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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 500696ISIN: INE030A01027INDUSTRY: Personal Care

BSE   ` 1553.85   Open: 1583.95   Today's Range 1547.35
1583.95
-31.10 ( -2.00 %) Prev Close: 1584.95 52 Week Range 1227.00
1807.75
Year End :2018-03 

NOTE 1 : FINANCIAL RISK MANAGEMENT

The Company's business activities are exposed to a variety of financial risks, namely liquidity risk, market risks and credit risk. The Company's senior management has the overall responsibility for establishing and governing the Company's risk management framework. The Company has constituted a Risk Management Committee, which is responsible for developing and monitoring the Company's risk management policies. The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set and monitor appropriate risk limits and controls, periodically review the changes in market conditions and reflect the changes in the policy accordingly. The key risks and mitigating actions are also placed before the Audit Committee of the Company.

A. Management of Liquidity Risk

Liquidity risk is the risk that the Company will face in meeting its obligations associated with its financial liabilities. The Company's approach in managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when due without incurring unacceptable losses. In doing this, management considers both normal and stressed conditions.

The Company maintained a cautious liquidity strategy, with a positive cash balance throughout the year ended 31st March, 2018 and 31st March, 2017. Cash flow from operating activities provides the funds to service the financial liabilities on a day-to-day basis.

The Company regularly monitors the rolling forecasts to ensure it has sufficient cash on an on-going basis to meet operational needs. Any short term surplus cash generated , over and above the amount required for working capital management and other operational requirements, is retained as cash and cash equivalents (to the extent required) and any excess is invested in interest bearing term deposits and other highly marketable debt investments with appropriate maturities to optimize the cash returns on investments while ensuring sufficient liquidity to meet its liabilities.

The following table shows the maturity analysis of the Company's financial liabilities based on contractually agreed undiscounted cash flows along with its carrying value as at the Balance Sheet date.

B. Management of Market Risk

The Company's size and operations result in it being exposed to the following market risks that arise from its use of financial instruments:

- currency risk;

- price risk; and

- interest rate risk

NOTE 2 : DEFINED BENEFIT PLANS

Refer note 2.4(l) for accounting policy on Employee Benefits.

Description of Plans

Retirement Benefit Plans of the Company include Gratuity, Management Pension, Officer's Pension and Provident Fund. Other postemployment benefit plans includes post retirement medical benefits.

Gratuity is funded through investments mostly with an insurance service provider and partly through direct investment under Hind Lever Gratuity Fund. Pension (Management Pension and Officer's Pension) for most employees is managed through a trust, investments with an insurance service provider and for some employees investments are managed through Company managed trust. Provident Fund for most of the employees are managed through trust investments and for some employees through government administered fund. Post-retirement medical benefits are managed through investment made under Company managed trust.

Governance

The trustees of the trust fund are responsible for the overall governance of the plan and to act in accordance with the provisions of the trust deed and rules in the best interests of the plan participants. They are tasked with periodic reviews of the solvency of the fund and play a role in the long-term investment, risk management and funding strategy.

Investment Strategy

The Company's investment strategy in respect of its funded plans is implemented within the framework of the applicable statutory requirements. The plans expose the Company to a number of actuarial risks such as investment risk, interest rate risk, longevity risk and inflation risk. The Company has developed policy guidelines for the allocation of assets to different classes with the objective of controlling risk and maintaining the right balance between risk and long-term returns in order to limit the cost to the Company of the benefits provided. To achieve this, investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets.

The sensitivity analyses above have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the year and may not be representative of the actual change. It is based on a change in the key assumption while holding all other assumptions constant. When calculating the sensitivity to the assumption, the same method used to calculate the liability recognized in the Balance Sheet has been applied. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the previous year.

NOTE 3: SHARE BASED PAYMENTS

Refer note 2.4(l) for accounting policy on Share Based Payments.

Equity Settled Share Based Payments

The members of the Company had approved ‘2001 HLL Stock Option Plan' at the Annual General Meeting held on 22nd June, 2001. The plan envisaged grant of share options to eligible employees at market price as defined in Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014.

This plan was amended and revised vide ‘2006 HLL Performance Share Scheme' at the Annual General Meeting held on 29th May, 2006. This scheme provided for conditional grant of Performance Shares at nominal value to eligible management employees as determined by the Compensation Committee of the Board of Directors from time to time, at the end of 3-year performance period. The performance measures under this scheme include group underlying sales growth and free cash flow. The scheme also provided for ‘Par' Awards for the managers at different work levels.

The 2006 scheme was further amended and revised vide ‘2012 HUL Performance Share Scheme' at the Annual General Meeting held on 23rd July, 2012. This scheme provided for conditional grant of Performance Shares at nominal value to eligible management employees as determined by the Nomination and Remuneration Committee of the Board of Directors from time to time, at the end of 3-year performance period. The performance measures under this scheme include group underlying sales growth, core operating margin improvement and operating cash flow.

The number of shares allocated for allotment under the 2006 and 2012 Performance Share Schemes is 2,00,00,000 (two crores) equity shares of ' 1/- each. The schemes are monitored and supervised by the Nomination and Remuneration Committee of the Board of Directors in compliance with the provisions of Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and amendments thereof from time to time.

* Granted during the year includes additional shares granted upon meeting the vesting conditions (figures in bracket pertain to 2016-17)

Weighted average equity share price at the date of exercise of options during the year was ' 1154 (2016-17: ' 864)

Weighted average remaining contractual life of options as at 31st March, 2018 was 1.23 years (31st March, 2017: 1.68 years)

The risk free interest rates are determined based on the zero-coupon sovereign bond yields with maturity equal to the expected term of the option. Volatility calculation is based on historical stock prices using standard deviation of daily change in stock price. The historical period is taken into account to match the expected life of the option. Dividend yield has been calculated taking into account expected rate of dividend on equity share price as on grant date.

Cash Settled Share Based Payments

The employees of the Company are eligible for Unilever PLC (the ‘Holding Company') share awards namely, the Management Co-Investment Plan (MCIP), the Global Performance Share Plan (GPSP) and the SHARES Plan. The MCIP allows eligible employees to invest up to 100% of their annual bonus in the shares of the Holding Company and to receive a corresponding award of performance-related shares. Under GPSP, eligible employees receive annual awards of the holding company's shares. The awards under MCIP and GPSP plans will vest after 3-4 years between 0% and 200% of grant level, depending on the satisfaction of the performance metrics. The performance metrics of GPSP are underlying sales growth, operating cash flow and core operating margin improvement. The performance metrics of MCIP are underlying sales growth, underlying EPS growth and sustainability progress index. Under the SHARES Plan, eligible employees can invest up to EUR 200 per month in the shares of the Holding Company and after three years one share is granted free of cost to the employees for every three shares invested, provided they hold the shares bought for three years. The Holding Company charges the Company for the grant of shares to the Company's employees at the end of the 3 years based on the market value of the shares on the exercise date. The Company recognises the fair value of the liability and expense for these plans over the vesting period based on the management's estimate of the vesting and forfeiture conditions.

The Company grants share appreciation rights (SARs) to eligible employees for all cash settled share based plans mentioned above that entitles them to a cash/shares after three years of service. The amount of payment is also determined basis increase in the share price of the Holding Company between grant date and the time of exercise.

NOTE 4 : BUSINESS COMBINATION

Refer note 2.4(r) for accounting policy on Business Combination.

Acquisition of Indulekha Brand

On April 07, 2016, the Company completed the acquisition of the flagship brand ‘Indulekha' from Mosons Extractions Private Limited (‘MEPL') and Mosons Enterprises (collectively referred to as ‘Mosons' and acquisition of the specified intangible assets referred to as the ‘Business acquisition'). The deal envisaged the acquisition of the trademarks ‘Indulekha' and ‘Vayodha', intellectual property, design and knowhow for a total cash consideration of ' 330 crores (excluding taxes) and a deferred consideration of 10% of the domestic turnover of the brands each year, payable annually for a 5 year period commencing financial year 2018-19.

Basis the projection of the domestic turnover of the brand, the contingent consideration is subject to revision on a yearly basis. As at 31st March 2017, the fair value of the contingent consideration was Rs, 49 crores which was classified as other financial liability.

Deferred contingent consideration

Based on actual performance in financial year 2017-18 and current view of future projections for the brand, the Company has reviewed and fair valued the deferred contingent consideration so payable. As at 31st March 2018, the fair value of the contingent consideration is Rs, 104 crores which is classified as other financial liability.

The determination of the fair value as at Balance Sheet date is based on discounted cash flow method. The key model inputs used in determining the fair value of deferred contingent consideration were domestic turnover projections of the brand and weighted average cost of capital.

A. Enterprises exercising control

(i) Holding Company : Unilever Plc

B. Enterprises where control exists

(i) Subsidiaries : Daverashola Estates Private Limited (100%)

(Extent of holding) Hindlever Trust Limited (100%)

Jamnagar Properties Private Limited (100%)

Lakme Lever Private Limited (100%)

Levers Associated Trust Limited (100%)

Levindra Trust Limited (100%)

Pond's Exports Limited (90%)

Unilever India Exports Limited (100%)

Unilever Nepal Limited (80%)

Bhavishya Alliance Child Nutrition Initiatives (100%)

(with effect from March 12, 2015) (Section 8 company)

Hindustan Unilever Foundation (76%) (Section 8 company)

(ii) Trust : Hindustan Unilever Limited Securitisation of Retirement Benefit Trust (100% control)

(iii) Joint Ventures : Kimberly Clark Lever Private Limited (50% control, ceases to be Joint venture after

29th September, 2017)

(iv) Key Management Personnel

(a) Executive directors : Sanjiv Mehta

PB Balaji (up to 13th November, 2017)

Srinivas Phatak (with effect from 1st December, 2017)

Pradeep Banerjee Dev Bajpai Geetu Verma BP Biddappa Priya Nair Sandeep Kohli Sudhir Sitapati Srinandan Sundaram

(b) Non-executive directors Harish Manwani

Aditya Narayan

S. Ramadorai

O. P. Bhatt Sanjiv Misra Kalpana Morparia

(v) Employees' Benefit Plans where : Hind Lever Gratuity Fund there is significant influence The Hind Lever Pension Fund

__The Union Provident Fund_

‘Note: As the liabilities for defined benefit plans are provided on actuarial basis for the Company as a whole, the amounts pertaining to Key Management Personnel are not included.

Terms and conditions of transactions with related parties

All Related Party Transactions entered during the year were in ordinary course of the business and are on arm's length basis.

For the year ended 31st March, 2018, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (2016-17: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

NOTE 5

The Company has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provision as required under any law/accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of accounts.

NOTE 6

The Company has presented segment information in the consolidated financial statements which are presented in the same financial report. Accordingly, in terms of Paragraph 3 of Ind AS 108 ‘Operating Segments', no disclosures related to segments are presented in this standalone financial statements.