forat the exchange rates prevailing on the date of transactions. The exchange differences arising out ofthe settlements, other than those on liabilities relating to fixed assets are dealt with in the Profit andLoss Account. Foreign currency assets and liabilities other than those covered by forward contractsare revalued at the year end rates. Resultant gains or losses are recognised in the Profit and Lossaccount except exchange differences arising on settlement and/or translation of foreign currencyliabilities on acquisition of fixed assets which are adjusted against the carrying costs of correspondingfixed assets.

d. Investments

Long term investments are stated at cost less provision, if any, for diminution in the value of suchinvestments other than temporary. Current investments are valued at lower of cost and net realisable/fair value.

SCHEDULES

34


SCHEDULES

e. Inventories

Inventories are valued at lower of cost and net realisable value, except for ghee, a by-product, whichis valued at selling price.

Cost is determined on the basis of the weighted average method. It includes all the appropriateallocable overheads and excise duty wherever applicable.

f. Research and Development

The revenue expenditure is charged against the profits for the year in which it is incurred. Capitalexpenditure is treated in the same way as fixed assets.

g. Retirement Benefits

The Company has various schemes of retirement benefits namely Provident, Superannuation andGratuity Funds recognised by the Income Tax Authorities. These Funds are administered throughTrustees and the Company’s contributions thereto are charged to revenue every year. Contributionto Employees’ Pension Scheme, 1995 are deposited with respective authorities and are charged torevenue every year. Accruals are made for Gratuity, Leave Encashment and Superannuation onaccount of Grandfathering on the basis of actuarial valuation done at the year end.

h. Revenue Recognition

Sales comprise of value of sale of goods, excluding sales tax but including excise duty. Sales arerecognised at the point of despatch to the customers. Interest income and insurance claims arerecognised on accrual basis.

i. Taxation

Tax expense/saving is the aggregate of current year tax and deferred tax charged/ credited to theProfit and Loss Account for the year.

a) Current Year Tax

Provision for taxation for the Company’s financial year ended December 31, 2004 has beendetermined based on the results for 3 months ended March 31, 2004 (Assessment Year 2004-2005) and for the 9 months ended December 31, 2004 (Assessment Year 2005-2006). Theultimate liability for the Assessment Year 2005-2006, however, will be determined on the totalincome of the Company for the year ending on March 31, 2005.

The Provision for taxation is based on assessable profits of the Company as determined underthe Income Tax Act, 1961. The Company also provides for such disallowances made on completionof assessments pending appeals, as considered appropriate depending on the merits of eachcase.

b) Deferred Tax

The Company provides for deferred tax using the liability method based on the tax effect oftiming differences resulting from the recognition of items in the financial statements and inestimating its current income-tax provision.

j. Miscellaneous Expenditure - Deferred Revenue Expense

Revenue expenditure incurred, the benefit of which extends over a period of time, are deferred andamortised over a period of three to five years commencing from the year the resource/facility getsfully functional in an integral way and the corresponding benefit starts accruing to the business.

k. Interest on Borrowings

The interest on working capital management is charged against the profits for the year in which it isincurred. Interest on borrowings for capital assets is capitalised till the date of commencement ofcommercial use of the asset.

l. Leases

Lease rental in respect of asset taken on cancellable operating leases are charged to the Profit andLoss Account on accrual basis.

35




2. a. Estimated amount of Contracts remaining to be executedon capital account and not provided for 9,88.08 1,39.33

b. Contingent Liabilities not provided for :Cheques Discounted with banks 22,27.06 20,57.49



3. Managerial RemunerationAmount paid/ payable to Directors:

Salaries and allowances 2,29.12 1,68.90Contribution to Provident and Superannuation Funds 30.78 28.38Value of other perquisites 67.96 44.98Directors’ sitting fees 5.10 1.65Commission to non-executive directors 10.50 10.00

3,43.46 2,53.91NOTES:i. The contribution to Gratuity funds, Leave Encashment and Superannuation fund on account of

Grandfathering have been made on a group basis and separate figures applicable to an individualemployee are not available and therefore, contribution to Gratuity funds, Leave Encashment andSuperannuation fund on account of Grandfathering have not been considered in the above computation.

ii. Remuneration to a director amounting to Rs. 0.50 Lakhs (Previous Year Rs. 10.90 Lakhs) is awaitingshareholders’ approval. In the previous year the appointment of the executive director was subject toshareholders’ approval.

iii. Managerial remuneration excludes amount payable under long term incentive plan after completion of3 years of service from the date of the award of the stock unit.

Computation of net profit under Section 198/349 of the Companies Act, 1956 and calculation of commissionpayable to non-executive directors

Profit before Taxation 1,15,67.52 99,57.72Add: Directors’ Remuneration 3,27.86 2,42.26

Directors’ sitting fees 5.10 1.65Commission to non-executive directors 10.50 10.00Provision for Doubtful Debts and Advances 17.36 1,37.34Provision for Obsolescence Nil 18.20Idle assets written off 40.30 -Loss on sale of fixed assets (Net) 1.02 8.23

Net Profit under Section 198/349 on which commission is payable 1,19,69.66 1,03,75.40Commission payable to non-executive directors:Maximum allowed as per the Companies Act, 1956 at 1% 1,19.70 1,03.75

Restricted by the Board of Directors to 10.50 10.00

NOTE:

The Company depreciates fixed assets based on estimated useful lives that in certain cases are lower thanthose implicit in Schedule XIV of the Companies Act, 1956. Accordingly, the rates of depreciation used by theCompany in such cases are higher than the minimum rates prescribed by Schedule XIV.

SCHEDULES

36


SCHEDULES



4. Provisions and/or payments in respect of Auditors’ Remuneration

(i) Statutory Audit (including service tax) 14.73 10.00(ii) Tax Audit (including service tax) 19.29 8.00

(iii) In other capacity (including service tax) 12.37 12.95

(iv) Out-of-pocket expenses 6.64 5.63

53.03 36.58

5. Expenditure indicated below allocated to other Revenue Accounts

Consumption of stores and spares 15,17.44 15,04.15

Insurance 2,68.90 2,47.01

Development and scientific research 6,05.41 4,35.72

Year ended Year endedDecember 31, 2004 December 31, 2003

Unit Quantity Value Quantity Value(Rs. Lakhs) (Rs. Lakhs)

6. Turnover:

Class of Goods:

(i) Malted Milkfood/ Malted Food DOZS 98,60,697 9,29,09.10 92,06,288 8,58,63.74

(ii) Biscuits DOZS 61,56,745 39,67.43 49,22,345 33,83.72

(iii) Ghee (By product) MT 668 8,24.65 772 9,00.46

(iv) Cream (By product) MT Nil Nil 10 9.16

(v) Milk MT 2,121 2,35.81 1,190 1,34.77

(vi) RTD (Traded) TH 1,016 96.82 Nil Nil

(vi) Others 1,37.86 6,02.91

9,81,71.67 9,08,94.76

7. Details of Purchased Finished goods:

Opening stock Purchases Closing Stock

As on As on Year Ended Year Ended As on As onJanuary 1, 2004 January 1, 2003 December 31, 2004 December 31, 2003 December 31, 2004 December 31, 2003

Unit Quantity Value Quantity Value Quantity Value Quantity Value Quantity Value Quantity Value(Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs) (Rs. Lakhs)

Malted Milk Food/Malted Food MT 70.00 41.58 Nil Nil 1,215.67 7,30.50 1,360.2 8,02.84 0.17 0.10 70.00 41.58

RTD (Traded) TH Nil Nil Nil Nil 1,060.16 78.25 Nil Nil 9.27 0.65 Nil Nil

41.58 Nil 8,08.75 8,02.84 0.75 41.58

37


Unit Quantity Value Quantity Value(Rs. Lakhs) (Rs. Lakhs)

8. Raw Materials Consumed (Refer Note 10):(Includes goods processed by third parties)Milk Powder MT 5,866 58,66.64 6,155 49,10.42Milk Fluid MT 47,863 54,78.80 53,884 57,30.78Malt and Malt Extract MT 32,236 38,03.08 33,729 42,45.49Flour (Wheat) MT 19,668 18,77.43 17,881 16,50.87Others 52,70.86 39,93.94

2,22,96.81 2,05,31.50


Percentage Value Percentage Value(Rs. Lakhs) (Rs. Lakhs)

9. Imported and Indigenous Raw Materials,Spare Parts and Components consumed:

(a) Raw Materials (Refer Note 10):Imported - - - -Indigenous 100.00 2,22,96.81 100.00 2,05,31.50

100.00 2,22,96.81 100.00 2,05,31.50(b) Spare Parts and Components:

Imported 0.74 11.86 2.50 39.55Indigenous 99.26 16,00.17 97.50 15,58.04

100.00 16,12.03 100.00 15,97.59

10. Raw Materials consumed as shown under Note 8 and 9 (a) above includes Rs. 4,34.82 Lakhs (PreviousYear Rs. 4,97.63 Lakhs) being the cost of materials consumed on samples used for promotional purposesincluded under Advertising and Promotion expenses (Schedule 14), Rs. Nil (Previous Year Rs. 85.94Lakhs) being the cost of stocks replaced which has been correspondingly netted off from the miscellaneousincome reflected under Other Income (Schedule 12), Rs. 2,28.01 Lakhs (Previous Year Rs. 2,23.93Lakhs) being the cost of stock breakages recoverable from Insurance company and also Rs.16.73 Lakhs(Previous Year Rs. Nil) being cost of stock allocated for Tsunami relief included under Other generalexpenses (Schedule 14)


2004 2003

(Rs. Lakhs) (Rs. Lakhs)

11. Value of Imports calculated on C.I.F. basis:Capital Goods 6.09 19.89

Spares 28.74 15.52 Software Nil 4.94

34.83 40.35

12. Expenditure in Foreign Currency on account of (Cash basis):Travelling 37.32 27.29

Advertisement/Promotions 3,27.70 1,64.31 Others 78.28 11.05

4,43.30 2,02.65


SCHEDULES

38


SCHEDULES



13. Amount remitted in Foreign Currencies for Dividend:

(a) Number of non-resident shareholders 1 1(b) Number of shares held (Equity Shares

of Rs. 10 each) 1,81,52,243 1,81,52,243(c) Dividend remitted

- Current Year 12,70.66 5,99.02- Previous Year 6,71.64 -

14. Earnings in Foreign Exchange:Value of export of goods on F.O.B. basis 54,30.41 39,84.56[Including sales to Nepal and BhutanRs. 20,25.62 Lakhs (Previous YearRs. 18,73.08 Lakhs)]

15. During the year, the Company shared the services of some of its employees and facilities with two othercompanies. The value of share of costs attributable to these companies, calculated in accordance withthe service agreements based on the recommendations of an independent study, has been recovered.

16. Miscellaneous expenditure includes Rs. Nil (Previous Year Rs. 3,76.45 Lakhs) and Rs. Nil (PreviousYear Rs. 1,14.80 Lakhs) on account of implementation of business processes/systems and renovation/interior decoration at one of its office premises respectively. The details are given below:



Opening Balance 4,91.25 9,84.57Less : Amortised (4,91.25) (4,93.32)

Total Nil 4,91.25

17. The Company estimates the deferred tax charge/(credit) using the applicable rate of taxation based onthe impact of timing differences between financial statements and estimated taxable income for the currentyear. The movement of provision for deferred tax is given below:

(Rs. Lakhs)Provision for Deferred Tax Opening Charge/(Credit) Closing

As at 01.01.04 Movements As at 31.12.04during the year

Depreciation* 34,40.72 4,14.51 38,55.23Expenses on office renovation /interior decoration 41.19 (41.19) -Total Deferred Tax Liability (A) 34,81.91 3,73.32 38,55.23Section 43B Disallowance (3,71.88) (5.93) (3,77.81)VRS Payment (2,27.22) 15.43 (2,11.79)Provision for Doubtful Debts (60.07) (7.46) (67.53)Others (6.53) 6.53 -Total Deferred Tax Asset (B) (6,65.70) 8.57 (6,57.13)

Net Deferred Tax Liability (A)-(B) 28,16.21 3,81.89 31,98.10

*Includes deferred tax benefit amounting to Rs. Nil (Previous Year Rs. 11,34.21 Lakhs) on account ofimpairment of Patents and Trade Marks.

39


SCHEDULES

18. Segmental Reporting:

The Company is focussed in the business segment of Nutritionals in India. Therefore, there is no reportablesegment as per the Accounting Standard 17 “Segment Reporting” issued by the Institute of CharteredAccountants of India.

19. Earnings Per Share (EPS) – The numerator and denominator used to calculate Basic and Diluted Earningsper Share:


2004 2003

- Profit attributable to the Equity Shareholders (Rs.)- (A) 73,15,72,688 76,34,57,241

- Basic/Weighted average number of Equity Shares

outstanding during the year- (B) 4,53,80,621 4,53,80,621

- Nominal value of Equity Shares (Rs.) 10.00 10.00

- Basic/ Diluted Earnings per Share (Rs.) – (A)/(B) 16.12 16.82

20. As at December 31, 2004 the Company has reviewed the future earnings of all its cash generating unitsin accordance with the Accounting Standard 28 “Impairment of Assets” issued by the Institute of CharteredAccountants of India. As the carrying amount of assets does not exceed the future recoverable amount,consequently, no further adjustment to the impairment done in the preceding year, is considered necessaryby the management. In the previous year, on the basis of a similar review, the Company had impaired thevalue of its Viva and Maltova brands (patent and trade marks) to their estimated recoverable value ofRs.28,02.09 Lakhs. Corresponding impairment charge amounting to Rs. 31,61.56 Lakhs was adjustedfrom the opening general reserves and deferred tax benefit of Rs.11,34.21 Lakhs was recognized in theProfit & Loss Account.

21. In continuation of restructuring process, the Company has during the year exgratia payment to its temporaryworkers at Nabha plant. The above said offer, being a present obligation which may result into outflow ofRs 4,33.50 Lakhs [net of Rs.15.51 Lakhs already paid (Previous Year Rs. Nil)], has been provided for inthese financial statements (Refer Schedule 13 – Employees’ Cost).

22. Company has unpaid disputed Excise Duty, Sales Tax and Income Tax demands outstanding at the yearend amounting to Rs. 65,59.20 Lakhs, Rs.3,06.70 Lakhs and Rs 1,43.67 Lakhs respectively againstwhich suitable provisions, wherever necessary, have been made in these accounts. Unpaid disputedExcise duty demands mentioned above include Rs.62,48.90 Lakhs, against which, as legally advised onthe merits of the case, no provision is deemed necessary by the management. Subsequent to the yearend, demand of Rs.62,43.06 Lakhs out of the above was heard by Customs Excise Service Tax AppellateTribunal (CESTAT), Delhi and the same was decided in favour of the Company. The CESTAT order andthe consequential adjudication orders are awaited.

23. The board of directors of the Company at their meeting held on December 10, 2004, proposed a buy-back of fully paid equity shares of a face value of Rs.10 each at a price not exceeding Rs. 370 per equityshare and for an amount not exceeding Rs.1,23,02.81 Lakhs in accordance with the provisions of theCompanies Act, 1956 and the Securities and Exchange Board of India (Buy Back of Securities) Regulations,1998, subject to approval from shareholders. The same does not have a financial impact on the profits ofthe Company for the year ended December 31, 2004. Subsequent to the Balance Sheet date the samehas been approved by the shareholders through Postal Ballot.

24. The Company has an arrangement for a working capital facility with a consortium of scheduled banks,whereby it has secured by way of hypothecation of all the current assets of the Company, namely stocksof raw materials, goods in process, semi finished & finished goods, stores and spares, bills receivableand book debts and all other moveable goods both present and future. However, there are no loans,secured or unsecured, that are outstanding as at the year end.

40


SCHEDULES

25. Class of Goods

ANNUAL CAPACITY ACTUAL PRODUCTION* STOCK OF GOODS PRODUCED

Licensed pluspermitted Year Year OPENING CLOSING

Liberalisation Installed Ended Ended31.12.04 31.12.03 31.12.04 31.12.03 31.12.04 31.12.03 As on 01.01.04 As on 01.01.2003 As on 31.12.04 As on 31.12.03

Qty Qty Qty Qty Qty Qty Qty Value Qty Value Qty Value Qty ValueMT MT MT MT MT MT MT Rs. Lakhs MT Rs. Lakhs MT Rs. Lakhs MT Rs. Lakhs

1. MALT BASED FOODS/MALTED FOODS 91,100 91,100 86,300 83,983 52,305 46,060 5,866 46,98.76 6,963 49,41.90 6,158 47,05.46 5,866 46,98.76

2. MILKOSE BABYFOODS 228 228

3. POWDERED MILK 3,528 3,528 1,440 1,4404. PROTEIN RICH FOODS 1,000 1,000 553 451 72 90.88 97 1,06.54 103 1,10.15 72 90.885. GHEE AND BUTTER 6,000 6,000 3,076 3,076 664 740 27 34.62 41 43.45 42 47.22 27 34.626. BISCUITS 8,825 7,013 25.432 1,80.77 305 1,27.69 642 2,47.04 432 1,80.777. MALT BASED FOODS/

MALTED FOODS 5,984 7,882 927 6,78.08 827 5,80.65 724 4,70.67 927 6,78.08

56,83.11 58,00.23 55,80.54 56,83.11* Does not include Trial Production.

NOTES :

1. The installed capacities and the permitted liberalisation of licensed capacities are as per certificates given by the the Director - Operationsand not verified by the Auditors, being a technical matter.

2. Production figures are net of captive consumption.

3. Powdered milk / Boost Intermediate is for captive consumption and accordingly the same has been included in Goods in Process inSchedule 5 & 15

4. Production capacity listed under Serial No.1, 3 , 4 & 5 above are in respect to all the three factories of the Company and are covered byIndustrial Entrepreneurs’ Memorandums (IEMs) in terms of Notification No. 477 (E) dated 25th July, 1991 of the Department of IndustrialDevelopment, Ministry of Industry, Government of India. Capacity of 228 MT listed under Serial No.2 and capacity of 528 MT includedunder Serial No. 3 pertains to licences granted under the Industries (Development and Regulation) Act, 1951.

5. The products under Serial No. 2 to 4 are manufactured in an integrated plant and, therefore, installed capacity can not be given seperately.

6. The Products listed under Serial No. 6 & 7 are processed by third parties.

26. (A) In accordance with the requirements of Accounting Standard (AS) – 18 ‘Related Party Disclosures’the names of the related party where control exists/able to exercise significant influence along with theaggregate transactions and year end balances with them as identified and certified by the managementare given below :

A. Holding Company

Horlicks Limited, which is a subsidiary of GlaxoSmithKline Plc, U.K, holds 40% of equity shares ofthe Company.

B. Other related parties in GSK group where common control exits.

a. GlaxoSmithKline Asia Private Limited l. GlaxoSmithKline Pte Ltd., Singapore

b. GlaxoSmithKline Pharmaceuticals India Limited m. GSKCH-L.P.

c. GlaxoSmithKline Exports, Mauritius n. Burroughs Wellcome (India) Ltd.

d. Sterling Drugs ( Malaya) Sdn Bhd o. SB (Mauritius) Ltd.

e. GlaxoSmithKline Services Unlimited p. SB Export Ltd., UK

f. GlaxoSmithKline Consumer Healthcare q. SB Corporate Centre

Sdn Bhd(Malayasia) r. SB Research Ltd.

g. GlaxoSmithKline Mackwoods Ltd. (Sri Lanka) s. Glaxo Operations Ltd., UK

h. GlaxoSmithKline Exports Ltd., U.K. t. GSK Bangladesh Ltd.

i. GSK Caribbean (Trinidad & Tobago) Ltd. u. SB Corp CB USA

j. GSK Caribbean (Jamaica) Ltd. v. GSK South Africa Pty

k. GSK Hong Kong Ltd. w. GSK Australia Pty

41


C. Trusts under Control of the Company

a. Senior Staff Gratuity Fund

b. Employees Gratuity Fund

c. Provident Fund

d. Indian Senior Executives Superannuation Fund (Scheme)

D. Directors/Key Managerial Personnel and their relatives

Directors/Key Managerial Personnel

a. Nicholas J Massey

b. S.J.Scarff

c. G.K.Chakraborty

d. P. S. Mukherjee

e. P. Dwarakanath

f. David S Allen

g. A. Chatterjee – ceased to be director w.e.f. 23.10.2003

h. R. Subbarayan – ceased to be director w.e.f. 31.01.2003

i. C.H. Lambert – ceased to be key management personnel w.e.f. 30.09.2003

Relatives of Directors

j. Urmi Chatterjee, wife of A. Chatterjee

k. Minoti Mukherjee, wife of P. S. Mukherjee

l. Rajat Mukerjee, son of P. S. Mukherjee

m. P Usha Rani, wife of P. Dwarakanath

n. Raji Subbarayan, wife of R. Subbarayan

o. Kamla Subbarayan, daughter of R. Subbarayan

SCHEDULES

42

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)-

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Bal

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.41

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7.97

No

tes:

I.T

he c

ontr

ibut

ion

to G

ratu

ity fu

nds,

Lea

ve E

ncas

hmen

t and

Sup

eran

nuat

ion

fund

on

acco

unt o

f Gra

ndfa

ther

ing

have

bee

n m

ade

on a

gro

up b

asis

and

sep

arat

e fig

ures

app

licab

le to

an in

divi

dual

em

ploy

ee a

re n

ot a

vaila

ble

and

ther

efor

e, c

ontr

ibut

ion

to G

ratu

ity f

unds

, Le

ave

Enc

ashm

ent

and

Sup

eran

nuat

ion

fund

on

acco

unt

of G

rand

fath

erin

g ha

ve n

ot b

een

cons

ider

ed fo

r th

e D

irect

ors

and

Key

Man

ager

ial P

erso

nnel

in th

e ab

ove

com

puta

tion.

II.R

emun

erat

ion

excl

udes

am

ount

pay

able

und

er lo

ng te

rm in

cent

ive

plan

afte

r co

mpl

etio

n of

3 y

ears

ser

vice

from

the

date

of t

he a

war

d of

the

stoc

k un

it.

SCHEDULES26

(B

) T

HE

FO

LL

OW

ING

TR

AN

SA

CT

ION

S W

ER

E C

AR

RIE

D O

UT

WIT

H T

HE

RE

LA

TE

D P

AR

TIE

S I

N T

HE

OR

DIN

AR

Y C

OU

RS

E O

F B

US

INE

SS

(R

s.

Lak

hs)

43

27. The Company has initiated a long term incentive plan to maintain its competitiveness in attracting andretaining Senior Grade Managers. Eligible employees will be entitled to receive an incentive, if they con-tinue to be in employment with the Company after three year period. Accordingly, a sum of Rs. 70 Lakhs(Previous Year –Nil) has been provided for in these financial statements representing one-third of theapproximate value of the incentive (Schedule 13 – Employees’ Cost).

28. The previous year's figures have been regrouped, wherever necessary, to conform to this year's classification.

SCHEDULES


44

I. REGISTRATION DETAILS

Registration No. 0 2 2 5 7 State Code 1 6

Balance Sheet Date 3 1 1 2 0 4

II. CAPITAL RAISED DURING THE YEAR (Amount in Rs. Thousands)

Public Issue Rights Issue

N I L N I L

Bonus Issue Private Placement

N I L N I L

III. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs. Thousands)

Total Liabilities Total Assets

7 3 9 6 3 9 6 7 3 9 6 3 9 6

SOURCES OF FUNDS *

Paid -up Capital Reserves & Surplus

4 5 3 8 0 6 4 8 3 9 7 1 1

Secured Loans Unsecured Loans

N I L N I L

* Do not include Deferred Tax Liabilities/(Assets)

APPLICATION OF FUNDS

Net Fixed Assets Investments3 0 7 3 8 8 9 0 5

Net Current Assets Misc Expenditure

2 5 3 9 4 3 3 N I L

Accumulated Losses

N I L

IV PERFORMANCE OF THE COMPANY (Amount in Rs. Thousands)

Turnover ( Sales* and Other Income) Total Expenditure

8 8 7 6 5 8 6 7 7 1 9 8 3 4

*Sales are net of Excise Duty

Profit/Loss Before Tax Profit/Loss After Tax

+ 1 1 5 6 7 5 2 + 7 3 1 5 7 3

Earning per share in Rs. ** Dividend @%

1 6 . 1 2 7 0 . 0 0

** Basic/Diluted

V. GENERIC NAMES OF THREE PRINCIPAL PRODUCTS/SERVICES OF COMPANY

Item Code No.(ITC Code) 1 9 0 1 1 0 . 0 1

Product Description M A L T B A S E DF O O D

Item Code No.(ITC Code) 1 9 0 5 3 0 . 0 3

Product Description B I S C U I T S

AND COMPANY’S GENERAL BUSINESS PROFILE

BALANCE SHEET ABSTRACT

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