Hindustan Unilever - Annual Director's Report - 2009

HINDUSTAN UNILEVER LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

To
The Members,

Your Company's Directors are pleased to present the 76th Annual Report of
the Company along with the audited accounts for the fifteen month period
ended 31st March, 2009.

You are aware that the Accounting year of the Company was changed from
Calendar Year (January-December) to Financial Year (April-March), to avoid
duplication in preparation and audit of accounts under the Companies and
Income Tax Acts. This change simplifies the process, thereby saving cost
and time. Consequently, the current Annual Accounts and Report of the
Company are for a period of fifteen months, from 1st January, 2008 to 31st
March, 2009; these figures, therefore, are not comparable with those of
previous year ended 31st December, 2007.

1. Financial Performance:

1.1. Results Rs. lakhs

A B

Turnover, net of excise 20239,33 13675,43

Profit before tax 3025,12 2146,33

Net profit 2496,45 1925,47

Dividend (including tax on distributed profits) (1912,29) (2331,62)

Transfer to General Reserve (250,00) (200,00)

Profit & Loss account balance carried forward 531,66 197,50

A = Fifteen Months Period ended 31st March, 2009
B = Twelve Months Period ended 31st December, 2007

1.2. Category wise Turnover Rs. lakhs

A B C D

Soaps and Detergents 9770,26 110,30 6328,80 71,13

Personal Products 5272,31 95,13 3614,76 71,83

Beverages 2272,29 22,17 1520,40 20,23

Foods 791,25 19,45 532,98 7,13

Ice Creams 229,44 5,70 158,49 3,01

Exports 1567,29 8,41 1342,26 6,71

Others 344,41 16,56 184,56 42

Less : Inter segment revenue (7,92) (6,82) -

Total 20239,33 277,72 13675,43 180,46

A = Fifteen Months Period ended 31st March, 2009 Sales
B = Fifteen Months Period ended 31st March, 2009 Others*
C = Twelve Months Period ended 31st December, 2007 Sales
D = Twelve Months Period ended 31st December, 2007 Others*

* Other revenue represents service income from operations, relevant to the
respective businesses

1.3. Summarised Profit and Loss Account:

Rs. lakhs
(except EPS) A B

Net sales 20239,33 13675,43

Other operational income 362,23 193,66

Total 20601,56 13869,09

Operating costs and expenses (17561,37) (11796,77)

PBDIT 3040,19 2072,32

Depreciation (195,30) (138,36)

PBIT 2844,89 1933,96

Interest Income (net) 180,23 212,37

PBT 3025,12 2146,33

Taxation (524,41) (403,21)

PAT (before exceptional items) 2500,71 1743,12

Exceptional items (net of tax) (4,26) 182,35

Net profit 2496,45 1925,47

Basic EPS (Rs.) 11.46 8.73

A = Fifteen Months Period ended 31st March, 2009
B = Twelve Months Period ended 31st December, 2007

For the fifteen month period ended 31st March, 2009, the Company registered
an overall turnover growth of 48%; Profit After Tax registerec a growth of
43% and Net Profit (after Exceptional Items) by 30%. Basic Earnings Per
Share for the period 2008-09 was Rs 11.46.

2. DIVIDEND:

Directors are pleased to recommend a final dividend of Rs.4/- per equity
share of the face value of Re. 1/- for the period ended 31st March, 2009.
The interim dividend of Rs. 3.50 per equity share was paid on 18th August,
2008.

The final dividend, subject to approval at the AGM on 3rd July, 2009, will
be paid to the shareholders whose names appear on the Register of Members
with reference to the book closure from 16th June, 2009 to 2nd July, 2009
(inclusive of both dates).

The total dividend for the period including the proposed final dividend
amounts to Rs. 7.50 per share and will absorb Rs. 1912.13 crores including
Dividend Distribution Tax of Rs. 277.76 crores.

3. RESPONSIBILITY STATEMENT:

The Directors confirm that:

* in the preparation of the annual accounts, the applicable accounting
standards have been followed and that no material departures have been made
from same;

* they have selected such accounting policies and appliedthem consistently
and made judgements and estimates that are reasonable and prudent so as to
give a true and fair view of the state of affairs of the Company at the end
of the financial year and of the profits of the Company for that period;

* they have taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and

* they have prepared the annual accounts on a going concern basis.

4. MANAGEMENT DISCUSSION AND ANALYSIS

In order to avoid duplication between the Directors' Report and Management
Discussion and Analysis, we present below a composite summary of
performance of the various businesses and functions of the Company.

4.1 Economy and Markets:

World economy was severely impacted by the US financial crisis, with its
contagion effect across countries. Global trade was affected with reduced
exports from Developing & Emerging (D & E) countries like India and China.

India was one of the few large economies that registered a robust growth in
GDP at 7% for 2008-09. Country benefited from a near normal monsoon,
reflecting in agriculture growing by 2.6%. Rural economy was also buoyed by
Government spendings, employment schemes and higher food prices. While
services sector continued to grow at a healthy rate, industrial production
registered significant slow down, impacted by the global recession.
Country's GDP growth for the second half of 2008-09 was lower compared to
the first half.

Slow down was witnessed in capital goods, consumer durables, automotives,
aviation and the like, although FMCG markets somewhat held their value
growth levels. There was pressure on volumes in categories like Soaps and
Detergents, with signs of downtrading across segments. Government including
Reserve Bank of India, launched fiscal and monetary measures to boost

credit, investment and consumption. FMCG sector benefited from significant
reduction in excise duty rates on finished goods.

The year 2008 also witnessed high levels of volatility in commodity prices,
essentially led by petroleum crude. Vegetable fats, chemicals and packaging
materials also reflected this price volatility, causing stress in business
planning processes. Wholesale price inflation touched high levels during
the year, before decelerating sharply towards the later part of the year
under review.

Your Company's good performance for the period 2008-09 has to be seen in
the context of above economic background.

PERFORMANCE OF DIVISIONS/CATEGORIES:

Some highlights are given below in respect of each of the business
categories of the Company. Increase / growth percentages refer to a period
of 15 months over the base of 12 months.

4.2 Home & Personal Care Business (HPC):

The business comprises Personal Wash, Fabric Wash, Household Care and
Personal Care categories. The business recorded a growth of 51%. This was
broad based and across categories and was achieved in the face of two major
challenges;

* Competition continued to be intense, both from existing and new players.
Your Company responded through increased brand investments, value enhancing
innovations and powerful market activation.

* Volatile commodity markets with petroleum crude prices at c.$ 90 per
barrel at the beginning of 2008 peaking to $ 147 per barrel before dropping
to levels of c.$ 50. The severe impact of cost inflation was felt in inputs
like vegetable oils, laundry chemicals, packaging and freight. Robust
planning systems and strong dynamic performance management processes helped
the business manage this volatility. Judicious and sensible price
increases, together with continued aggressive cost savings programme
enabled competitiveness of Company's brands in the market place. Benefit
due to reduction in excise duty rates from 14% to 8% in two phases (in
December 2008 and February 2009) was pooled and passed on to consumers
through price reduction in select packs.

Potential for growth in all categories of Home and Personal Care is high,
given the current low levels of per capita consumption. Directors believe
that sustained investments behind brands by way of technology, innovations
and consumer communication will benefit the business in creating value.

4.2.1 Soaps & Detergents Soaps and Detergents category recorded a robust
sales growth of 54% with a slight drop in annual segmental margin by 20
bps. This needs to be seen in the backdrop of high and volatile input costs
and competitive pressures. With the softening of crude oil prices and the
consequent easing of input material costs, product prices have been
recalibrated to enhance market competitiveness and grow volumes.

Fabric Wash continued its growth momentum despite experiencing severe cost
pressures. All brands across price segments, Surf, Rin, Sunlight and Wheel
delivered strong value and volume growth. Wheel became the largest
detergent brand of India with annual turnover exceeding Rs. 2000 crores.
Wheel Gold was successfully launched, providing better wash performance at
affordable prices to drive upgradation of consumers. Surf franchise
continued to do well with both, bar and powder, reporting growth. Rin
Powder was re-launched during the year with superior formulation and
proposition, and was extended to washing machine segment with the launch of
Rin Matic. Sunlight grew well in its stronghold markets.

Cost pressure in the category was managed through judicious price increases
on premium products, but price point affordability was retained in mass
segment for the low income consumers by appropriately adjusting fill
levels.

In Household Care, Vim liquid, a convenient premium dish wash product was
re-launched in a highly efficient gel formulation; it is receiving good
consumer response. In surface cleaning, Domex continued to grow and doubled
sales. Strong marketing activities established Domex as a powerful
proposition for floor and toilet cleaning.

Personal Wash category faced a steep rise in vegetable/palm oil prices
during the course of the year. Competition from existing and new players
has been intense.

The category was managed through multi-pack offerings, consumer promotions
and moderate price increase in low unit price packs. Lifebuoy grew on the
back of small and multi packs. Re-launch of Lux in variants like Strawberry
and Peach supported by a new thematic communication enabled the brand to
grow well. Dove and Pears grew ahead of the market in the premium category.
We will leverage all our brands in this category to drive growth.

4.2.2 Personal Products Personal Products include categories like hair
care, skin care, toothpaste and brush, deodorants and colour cosmetics.

In Hair Care, HUL maintained the leadership position in Shampoo with its
powerful brand portfolio, addressing consumer needs across the income
pyramid. Price points were carefully maintained in the context of
inflationary pressures. The premium Dove shampoo and conditioners range
launched during 2007, reported very good growth through a combination of
high quality advertising and actions in the market place. Clinic Plus
continued to grow and strengthened its position as the single largest
shampoo brand. Sunsilk range was re-launched with further improvements to
product quality and packaging. Clinic All Clear is being re-launched to
regain its earlier position. Rapid progress is being achieved in driving
the emerging and high potential hair conditioner segment.

Skin Care category continued to witness intense activities in the market
across income segments. Share of high value premium products is also
increasing; this has excellent potential for HUL through Pond's top end
products. In mass skin lightening category, Fair & Lovely delivered strong
growth. A consumer friendly pack format at affordable price was introduced;
this will help to upgrade sachet users to tube format. In premium category,
Pond's increased its consumer base with good offerings in anti-ageing and
skin lightening segments. Modern Trade and specialist distribution channels
helped in upgrading consumers to premium products.

Lakme Skin Care range performed well. Vaseline launched newer formulations
in body lotions offering relevant consumer benefits like moisturisation.
Talcum powders continued to do well.

In Oral category, Close-up performed very well, led by the re-launch in
September 2008, recording growth ahead of the market for the third year in
a row. Pepsodent underperformed and appropriate actions are being taken to
drive the performance of the brand in 2009.

The Lakme range of Colour Cosmetics grew well. New innovations like aqua
shine lip colour, summer and winter collections were well received by the
consumers. Lakme Fashion Week continues to be a signature campaign for the
brand.

In countries like India, Deodorants business has excellent potential for
growth given the low user base currently. Investment behind Axe Deodorant
was significantly enhanced. Special edition packs and memorable media
campaigns support the brand. The category, however, continues to suffer
from duplicates and illegal imports. We are addressing this issue
holistically through consumer information and working with industry bodies
for effective enforcement of laws by agencies concerned. Going forward, we
will deploy the totality of the portfolio to sustain growth of this key
category.

Kimberly Clark Lever Pvt Ltd (KCLL) KCLL is a Joint Venture between HUL
(50% equity) and Kimberly Clarke Corp., USA (50% equity) and is engaged in
infant care and feminine care products under brands like Huggies and Kotex.
These products are sold through HUL distribution system and delivered a
good underlying volume growth. New products were introduced at different
price points for further developing the market. The Joint Venture is
profitable and has been paying dividends for the past few years.

4.3 Foods:

HUL's Foods portfolio comprises Beverages (Tea and Coffee), Processed Foods
(Kissan, Knorr and Annapurna range of products), Ice Cream and Bakery
products (Modern Foods).

The business sustained its growth momentum of the last three years. The
growth has been broad based, competitive and profitable. Delivering product
freshness continued to receive utmost priority and several actions have
been taken to further reinforce the work already done.

Beverages like Tea and Coffee are well entrenched habits among Indian
consumers with further potential for higher per capita consumption.
However, processed foods is a small fraction of the large foods market
and hence offers huge potential for companies like HUL. The processed
foods opportunity is at an inflexion point in India. With a formidable
array of brands (across hot and cold formats, in-house and outof-tiome
segments), strong research, development and technology support from
Unilever and your Company's intimate understanding of Indian consumers, we
are well positioned to benefit from the thrust on Foods categories.

4.3.1 Processed Foods:

Kissan is one of the most trusted Foods brands among Indian consumers. The
growth in Kissan portfolio, supported by successful innovations, was good.
Jam squeeze launched in September quarter was attractive to children. New
packaging formats in Ketchup such as value packs and kids friendly upside
down squeezable pack were received very well. Kissan continued to maintain
its leadership position in Jams and achieved strong shares in Ketchup
segment.

The Knorr proposition was extended through Indian range of soups and ready
to cook recipes. These have been well received in the market.

The staples business (Annapurna salt and flour) was impacted in the first
half of 2008 on account of supply issues. These have since been addressed,
helping the business achieve good growth. There has been a significant
improvement in the profitability of the business on the back of supply
chain savings and improved product mix. 'Amaze' brain food is in test
market phase in three Southern states.

4.3.2 Beverages:

Consumers of Tea continued to upgrade from loose tea to branded packet tea,
which now accounts for some 40% of total domestic tea consumption. Packet
Tea market remains extremely competitive. The tea business delivered well
with good volume gains and further strengthened its value leadership
position. The market shares increased across brands. Focussed marketing
initiatives undertaken in key geographies have delivered good results. Tea
prices continued to rule high necessitating selective price increases
across packs and brands. Margins were managed through a combination of
pricing and supply chain cost savings.

3 Roses Mindsharp was launched to offer the consumer the goodness of
ayurvedic ingredients like brahmi and badam which help to achieve relaxed
yet alert state of mind. Taj tea bags were relaunched in Ginger, Cardamom
and Lemon flavours. The business is currently test marketing a new product
under the brand 'Brooke Bond Sehatmand', offering nutritional benefits like
vitamins to tea consumers. Lipton has been relaunched and continues to grow
strongly in the out of home segment through acquisition of new accounts and
expansion of vending machines, gaining a wider national footprint.

Coffee business led by Bru Instant Coffee registered a good growth in 2008.
Bru was re-launched in the second half of 2008 focussing on aroma delivery
(through aroma lock) and improved sensorials, backed by strong media
campaigns and trade activations program. Cappuccino business continued to
add new consumers in non-south geographies both in hot and ice cool
variants. We will continue to focus on building growth in Instant Coffee,
consolidate our position in 'roast and ground' segment and drive
premiumisation of the portfolio.

Out-of-home consumption is one of the key value drivers for the business,
by providing consumers with a refreshing experience of branded beverages
while they are out of home - at work or wait or play. We will continue to
drive aggressive growth in this channel through required investments.

4.3.3 Ice Creams:

Ice Cream business sustained its growth momentum and delivered strongly;
both impulse and take home segments delivered well. Underlying
profitability continued to improve with increasing scale and better
operational efficiencies. The business fully uses its unlimited access to
Unilever's portfolio of brands and innovations to offer exciting products,
suitable to Indian consumers.

Gelato, a premium take home product was introduced with two variants -
Tiramisu and Nochiola and has shown encouraging results. Further, a range
of innovations in Cornetto such as 'Almond Praline' and 'Choco Brownie' has
been introduced in the impulse segment; Cornetto cone variants called
'Black Forest' and 'Strawberry Tease Cake' were launched successfully.
Attention to expansion of cabinets infrastructure for increasing
availability, improved customer service and strong brand communication have
ensured that the business continues to perform well.

4.3.4 Bakery (Modern Foods) Bakery (bread and cakes) grew strongly
through a combination of higher volumes, better product mix and judicious
pricing. Profitability has also improved over the years. Merger synergies
are being realised through centralised buying for key materials and
adoption of good manufacturing practices.

4.4 Exports Business:

Continuing portfolio of Exports comprising FMCG and Specialty Exports grew
strongly. Margins improved reflecting the benefits of a rationalised
product portfolio and appropriate restructuring. All categories recorded
good value growth leveraging on the high commodity prices. Your Company
also earned the reputation for delivering excellent levels of customer
service.

HPC Exports reported handsome growth driven by Skin and Hair categories.
Investments in Kandla unit helped to develop the site into a world class
competitive sourcing location for HPC products, particularly high range
Skin Care products. Kandla unit secured international certification from US
FDA and the Canadian Ministry of Health. Skin care exports to Arabia,
Malaysia and Sri Lanka performed very well, thanks to good demand. Oral
turnover growth was flat as toothpaste sourcing for Europe dried up
following their move of onshore production. Pears franchise continued its
good performance across many countries.

Foods and Beverages exports improved its profitability with parts of
portfolio rationalised, mainly by way of stoppage of Bulk tea and raw
coffee bean exports. The continuing businesses performed well; value added
tea bags segment grew strongly. Efforts to increase the coverage of
Instant Tea exports to Europe were successful. Export of 3 in 1 tea premix
to Arabia has also been received well. Culinary products like soups and
jams show promise with turnover doubling, albeit on a small base.

In Specialty Exports, Marine business reported profits, benefiting from
very favourable market conditions for Surimi. Crabstick business continued
steady growth and profitability with a widened customer base. Rice business
reported good growth of turnover and profits driven by strong brand
positions in Indus Valley and Rozana especially in the Gulf markets.

Your Company will continue to focus on value added FMCG exports and drive
international competitiveness to deliver growth.

Leather (Pond's Exports Limited) Leather Exports had a difficult year due
to forex volatility and recessionary conditions in Europe. India's
competitive advantages of good quality leather and the ability to service
small orders were neutralised by China's significant cost advantages and a
well developed market for components. The shoe-upper business continued to
deliver profits. In the shoes segment, major markets in the European Union
were price sensitive, with some key customers switching to low cost
locations. In order to achieve cost competitiveness and remain viable, the
Company has taken steps to restructure the high cost manufacturing facility
at Puducherry. Collaboration with a Design Centre in China to provide a
stream of new designs and cost effective components has been helpful.

HUL shareholders have already approved the divestment of this business, but
we are yet to find a suitable buyer. In the meantime, steps are being taken
continuously to improve the performance and profitability of the business.

4.5 Water:

Pureit is a unique in-home drinking water purification system, offering
water 'as safe as boiled', thereby protecting children and families from
waterborne diseases. It is the only purifier in the world that provides
this level of safety without depending on cooking gas, electricity and
pressurised tap water, and is affordably priced.

Following awards for Pureit during the year reflect the high public
recognition for the same:

* Golden Peacock product innovation award.

* Innovation award in India from the United Kingdom Trade and Investment
organisation, and

* Water Digest award supported by UNESCO for the best domestic nonelectric
water purifier.

Pureit has been nationally extended with its footprint in 28 states. The
business has developed a unique customer acquisition system and strong
capabilities in supply chain and customer service. More than one million
units of Pureit were sold during the period of April 2008 to March 2009;
sales turnover of the business was Rs. 190 crores for this period. The
business is in an investment phase, we continue to commit resources in this
business, mainly to fund brand development and sales infrastructure. The
potential for the business is high given the critical need for clean water
at low cost.

4.6 Hindustan Unilever Network:

The strategy of the network is redefined in line with its vision of
empowering modern Indian woman by serving her with superior beauty and
healthcare products through customised and professional services.

Accordingly the network channel has been repositioned, to offer premium
products in the two growing categories of Beauty Solutions and Health &
Wellness, under two core brands viz. Aviance and Ayush respectively. This
is an important channel and the key challenge to drive the business to
scale through outstanding execution remains.

4.7 Beauty & Wellness Division:

Growing disposable income and changing lifestyles in urban India have led

to greater awareness about personal grooming, health and wellness. The
emerging trends augur well, for Beauty and Wellness services sector,
presenting a large and exciting opportunity. We currently operate in this
segment through a largely franchised network of Lakme Beauty Salons and
Ayush Therapy Centers.

We have licensed lakme' and lever Ayush' brands to, lakme Lever Private
Limited', a subsidiary Company. This creates the necessary focus for the
services business and nurtures a dedicated customer service mindset. Lakme
Lever Private Limited will evaluate options towards developing a uniquely
different, new business model for this opportunity, with singularity of
purpose and dedicated focus. In the meanwhile the existing network of
franchisees would continue to grow in the segment.

5. CUSTOMER MANAGEMENT:

There was a special focus on further improving customer management systems
across all trade channels to drive Company's growth agenda. This required
consolidating our strong position with customers and channels in general
trade. A pilot project in Mumbai Metro on customer consolidation was
successfully executed. This enables an efficient back-end and a world class
front-end and facilitates increased speed to deliver innovations and
activation schemes to market. The concept of a 'zero inventory model' which
reduces customers' investment and improves logistical efficiencies was also
part of the pilot project.

We are investing heavily in state-of-the-art IT application systems in
Sales and Distribution to substantially improve speed of information,
quality of service and productivity of human resources.
Distributors'salesmen were equipped with Hand Held Terminals to simplify
the processes of order taking, billing and order delivery. This gives them
more time to focus on the core job of selling.

Towards the end of 2008, your Company also started the process of
rejuvenating its long standing and successful rural distribution system.
With the significant improvements in rural economy and infrastructure, we
are positioning ourselves well to serve the trade more efficiently. The
process of bringing more and more outlets under direct coverage was
successfully piloted. The objective is to offer the right assortment of
products to the rural consumers in line with their changing requirements
and aspirations. This enables the Company to leverage its product portfolio
fully by staying closer to the rural trade channels.

Modern Trade has expanded rapidly across the country in the past few years,
although there is some consolidation taking place recently. This retail
format provides consumers with a different shopping experience. Therefore,
the Company is committing resources to understand the changing shopping
habits and to deliver appropriate solutions to grow the business across
categories. We continued to build capabilities and improve processes in
this domain. We lead many initiatives in customer service, category
management and merchandising to deliver best in class practices. As Modern
Trade in India is evolving rapidly, we need to win at the point-of-purchase
with shoppers and deliver highest quality service to Modern Trade
customers. The joint venture with Smollans Holdings of South Africa is
helping us develop and increase the capabilities required to meet the
overall merchandising demands in Modern Trade. They bring world class
execution excellence and build the right capabilities to win in Modern
Trade.

The emerging hybrid customer structure (comprising General Trade, Modern
Trade and Specialised Stores) requires new 'route to market' approaches to
service customers and distributors. Your Company is equipping itself with
capabilities and revitalised distribution and customer service network to
face the challenges of the evolving new market dynamics.

5.1 Project Shakti:

Project Shakti is a rural initiative of your Company that targets small
villages typically with a population of less than 5000. It empowers women
in rural markets, while contributing well as a sales channel and is a great
example of 'Doing Well by Doing Good'.

The specific objectives of Shakti are:

* Reach new consumers in small rural villages

* Develop/grow markets through consumer education programs

* Empower women through creation of employment opportunities for them

* Build a sustainable business model

Project Shakti benefits the business by significantly enhancing its direct
rural reach, and by helping the Company's brands to touch the lives of
people hitherto untouched.

Shakti is built on Shakti Entrepreneurship program and Shakti Vani program.

Shakti Entrepreneur program creates a win-win model by enhancing the
efficacy of the micro-credit as an institution to alleviate poverty; this
is done by providing appropriate investment opportunities and sustainable
income forthe recipients. Micro-credit enables rural women to become
direct-to-home distributors in rural markets with significant retained
earnings. This benefits rural consumers also by giving them access to some
of India's most trusted brands at affordable prices. Significant investment
is made in building the capability of Shakti entrepreneursthrough classroom
and on-the-job training programmes. This helps build confidence and develop
the business acumen necessary to run a micro-enterprise. In addition, your
Company invests significantly in creating rural activation models which
expose rural consumers to Company's brands.

Your Company is working on bringing efficiencies in this model by creating
'communities' within the Shakti family. Groups of Shakti Entrepreneurs are
organised into Kuls' (communities). These communities are provided monthly
forums for interaction where the concept of 'each one help one' is
practised. The idea is to build on collective synergies of Shakti
Entrepreneurs and to help them manage their business independently. This is
in line with the long term goal of developing entrepreneurs out of women in
rural areas. This is currently being piloted in Karnataka.

Pureit has been launched on a pilot basis in the Shakti channel. This pilot
has started in Andhra Pradesh where Shakti was born nine years ago. Shakti
Ammas would offer Pureit water purifiers to households in their villages.
By doing so, rural consumers will now have access to a high quality water
purification system at affordable price. Shakti entrepreneurs will get yet
another sustainable source of income.

Shakti Vani program focuses on building awareness about health and hygiene
in the rural community. Vanis are trained communicators who target
congregations like village schools and 'mohallas' and engage with key
opinion leaders of villages like the sarpanch, the school teacher etc.
'Vani' has emerged as a unique rural communication vehicle using the
principle of one-to-one contact which is successful in driving important
messages on sanitation, good hygiene practices and women empowerment. Brand
messages are a part of these which create a potential platform for brands
to communicate with rural consumers.

By the end of the year 2008, Shakti network had grown to more than 45,000
Shakti Ammas covering 100,000 plus villages across 15 states in the country
and reaching over 3 million homes.

6. SUPPLY CHAIN:

We continued our journey towards delivering the vision of world class
service at the lowest imaginable cost. Winning with Customers through
outstanding customer service is a key thrust towards realisation of this
vision.

Deployment of advanced IT solutions on the back of a strong suite of SAP
application systems led to significant improvements in planning and
logistics. The manufacturing teams focussed on increasing operational
flexibility and improving reliability to deliver better service with lesser
assets. These initiatives resulted in improved customer service levels
measured as 'Customer Case Filled On Time' (CCFOT) through the year.
Several organised retailers have acknowledged our excellent customer
service performance. A relentless focus on eliminating waste and hidden
costs from all operations led to significant supply chain savings which
helped the business in dealing with severe cost and inflationary pressures.
Multifunctional teams worked together to drive cost reduction programmes
spanning across all facets of the business. Empowered teams led initiatives
to reduce specific energy consumption and also piloted the use of
sustainable alternative bio-fuels at several sites, resulting in
appreciable savings in energy costs. Buying function delivered outstanding
efficiencies and reduction in procurement costs, fully leveraging the
benefits of scale and synergy through Unilever's global buying network.

We also executed appropriate capital expenditure investments in creating
capacity to enable future growth, and to de-bottleneck existing assets to
run them efficiently; principles of Total Productive Maintenance were
applied. This resulted in increase in asset productivity levels.

7. RESEARCH & DEVELOPMENT:

Your Company continues to benefit from the strong foundation and long
tradition of Research & Development (R & D) which differentiates us from
many others. These benefits flow not only from work done in Research
Centres in India, but also from the centres of Unilever's global research
work. With the world class facilities and a superior science and technology
culture, we are able to attract the best of talent to provide significant
technology differentiation to our products and processes. The R&D labs in
Mumbai and Bangalore are aligned significantly to Unilever's global R&D.
Many of the projects which are run out of these centers are of global
relevance and with a strong focus on needs of this region and the overall D
& E World.

There are several exciting innovations that are in the pipeline now in
Water, Laundry, Skin, Oral Care, Beverages, Savoury, Ice Cream etc. These
technological innovations cover the whole spectrum of consumer income
segments. A series of new and superior products were launched helped by the
formidable global research and development activities. A range of Pond's
top end products with anti-ageing and skin lightening benefits was
introduced using technology developed at the global R&D centre. The R & D
team also developed products to address specific requirements of Indian
consumers like Lifebuoy range with improved hygiene benefits and Wheel
detergents requiring less effort for cleaning. The R&D team responded very
quickly to the increase in cost of various inputs during the year and your
Company realised significant benefits. Ice Cream team helped to launch a
slew of new variants. Based on unique consumer insight, Foods R&D came up
with an innovative design for packaging of Kissan Jam in Squeeze Tubes.
Development of Knorr Indian Mealmakers and Indian Style Soups launched in
several variants also demonstrates the interconnected nature of R & D and
business.

India now occupies a premier position in the global R&Ddomainfor Unilever,
performing leading research and development work to advance its brands and
categories. A testimony of the high quality research done by Indian labs is
the recent selection of Bangalore lab as one of the six major Discover
Research Centers for Unilever globally. In addition to the professional
growth of people and creation of new products, their global role also
facilitates further advances, through synergistic links to the other major
Unilever laboratories.

8. ENVIRONMENT, SAFETY AND HEALTH/ENERGY CONSERVATION:

Your Company continues to focus on the vision of an 'injury free'
organisation. In 2008, the safety agenda consisted of three key thrusts:

* an ongoing behavioural safety initiative.

* a renewed focus on systems and processes, and

* a road safety programme covering all employees.

The behavioural safety programme has now been in place for more than three
years and continues to deliver strong results. Several measures have been
implemented to revitalise safety systems and processes especially across
the extended supply chain operations - in co-packing locations and in
distribution centres. Road safety was also a key thrust during the year.
Employees across the Company were trained and educated about road safety.
In several locations, your Company has actively engaged with local
administration authorities to mitigate hazards. These efforts have led to a
substantial improvement in safety performance across the Company.

The environmental agenda was marked by a shift towards reducing
environmental impact of Company's operations. During the year, four sites
recorded water positive status. This was achieved through a combination of
water conservation, rain water harvesting and water recycling. Four sites
modified their boilers to use bio-fuels, resulting in significant
environmental benefits.

The information required under Section 217(l)(e) of the Companies Act,
1956, read with the Companies (Disclosure of Particulars in the Report of
the Board of Directors) Rules, 1988 is appended hereto and forms part of
this report.

9. HUMAN RESOURCES:

The Human Resources (HR) agenda for the year 2008 was focused on
strengthening three key areas -completing the second phase of the HR
Transformation (HRT) programme that had been initiated in 2007, building
organisational and individual capabilities and significantly enhancing
people productivity to drive sustainable business growth.

HRT is a business change programme and impacts ways of working. At the core
of this programme are world class IT enabled processes to efficiently
manage Human Resources transactions. The programme also aligns HR systems
and processes in a similar way across Unilever. In 2008, the HRT journey
moved to the next phase of implementation; line organisation is taking over
management of transactions for their teams themselves which was previously
done by HR Manager. The technology applications are available on a 'self-
service' portal which increase the productivity of every line manager and
HR Manager by freeing up their time from managing routine and transactional
workload. HRT has been a big journey of change and your Company is on
course to go live with this change in 2009.

The belief that 'great people create great organisations' has been at the
core of the Company's approach to its people. Your Company made significant
investments for training in the areas of marketing excellence, customer
service and building capabilities for organised retail trade. Large
number of training programmes were delivered through classrooms, new
capability building courses and external learning sessions. Our e-leaming
platform introduced in 2007 offers a bouquet of 3000+ courses via internet.
This continues to provide employees access to learning anywhere, anytime.
In its second year itself, with over 25000 course registrations by our
employees, we have set a benchmark.

During 2008, TPM gained further momentum through TPMedge initiative. This
is aimed at distilling TPM best practices and Unilever business processes
into an effective blend for Every Day Great Execution (EDGE). The focus is
equally on enlisting more and more shopfloor ownership for sustaining TPM
processes across all our operations. The TPMedge process is designed around
a system of monthly self-assessments and quarterly central assessments of
the health of on-ground TPM systems. These assessments now form the centre
piece of continuous improvement efforts.

There was practically no loss of mandays due to industrial relations
issues. Seventeen productivity linked long term settlements were signed
through the process of collective bargaining involving over 5000 employees.
All these settlements were signed with zero disruption to business activity
reflecting the maturity of workmen collectively. In 2008, four
manufacturing units were restructured and another two went through a
consolidation. The process of redeployment/rehabilitation was undertaken
with utmost concern for our people.

Your Company was conferred HR Excellence Award by the Cll Western Region
for the year, wherein we have set some new benchmarks in CII's assessment
for the award. During the year, HUL was ranked as the 'Dream Employer'
across top management and technical schools in India, a testimony to your
Company's strong leadership development practices.

Information as per Section 217 (2A) of the Companies Act, 1956, read with
the Companies (Particulars of Employees) Rules, 1975, forms part of this
Report. However, as per the provisions of Section 219(l)(b)(iv) of the Act,
the Report and Accounts are being sent excluding the statement containing
the particulars to be provided under Section 217(2A) of the Act. Any member
interested in obtaining such particulars may inspect the same at the
Registered Office of the Company or write to the Company Secretary for a
copy thereof.

10. INFORMATION TECHNOLOGY:

Your Company believes that Information Technology is a source of
competitive advantage and has therefore continued to invest in the same.

Information technology in the area of sales and customer development has
been one of the key thrusts. All Redistribution Stockists operate on a
common transaction system fully integrated with Company's systems. This
capability enables to collaborate with customers on a near on-line basis
and significantly improves field execution and customer service. In 2008,
the Company implemented a handheld based selling system across nearly 10000
distributors' salesmen. In Modern Trade, the IT platforms were leveraged to
closely engage with this emerging Channel to increase efficiencies and
service levels.

We have also completed the implementation of an enterprise-wide SAP
capability. This was accompanied by significant re-engineering and
simplification of the underlying business processes. All Company customers
can now place replenishment orders on SAP. It also provides capability for
supply chain optimisation across a large and complex manufacturing and
distribution network. Additionally, it supports a comprehensive data
warehouse with real-time information across all our operations. The end-to-
end SAP capability will be the platform for further business process
innovation and increased speed of response.

Towards realising the ambition of a chequeless organisation, we have
implemented both e-collection (from sales) and e-payments (for purchases)
with steadily increasing coverage. These have increased speed and service
substantially while simplifying processes.

We continue to invest in IT infrastructure to support all business
applications. A robust virtual private network using MPLS technology, is
supplemented by VSATs for the remote locations. We have leveraged the
expanded telecom footprint in the country to provide high bandwidth
terrestrial links to all operating units. Video conferencing is extensively
used to collaborate across locations while reducing travel costs.

Information Security and reliable disaster recovery management continue to
be a critical focus area - especially as most business processes become
fully IT-enabled. We carry out regular exercises to reassure ourselves on
the same.

11. FINANCE AND ACCOUNTS:

Focus on cash generation continued and we delivered a strong operating cash
flow during the period. This was driven by good business performance,
underlying efficiencies and cost savings across the supply chain and a
continued efficient collection system. The Company managed the investments
prudently by deployment of cash surplus in a balanced portfolio of safe and
liquid debt market instruments; returns earned were higher than market
benchmarks. In a volatile financial environment, towards the December
quarter of 2008, surplus funds were invested in bank fixed deposits.

Capital Expenditure during the fifteen month period was at Rs. 609 crores
(2007, Rs. 372 crores) and was in the areas of capacity expansion,
information technology, energy and other cost savings.

The total amount of fixed deposits taken by the Company as of 31st March,
2009 was Nil. There was no outstanding towards unclaimed deposits payable
to depositors as on 31st March, 2009.

In terms of the provisions of Investor Education and Protection Fund
(Awareness and Protection of Investor) Rules, 2001, Rs. 285 lakhs of
unpaid/unclaimed dividends, interest on debentures and deposits were
transferred during the year to the Investor Education and Protection Fund.

Return on Net Worth, Return on Capital Employed and Earnings Per Share
(EPS) for the last four years and for the fifteen month period ended 31st
March, 2009 are given below:

For the year 2004 2005 2006 2007 Period
ended 31st
March 2009

Return on Net Worth (%) 57.2 61.1 68.1 80.1 103.6*

Return on Capital Employed (%) 45.9 68.7 67.0 78.0 107.5*

Basic EPS of Re.1 (after 5.44 6.40 8.41 8.73 11.46**
exceptional items)

* Annualised numbers for proportionate period

** for fifteen month period

Key figures for 12 months ended April - March

As indicated earlier, the full year audited results for 15 month period
ended 31st March, 2009 are not comparable with those for year ended 31st
December, 2007. However, on a memorandum basis, for comparative purposes,
unaudited results for 12 months ended 31st March, 2009 are given below:

* Net sales at Rs. 16476.75 crores (2007-08: 14266.94 crores) grew by 15.5%

# Profit from Operations before Interest and Exceptional items at Rs
2396.06 crores (2007-08: 2017 crores) grew by 18.8%

# Profit After Tax from ordinary activities before exceptional items at Rs
2065.20 crores (2007-08: 1795.5 crores) grew by 15%

* Net profit at Rs 2115.50 crores (2007-08: 1913.53 crores) grew by 10.6%

Segment-wise results:

Your Company has identified seven business segments in line with the
Accounting Standard on Segment Reporting (AS-17). These are: (i) Soaps and
Detergents, (ii) Personal Products, (iii) Beverages, (iv) Foods, including
culinary and branded staples, (v) Ice Creams, (vi) Exports, and (vii)
Others, including Water. The audited financial results of these segments
are given as part of financial statements.

12. MERGERS, ACQUISITIONS, JOINT VENTURES AND DISPOSALS:

12.1 Demerger of immovable properties at Brookefields, Bangalore:

We had taken shareholders' approval to the scheme of demerger covering
transfer of certain immovable properties of the Company located at
Brookefields, Bangalore to Brooke Bond Real Estates Private Limited, a
subsidiary of the Company. The objective of the said demerger was to
develop an IT and IT enabled Special Economic Zone at the Demerged Unit.
The Company has received in-principle approval from the State Government of
Karnataka for such a project. Further approvals are being sought, including
that of Government of India. This project will be executed after all
statutory approvals are obtained.

12.2 Amendment of the Shareholders' Agreement with CapGemini SA:

In line with its strategy to focus on core areas, during October 2006, your
Company divested its 51% controlling stake in the business (Capgemini
Business Services (India) Limited) to CapGemini SA for a consideration of
Rs 52 crores.

Both parties have a put/call option for the balance 49% stake. In December,
2008 the parties agreed to extend the period of the options by one year
from 31st March, 2009 to 31st March, 2010, being in the business and
strategic interests of both parties.

12.3 Lakme Lever Private Limited:

Lakme Lever Private Limited (LLPL), a 100% subsidiary of your Company has
been formed to implement the potential beauty services opportunity for
providing the necessary focus and developing a service culture. Transfer of
a few own outlets from HUL to LLPL will be done during this year. Please
refer to 4.7 above.

13. EMPLOYEE STOCK OPTION PLAN (ESOP):

Details of the shares issued under ESOP, as also the disclosures in
compliance with Clause 12 of the Securities and Exchange Board of India
(Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999 are set out in the Annexure to this Report.

None of the management employees or Wholetime Directors has received
options exceeding 5% of the value of the options issued for the year ending
March 2009. Likewise, no employee has been issued share options, during the
period year equal to or exceeding 1% of the issued capital (excluding
outstanding warrants and conversions) of the Company at the time of grant.

Pursuant to the approval of the members at the Annual General Meeting held
on 29th May, 2006, the Company adopted the '2006 HLL Performance Share
Scheme'. The Scheme has been registered with the Income Tax authorities in
compliance with the relevant provisions of SEBI (Employee Stock Option
Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the
terms of the Performance Share Scheme, employees are eligible for the award
of conditional rights to receive equity shares of the Company at the face
value of Re. 1/- per share. These awards will vest only on the achievement
of certain performance criteria measured over a 3 year period. 148
employees including Wholetime Directors were awarded conditional rights to
receive a total of 2,06,250 equity shares at the face value of Re. 1/-.

14. CORPORATE GOVERNANCE:

Your Company has been practising the principles of good corporate
governance over the years and lays strong emphasis on transparency,
accountability and integrity. A separate section on Corporate Governance is
given on page no. 46 of the Annual Report and a Certificate from the
Auditors of the Company regarding compliance of conditions of Corporate
Governance as stipulated under Clause 49 of the Listing Agreement(s) with
the Stock Exchange(s) and a certificate of the CEO & CFO in terms of sub-
clause (v) of Clause 49 of Listing Agreement, inter alia, confirming the
correctness of the financial statements, adequacy of the internal control
measures and reporting of matters to the Audit Committee is annexed to the
Corporate Governance Report.

14.1 Risk and Internal Adequacy:

Your Company manages cash and cash flow processes assiduously involving all
parts of the business.

There was net cash surplus of Rs. 1355 crores (net of short term export and
other debts of Rs. 422 crores) as on 31 March, 2009. The Company's debt
equity ratio is very low which provides ample scope to gear up the Balance
Sheet should that need arise. Foreign exchange transactions are always
fully covered with strict limits placed on the amount of exposure, if any
at any point in time. There are no materially significant uncovered
exchange rate risks in the context of Company's imports and exports.
Company provides for 'mark to market' gains or losses at every quarter end
in line with the requirements of AS-11. These are being highlighted
separately every quarter.

Company's internal control systems are well commensurate with the nature of
its business and the size and complexity of its operations. These are
routinely tested and certified by Statutory as well as Internal auditors
and cover all the offices, factories and key areas of business. Significant
audit observations and follow up actions thereon are reported to the Audit
Committee. Audit Committee reviews the adequacy and effectiveness of the
Company's internal control environment and monitors the implementation of
audit recommendations including those relating to strengthening of the
Company's risk management policies and systems.

Your Company has an elaborate process for Risk Management. This rests on
the three pillars of Business Risk Assessment, Operational Controls
Assessment and Policy Compliance at all levels through a 'positive
assurance process'. Major risks identified are systematically addressed
through mitigating actions on a continuing basis. These are discussed with
both Management Committee (doubling up as Risk Committee) and Audit
Committee. Some of the risks relate to economic volatility, competitive
intensity, slower market growth and/ or downtrading and pressures on
margins.

14.2 Outlook:

It is believed that India's GDP will continue to grow robustly in the
future, not withstanding the current and short term blips. FMCG categories
have very good potential to grow, as the current per capita consumption
levels are still low, compared even to some other Developing and Emerging
economies like China, Indonesia, Thailand, etc. Participation by more
players through competitive activities will only help expand the market for
HUL's categories. Increased per capita income will also provide
opportunities to consumers for brand experiences and up trading. While
commodity costs are subdued at present, significant upward trends due to
global triggers, could cause unit prices of products to rise and
consequently slow down market growth. Your Company will continue to focus
on both development and expansion of markets and share gains as appropriate
to secure competitive growth. Underlying volume growth is a key requirement
to deliver this. Managing margins through judicious pricing and sustained
efficiencies and cost saving will receive constant attention.

14.3 Cautionary Statement:

Statements in this Report, particularly those which relate to Management
Discussion and Analysis, describing the Company's objectives,
projections, estimates and expectations may constitute 'forward looking
statements' within the meaning of applicable laws and regulations. Actual
results might differ materially from those either expressed or implied.
14.4 Subsidiary Companies Lakme Lever Private Limited became the wholly
owned subsidiary of the Company to operate in Beauty & Wellness segment
through 'Lakme Beauty Salons' and 'Ayush Therapy Centers', Brands lakme'
and lever Ayush' will be licensed to Lakme Lever Private Limited by HUL. A
statement pursuant to Section 212 of the Companies Act, 1956 relating to
Subsidiary Companies is attached to the accounts.

In terms of approval granted by the Central Government under Section 212(8)
of the Companies Act, 1956, the Audited Statements of Accounts and the
Auditors' Reports thereon for the fifteen month period ended 31st March,
2009 along with the Reports of the Board of Directors of the Company's
subsidiaries have not been annexed. The Company will make available these
documents upon request by any member of the Company interested in obtaining
the same. However, as directed by the Central Government, the financial
data of the subsidiaries have been furnished under 'Subsidiary Companies'
Particulars' forming part of the Annual Report (Refer Page 150). Further,
pursuantto Accounting Standard 21 issued by the Institute of Chartered
Accountants of India, Consolidated Financial Statements presented by the
Company in this Annual Report include the financial information of its
subsidiaries.

15. CORPORATE SOCIAL RESPONSIBILITY:

Your Company strongly believes that growth has not only to be profitable
and competitive, but also sustainable in a socially relevant way. Our
sustainability agenda therefore seeks to address issues of Hygiene,
Nutrition, Enhancement of livelihoods, Reduction of greenhouse gases and
water footprint. These social, environment and economic agenda are
integrated and well woven into the brands, people and the business of the
Company. The strategy is to grow markets in a responsible manner and to
create a wider positive impact through brands. We believe that 'doing well'
and 'doing good' are two sides of the same coin and it would work towards
realising the vision of making a real difference to every Indian.

We have made significant progress on the environment front over the past
few years. Your Company has reduced water usage per tonne by more than 26%
in its manufacturing operations since 2004. The Company aims to become
water positive across all its operations by 2015. The energy consumption
per unit of production since 2004 has also come down by 34%. We have
exceeded the target of 25% reduction in C02 (Green House gases) in
manufacturing operations per tonne of production against a baseline of
2004. We have taken a lead in sustainable agricultural sourcing; 10 Indian
tea estates have been provided with the Rainforest Alliance certification.
Handwash programme driven by Lifebuoy and safe drinking water through the
innovation of Pureit have made significant impact in the area of health and
hygiene.

To commemorate your Company's 75th year, employees of the Company had
committed to volunteer one hour for everyday that Hindustan Unilever has
been in the country, which amounted to 27,375 hours of voluntary work.
During the year, with an overwhelming response, the employees undertook
volunteering and community service totaling more than 48,000 hours and
addressed some of the issues facing our country. In partnership with DHAN
foundation, your Company has also enhanced the livelihoods of 75,000 women
in southern India.

Your Company has contributed 10,000 kits worth Rs. 60 lakhs as the first
instalment of relief material for the immediate relief of the flood
affected families of Araria District in Bihar. The kit contained essential
items such as utensils, clothes, blankets and other useful material. A sum
of Rs.84 lakhs was contributed jointly by HUL and its employees to

rehabilitate the underprivileged amongst the flood-affected families in the
village of Jorgawan, Madhepura District, Bihar. The Project aims at
providing long-term housing and livelihood aid to the people in a phased
manner, through a strategic alliance among HUL, ACC and Habitat
International.

Your Company believes that the long-term growth and success of the business
goes hand in hand with ensuring a sustainable future for the planet and
helping society to prosper. Increasingly we find that we can only achieve
our goal to deliver Competitive, Profitable and Sustainable Growth of our
Business by providing superior and safe products, reach new consumers and
markets in ways that help address in our small way some of India's major
challenges like poverty, health, climate change and demographic shifts.

16. BOARD OF DIRECTORS:

At an Extraordinary General Meeting held on 4th April, 2008, Mr. Nitin
Paranjpe was appointed as the Managing Director and CEO of the Company to
succeed Mr. Douglas Baillie, who stepped down as a CEO to join the Unilever
Executive, taking on the role of President, Western Europe. The Board
places on record their appreciation for the distinguished services rendered
by Mr. Douglas Baillie during his tenure with the Company.

Consequent to his appointment as Chairman, Unilever Russia, Ukraine and
Belarus (RUB), Mr. Sanjiv Kakkar stepped down as an Executive Director,
Sales & Customer Development w.e.f. 1st September, 2008. The Board places
on record their appreciation for the valuable contribution made by Mr.
Sanjiv Kakkar while leading the Foods business and then the Customer
Development function of the Company.

Dr. R. A. Mashelkar was appointed as Non Executive Independent Director of
the Company in the Annual General Meeting held on 4th April, 2008. Mr.
Dhaval Buch, Executive Director Supply Chain, was appointed as an
Additional Director on the Board with effect from 4th April, 2008 and Mr.
Gopal Vittal, Executive Director Home & Personal Care, was appointed as an
Additional Director on the Board with effect from 1st September, 2008 in
accordance with Section 269 and Article 111 of the Articles of Association.

Mr. D. Sundaram, DirectorFinanceand IT was elevated as the Vice Chairman
with effect from 4th April, 2008. He will not be seeking re-appointment in
the ensuing Annual General Meeting as he has decided to retire from the
services of the Company at the Annual General Meeting. The Board places on
record their appreciation for the valuable services rendered by Mr. D.
Sundaram during his long innings with HUL, including as a member of the
Board for the past ten years.

To fill up the vacancy caused by the retirement of Mr. D. Sundaram, it is
proposed to appoint Mr. Sridhar Ramamurthy as Executive Director Finance
and IT of the Company.

Notices have been received from members pursuant to Section 257 of the
Companies Act, together with necessary deposits proposing the appointments
of Mr. Dhaval Buch, Mr. Gopal Vittal and Mr. Sridhar Ramamurthy as
Wholetime Directors on the Board.

In accordance with the Articles of Association of the Company, all other
Directors, except for Managing Director, will retire at the ensuing Annual
General Meeting and being eligible offer themselves for re-election.

17. MANAGEMENT COMMITTEE:

The day-to-day management affairs of the Company are vested with the
Management Committee which is subjected to the overall superintendence and
control of the Board. The Management Committee is headed by Mr. Nitin
Paranjpe, as the Chief Executive Officer, and has functional/business heads
as its members.

Mr. Gopal Vittal, Executive Director, Home & Personal Care was appointed as
the member of the Management Committee with effect from 1st September,
2008. Mr. Hemant Bakshi moved from his role as Regional Category Vice
President, Skin, South Asia, Unilever, to take over from Mr Sanjiv Kakkar
as Executive Director, Sales & Customer Development in the Management
Committee with effect from 1st September, 2008.

18. AUDITORS:

M/s. Lovelock & Lewes, statutory auditors of the Company retire and offer
themselves for re-appointment as the statutory auditor of the Company
pursuant to Section 224 of the Companies Act, 1956.

19. APPRECIATIONS AND ACKNOWLEDGEMENTS:

Directors wish to place on record their deep appreciation to employees at
all levels for their hard work, dedication and commitment. The enthusiasm
and unstinting efforts of the employees have enabled the Company to remain
at the forefront of the industry.

Directors also like to acknowledge the excellent contribution by Unilever
to your Company in providing the latest innovations, technological
improvements and marketing inputs in respect of almost all the categories
in which we operate. This has enabled the Company to provide higher levels
of consumer delight through continuous improvements in existing products
and introduction of new products.

The Board place on record their appreciation for the support and co-
operation your Company has been receiving from its suppliers,
redistribution stockists, retailers, business partners, canteen stores
department and others associated with the Company as its trading partners.
Your Company looks upon them as partners in its progress and has shared
with them the rewards of growth. It will be the Company's endeavour to
build and nurture strong links with the trade based on mutuality of
benefits, respect to and co-operation with each other, consistent with
consumer interests.

Directors also take this opportunity to thank all investors, clients,
vendors, banks, regulatory and government authorities and stock exchanges,
for their continued support.

On behalf of the Board
Harish Manwani
Chairman

Mumbai 10th May, 2009

DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY:

Canned and processed fruits A B
and vegetables

A. POWER AND FUEL CONSUMPTION:

1. Electricity

(a) Purchased

Unit Lakh KWH 40.48 23.39

Total Amount Rs. Lakhs 210.73 116.59

Rate/Unit Rs. 5.21 4.99

(b) Own Generation

(i) Through own generator

Unit Lakh KWH 1.82 -

Unit per ltr of diesel oil KWH 2.50 -

Cost per unit Rs. 15.50 -

(ii) Through steam turbine/generator Nil Nil

2. Furnace Oil

Quantity KL 1000.34 644.00

Total Cost Rs. Lakhs 307.46 152.43

Average Rate Rs./KL 30735.96 23669.80

B. CONSUMPTION PER UNIT OF PRODUCTION:

Electricity KWH/Tonne 249.62 145.70

Furnace Oil Lts/Tonne 61.69 40.12

A = 15 Months ended 31st March, 2009
B = 12 Months ended 31st December, 2007

DISCLOSURE OF PARTICULARS WITH RESPECT TO TECHNOLOGY ABSORPTION:

1. Specific areas in which R&D carried out by the Company:

- New product / process development

- Quality enhancement to achieve International Standards.

- Technology Upgradation

- Speciality ingredients from natural sources

- Development and evaluation of alternative raw materials

- Project of Global relevance

2. Benefits derived as a result of the above R&D and Future plans of
action:

- The benefits and Future plan of action have been discussed in details in
the Director's report

Rs. lakhs
15 Months ended 12 Months ended
3. Expenditure of R&D 31st March, 31st December,
2009 2007

(a) Capital 14,80 9,42

(b) Recurring 74,47 49,39

(c) Total 89,27 58,81

(d) Total R&D expenditure as a percentage
of total turnover 0.44% 0.43%

TECHNOLOGY ABSORPTION, ADOPTION AND INNOVATION:

1. Efforts, in brief, made towards technology absorption, adoption and
innovation:

The Company maintains interaction with Unilever internationally.

This is facilitated through a well co-ordinated management exchange
programe.

2. Benefits derived as a result of the above efforts:

The benefits have been covered in the Director's report.

3. Imported Technology:

(a) Technology imported - Cosmetic products

(b) Year of import - 2001

(c) Has technology been fully absorbed - No

Rs. lakhs
FOREIGN EXCHANGE EARNINGS & OUTGO 15 Month ended 12 Month ended
31st March, 31st December,
2009 2007

Foreign exchange earnings 1941,89.37 1483,70.72

Foreign exchange outgo 2731,91.4911 1975,94.75

DISCLOSURE PURSUANT TO THE PROVISIONS OF SECURITIES AND EXCHANGE BOARD OF
INDIA (EMPLOYEE STOCK OPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME)
GUIDELINES, 1999:

Stock Option 2001

a) Options granted 24,75,100 equity
shares of Re. 1/- each
valued at
Rs. 53.82 crores

b) The pricing formula Closing market price as
on the date of option
grant-24.7.2001
Rs. 217.45

c) Options vested Options vested after
three years from date of
grant (24.7.2001)

d) Options exercised (as at March 31, 7,86,195 equity shares
2009) of Re 1/- each

e) The total number of shares arising as 7,86,195 equity shares
a result of exercise of option of Re 1/- each

f) Options lapsed (as at March 31, 2009) 8,65,900 equity shares
of Re 1/- each

g) Variation of terms of options: NA

h) Money realised by exercise of options Rs 8.26 crores

i) Total number of options in force (as 8,23,005 equity shares
at March 31, 2009) of Re 1/- each

j) Employee wise details of options
granted to:

i) Senior managerial personnel: -

ii) any other employee who receives NIL
a grant in any one year of option
amounting to 5% or more of option
granted during that year;

iii) Identified employees who were NIL
granted option during any one year,
equal to or exceeding 1% of the issued
capital (excluding outstanding warrants
and conversions) of the Company at the
time of grant.


Stock Option 2002

a) Options granted 32,33,601 equity
shares of Re. 1/- each
valued at
Rs. 68.02 crores

b) The pricing formula Closing market price as
on the date of option
grant- 23.4.2002
Rs. 210.35

c) Options vested Options vested after
three years from date of
grant (23.4.2002)

d) Options exercised (as at March 31, 11,36,548 equity
2009) shares of Re 1/- each

e) The total number of shares arising as 11,36,548 equity
a result of exercise of option shares of Re 1/- each

f) Options lapsed (as at March 31, 2009) 9,04,320 equity shares
of Re 1/- each

g) Variation of terms of options: NA

h) Money realised by exercise of options Rs 10.61 crores

i) Total number of options in force (as at 11,92,733 equity
March 31, 2009) shares of Re 1/- each

j) Employee wise details of options
granted to:

i) Senior managerial personnel: -

ii) any other employee who receives NIL
a grant in any one year of option
amounting to 5% or more of option
granted during that year;

iii) Identified employees who were NIL
granted option during any one year,
equal to or exceeding 1% of the issued
capital (excluding outstanding warrants
and conversions) of the Company at the
time of grant.

Stock Option 2003

a) Options granted 42,76,090 equity shares
of Re. 1/-each valued at
Rs. 58.16 crores

b) The pricing formula Closing market price as
on the date of option
grant - 24.4.2003
Rs. 136.00

c) Options vested Options vested after
three years from date of
grant (24.4.2003)

d) Options exercised (as at March 31, 23,54,435 equity
2009) shares of Re 1/- each

e) The total number of shares arising as 23,54,435 equity
a result of exercise of option shares of Re 1/- each

f) Options lapsed (as at March 31, 2009) 6,18,345 equity shares
of Re 1/- each

g) Variation of terms of options: NA

h) Money realised by exercise of options Rs 7.33 crores

i) Total number of options in force (as at 13,03,310 equity
March 31, 2009) shares of Re 1/-each

j) Employee wise details of options
granted to:

i) Senior managerial personnel: -

ii) any other employee who receives NIL
a grant in any one year of option
amounting to 5% or more of option
granted during that year;

iii) Identified employees who were NIL
granted option during any one year,
equal to or exceeding 1% of the issued
capital (excluding outstanding warrants
and conversions) of the Company at the
time of grant.

Stock Option 2004

a) Options granted 16,30,450 equity shares
of Re. 1/- each valued
at Rs. 20.95 crores

b) The pricing formula Average of highs and
lows for two week period
preceding the date of option
grant - 30.6.2004
Rs 128.47

c) Options vested Options vested after
three years from date of
grant (30.06.2004)

d) Options exercised (as at March 31, 6,69,206 equity shares
2009) of Re 1/- each

e) The total number of shares arising as 6,69,206 equity shares
a result of exercise of option of Re 1/- each

f) Options lapsed (as at March 31, 2009) 3,33,500 equity shares
of Re 1/- each

g) Variation of terms of options: NA

h) Money realised by exercise of options Rs 5.66 crores

i) Total number of options in force (as at 6,27,744 equity shares
March 31, 2009) of Re 1/-each

j) Employee wise details of options
granted to:

i) Senior managerial personnel: -

ii) any other employee who receives NIL
a grant in any one year of option
amounting to 5% or more of option
granted during that year;

iii) Identified employees who were NIL
granted option during any one year,
equal to or exceeding 1% of the issued
capital (excluding outstanding warrants
and conversions) of the Company at the
time of grant.

Stock Option 2005

a) Options granted 15,47,700 equity shares
of Re. 1/- each valued
at Rs. 20.44 crores

b) The pricing formula Closing market price,
prior to the date of meeting
of the Board of Directors in
which the options were
granted - 26.5.2005 Rs. 132.05

c) Options vested Options vested after
three years from date of
grant (27.05.2005)

d) Options exercised (as at March 31, 4,73,200 equity shares
2009) of Re 1/- each

e) The total number of shares arising as 4,73,200 equity shares
a result of exercise of option of Re 1/- each

f) Options lapsed (as at March 31, 2009) 2,58,500 equity shares
of Re 1/- each
g) Variation of terms of options: NA

h) Money realised by exercise of options Rs 6.25 crores

i) Total number of options in force (as at 8,16,000 equity shares
March 31, 2009) of Re 1/- each

j) Employee wise details of options
granted to:

i) Senior managerial personnel: -

ii) any other employee who receives NIL
a grant in any one year of option
amounting to 5% or more of option
granted during that year;

iii) Identified employees who were NIL
granted option during any one year,
equal to or exceeding 1% of the issued
capital (excluding outstanding warrants
and conversions) of the Company at the
time of grant.

k) Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise
of option calculated in accordance with Accounting Standard (AS)
20'Earnings Per Share'.

Stock Option 2001 to 2005:

24,12,722 equity shares of Re 1/- each were issued pursuant to the exercise
of stock options by employees as per the '2001 HLL Stock Option Plan'. The
consequent dilution in Earnings Per Share of 2009 is less than 1 paise.

I) i) Method of calculation of employee compensation cost.

Stock Option 2001 to Stock Option 2004:

Stock Option 2001 to Stock Option 2004

Stock Option 2005:

The Company has calculated the employee compensation cost using the
intrinsic value method of accounting to account for Options issued under
the '2001 HLL Stock Option Plan'. The Stock -Based as per the intrinsic
value method for the year 2005 is Nil

ii) Difference between the employee compensation cost so computed at (i)
above and the employee compensation cost that shall have been recognised if
it had used the fair value of the Options

Stock Option 2005:

Rs.6.73 Crores

iii) The impact of this difference on profits and on EPS of the Company:

Stock Option 2005:

The effect of adopting the fair value method on the net income and earnings
per share of 2005 is presented below:

Net Income Rs.Crores

As reported 14,08.11

Add: Intrinsic value
Compensation Cost Nil

Less: Fair Value

Compensation Cost 6.73

Adjusted Net Income 14,01.38

Earnings Per Share (Rs.)
(Basic and Diluted)

- As reported 6.40

- As adjusted 6.37

m) Weighted average exercise price and weighted average fair value


Stock Option 2001 to Stock Option 2004:
NA

Stock Option 2005:
NA

n)

Fair value of Options based on Black Scholes methodology .

Assumptions:

Risk free rate 7.25%

Expected life of options 7 years

Expected Volatility (based on daily market 30.04%
closing price from 3 years -2003 to 2005)

Expected Dividends Rs 5.00 per share

Closing market price of share on date of Rs 138.20
option grant

Notes:

(i) The '2001 HLL Stock Option Plan' has been discontinued by the Company
from 2006.

(ii) The Pricing Formula adopted by the Company for 'Employees Stock Option
Plan' for the years 2001 to 2005, was based on the 'Market Price' as
defined in SEBI (Employees Stock Option Scheme and Employee Stock Purchase
Scheme) Guidelines 1999, and Maximum number of options to be issued per
employee in a fiscal year did not exceed 0.01% of the outstanding issued
share capital, as expressed in Clause 11 of the '2001 HLL Stock Option
Plan' in the line with Clause 6.2(h) of SEBI (Employees Stock Option Scheme
and Employee Stock Purchase Scheme) Guidelines 1999.

Performance Share Plan:

In 2008-09 as per terms of the '2006 HLL Performance Share Scheme'
employees were awarded conditional right to receive 2,06,250 equity shares
of the Company at face value of Re.l/- each. These awards will vest only on
achievement of the performance criteria measured over a 3 year period. The
list of senior management who were awarded conditional rights under the
plan is given below:

Name of the Manager Performance Shares Awarded
in 2008

Nitin Paranjpe 9,900

D. Sundaram 3,300

Dhaval Buch 3,300

Shrijeet Mishra 2,750

Gopal Vittal 4,400

Ashok Gupta 2,200

Leena Menon 2,750

Hemant Bakshi 2,200

Sanjiv Kakkar 5,500

MANAGEMENT DISCUSSION AND ANALYSIS:

In order to avoid duplication between the Directors' Report and Management
Discussion and Analysis, we present below a composite summary of
performance of the various businesses and functions of the Company.

4.1 Economy and Markets:

World economy was severely impacted by the US financial crisis, with its
contagion effect across countries. Global trade was affected with reduced
exports from Developing & Emerging (D & E) countries like India and China.

India was one of the few large economies that registered a robust growth in
GDP at 7% for 2008-09. Country benefited from a near normal monsoon,
reflecting in agriculture growing by 2.6%. Rural economy was also buoyed by
Government spendings, employment schemes and higher food prices. While
services sector continued to grow at a healthy rate, industrial production
registered significant slow down, impacted by the global recession.
Country's GDP growth for the second half of 2008-09 was lower compared to

the first half.

Slow down was witnessed in capital goods, consumer durables, automotives,
aviation and the like, although FMCG markets somewhat held their value
growth levels. There was pressure on volumes in categories like Soaps and
Detergents, with signs of downtrading across segments. Government including
Reserve Bank of India, launched fiscal and monetary measures to boost
credit, investment and consumption. FMCG sector benefited from significant
reduction in excise duty rates on finished goods.

The year 2008 also witnessed high levels of volatility in commodity prices,
essentially led by petroleum crude. Vegetable fats, chemicals and packaging
materials also reflected this price volatility, causing stress in business
planning processes. Wholesale price inflation touched high levels during
the year, before decelerating sharply towards the later part of the year
under review.

Your Company's good performance for the period 2008-09 has to be seen in
the context of above economic background.

PERFORMANCE OF DIVISIONS/CATEGORIES:

Some highlights are given below in respect of each of the business
categories of the Company. Increase / growth percentages refer to a period
of 15 months over the base of 12 months.

4.2 Home & Personal Care Business (HPC):

The business comprises Personal Wash, Fabric Wash, Household Care and
Personal Care categories. The business recorded a growth of 51%. This was
broad based and across categories and was achieved in the face of two major
challenges;

* Competition continued to be intense, both from existing and new players.
Your Company responded through increased brand investments, value enhancing
innovations and powerful market activation.

* Volatile commodity markets with petroleum crude prices at c.$ 90 per
barrel at the beginning of 2008 peaking to $ 147 per barrel before dropping
to levels of c.$ 50. The severe impact of cost inflation was felt in inputs
like vegetable oils, laundry chemicals, packaging and freight. Robust
planning systems and strong dynamic performance management processes helped
the business manage this volatility. Judicious and sensible price
increases, together with continued aggressive cost savings programme
enabled competitiveness of Company's brands in the market place. Benefit
due to reduction in excise duty rates from 14% to 8% in two phases (in
December 2008 and February 2009) was pooled and passed on to consumers
through price reduction in select packs.

Potential for growth in all categories of Home and Personal Care is high,
given the current low levels of per capita consumption. Directors believe
that sustained investments behind brands by way of technology, innovations
and consumer communication will benefit the business in creating value.

4.2.1 Soaps & Detergents Soaps and Detergents category recorded a robust
sales growth of 54% with a slight drop in annual segmental margin by 20
bps. This needs to be seen in the backdrop of high and volatile input costs
and competitive pressures. With the softening of crude oil prices and the
consequent easing of input material costs, product prices have been
recalibrated to enhance market competitiveness and grow volumes.

Fabric Wash continued its growth momentum despite experiencing severe cost
pressures. All brands across price segments, Surf, Rin, Sunlight and Wheel
delivered strong value and volume growth. Wheel became the largest
detergent brand of India with annual turnover exceeding Rs. 2000 crores.
Wheel Gold was successfully launched, providing better wash performance at
affordable prices to drive upgradation of consumers. Surf franchise
continued to do well with both, bar and powder, reporting growth. Rin
Powder was re-launched during the year with superior formulation and
proposition, and was extended to washing machine segment with the launch of
Rin Matic. Sunlight grew well in its stronghold markets.

Cost pressure in the category was managed through judicious price increases
on premium products, but price point affordability was retained in mass
segment for the low income consumers by appropriately adjusting fill
levels.

In Household Care, Vim liquid, a convenient premium dish wash product was
re-launched in a highly efficient gel formulation; it is receiving good
consumer response. In surface cleaning, Domex continued to grow and doubled
sales. Strong marketing activities established Domex as a powerful
proposition for floor and toilet cleaning.

Personal Wash category faced a steep rise in vegetable/palm oil prices
during the course of the year. Competition from existing and new players
has been intense.

The category was managed through multi-pack offerings, consumer promotions
and moderate price increase in low unit price packs. Lifebuoy grew on the
back of small and multi packs. Re-launch of Lux in variants like Strawberry
and Peach supported by a new thematic communication enabled the brand to
grow well. Dove and Pears grew ahead of the market in the premium category.
We will leverage all our brands in this category to drive growth.

4.2.2 Personal Products Personal Products include categories like hair
care, skin care, toothpaste and brush, deodorants and colour cosmetics.

In Hair Care, HUL maintained the leadership position in Shampoo with its
powerful brand portfolio, addressing consumer needs across the income
pyramid. Price points were carefully maintained in the context of
inflationary pressures. The premium Dove shampoo and conditioners range
launched during 2007, reported very good growth through a combination of
high quality advertising and actions in the market place. Clinic Plus
continued to grow and strengthened its position as the single largest
shampoo brand. Sunsilk range was re-launched with further improvements to
product quality and packaging. Clinic All Clear is being re-launched to
regain its earlier position. Rapid progress is being achieved in driving
the emerging and high potential hair conditioner segment.

Skin Care category continued to witness intense activities in the market
across income segments. Share of high value premium products is also
increasing; this has excellent potential for HUL through Pond's top end
products. In mass skin lightening category, Fair & Lovely delivered strong
growth. A consumer friendly pack format at affordable price was introduced;
this will help to upgrade sachet users to tube format. In premium category,
Pond's increased its consumer base with good offerings in anti-ageing and
skin lightening segments. Modern Trade and specialist distribution channels
helped in upgrading consumers to premium products.

Lakme Skin Care range performed well. Vaseline launched newer formulations
in body lotions offering relevant consumer benefits like moisturisation.
Talcum powders continued to do well.

In Oral category, Close-up performed very well, led by the re-launch in
September 2008, recording growth ahead of the market for the third year in
a row. Pepsodent underperformed and appropriate actions are being taken to
drive the performance of the brand in 2009.

The Lakme range of Colour Cosmetics grew well. New innovations like aqua
shine lip colour, summer and winter collections were well received by the
consumers. Lakme Fashion Week continues to be a signature campaign for the
brand.

In countries like India, Deodorants business has excellent potential for
growth given the low user base currently. Investment behind Axe Deodorant
was significantly enhanced. Special edition packs and memorable media
campaigns support the brand. The category, however, continues to suffer
from duplicates and illegal imports. We are addressing this issue
holistically through consumer information and working with industry bodies
for effective enforcement of laws by agencies concerned. Going forward, we
will deploy the totality of the portfolio to sustain growth of this key
category.

Kimberly Clark Lever Pvt Ltd (KCLL) KCLL is a Joint Venture between HUL
(50% equity) and Kimberly Clarke Corp., USA (50% equity) and is engaged in
infant care and feminine care products under brands like Huggies and Kotex.
These products are sold through HUL distribution system and delivered a
good underlying volume growth. New products were introduced at different
price points for further developing the market. The Joint Venture is
profitable and has been paying dividends for the past few years.

4.3 Foods:

HUL's Foods portfolio comprises Beverages (Tea and Coffee), Processed Foods
(Kissan, Knorr and Annapurna range of products), Ice Cream and Bakery
products (Modern Foods).

The business sustained its growth momentum of the last three years. The
growth has been broad based, competitive and profitable. Delivering product
freshness continued to receive utmost priority and several actions have
been taken to further reinforce the work already done.

Beverages like Tea and Coffee are well entrenched habits among Indian
consumers with further potential for higher per capita consumption.
However, processed foods is a small fraction of the large foods market
and hence offers huge potential for companies like HUL. The processed
foods opportunity is at an inflexion point in India. With a formidable
array of brands (across hot and cold formats, in-house and outof-tiome
segments), strong research, development and technology support from
Unilever and your Company's intimate understanding of Indian consumers, we
are well positioned to benefit from the thrust on Foods categories.

4.3.1 Processed Foods:

Kissan is one of the most trusted Foods brands among Indian consumers. The
growth in Kissan portfolio, supported by successful innovations, was good.
Jam squeeze launched in September quarter was attractive to children. New
packaging formats in Ketchup such as value packs and kids friendly upside
down squeezable pack were received very well. Kissan continued to maintain
its leadership position in Jams and achieved strong shares in Ketchup
segment.

The Knorr proposition was extended through Indian range of soups and ready
to cook recipes. These have been well received in the market.

The staples business (Annapurna salt and flour) was impacted in the first
half of 2008 on account of supply issues. These have since been addressed,
helping the business achieve good growth. There has been a significant
improvement in the profitability of the business on the back of supply
chain savings and improved product mix. 'Amaze' brain food is in test
market phase in three Southern states.

4.3.2 Beverages:

Consumers of Tea continued to upgrade from loose tea to branded packet tea,
which now accounts for some 40% of total domestic tea consumption. Packet
Tea market remains extremely competitive. The tea business delivered well
with good volume gains and further strengthened its value leadership
position. The market shares increased across brands. Focussed marketing
initiatives undertaken in key geographies have delivered good results. Tea
prices continued to rule high necessitating selective price increases
across packs and brands. Margins were managed through a combination of
pricing and supply chain cost savings.

3 Roses Mindsharp was launched to offer the consumer the goodness of
ayurvedic ingredients like brahmi and badam which help to achieve relaxed
yet alert state of mind. Taj tea bags were relaunched in Ginger, Cardamom

and Lemon flavours. The business is currently test marketing a new product
under the brand 'Brooke Bond Sehatmand', offering nutritional benefits like
vitamins to tea consumers. Lipton has been relaunched and continues to grow
strongly in the out of home segment through acquisition of new accounts and
expansion of vending machines, gaining a wider national footprint.

Coffee business led by Bru Instant Coffee registered a good growth in 2008.
Bru was re-launched in the second half of 2008 focussing on aroma delivery
(through aroma lock) and improved sensorials, backed by strong media
campaigns and trade activations program. Cappuccino business continued to
add new consumers in non-south geographies both in hot and ice cool
variants. We will continue to focus on building growth in Instant Coffee,
consolidate our position in 'roast and ground' segment and drive
premiumisation of the portfolio.

Out-of-home consumption is one of the key value drivers for the business,
by providing consumers with a refreshing experience of branded beverages
while they are out of home - at work or wait or play. We will continue to
drive aggressive growth in this channel through required investments.

4.3.3 Ice Creams:

Ice Cream business sustained its growth momentum and delivered strongly;
both impulse and take home segments delivered well. Underlying
profitability continued to improve with increasing scale and better
operational efficiencies. The business fully uses its unlimited access to
Unilever's portfolio of brands and innovations to offer exciting products,
suitable to Indian consumers.

Gelato, a premium take home product was introduced with two variants -
Tiramisu and Nochiola and has shown encouraging results. Further, a range
of innovations in Cornetto such as 'Almond Praline' and 'Choco Brownie' has
been introduced in the impulse segment; Cornetto cone variants called
'Black Forest' and 'Strawberry Tease Cake' were launched successfully.
Attention to expansion of cabinets infrastructure for increasing
availability, improved customer service and strong brand communication have
ensured that the business continues to perform well.

4.3.4 Bakery (Modern Foods) Bakery (bread and cakes) grew strongly
through a combination of higher volumes, better product mix and judicious
pricing. Profitability has also improved over the years. Merger synergies
are being realised through centralised buying for key materials and
adoption of good manufacturing practices.

4.4 Exports Business:

Continuing portfolio of Exports comprising FMCG and Specialty Exports grew
strongly. Margins improved reflecting the benefits of a rationalised
product portfolio and appropriate restructuring. All categories recorded
good value growth leveraging on the high commodity prices. Your Company
also earned the reputation for delivering excellent levels of customer
service.

HPC Exports reported handsome growth driven by Skin and Hair categories.
Investments in Kandla unit helped to develop the site into a world class
competitive sourcing location for HPC products, particularly high range
Skin Care products. Kandla unit secured international certification from US
FDA and the Canadian Ministry of Health. Skin care exports to Arabia,
Malaysia and Sri Lanka performed very well, thanks to good demand. Oral
turnover growth was flat as toothpaste sourcing for Europe dried up
following their move of onshore production. Pears franchise continued its
good performance across many countries.

Foods and Beverages exports improved its profitability with parts of
portfolio rationalised, mainly by way of stoppage of Bulk tea and raw
coffee bean exports. The continuing businesses performed well; value added
tea bags segment grew strongly. Efforts to increase the coverage of
Instant Tea exports to Europe were successful. Export of 3 in 1 tea premix
to Arabia has also been received well. Culinary products like soups and
jams show promise with turnover doubling, albeit on a small base.

In Specialty Exports, Marine business reported profits, benefiting from
very favourable market conditions for Surimi. Crabstick business continued
steady growth and profitability with a widened customer base. Rice business
reported good growth of turnover and profits driven by strong brand
positions in Indus Valley and Rozana especially in the Gulf markets.

Your Company will continue to focus on value added FMCG exports and drive
international competitiveness to deliver growth.

Leather (Pond's Exports Limited) Leather Exports had a difficult year due
to forex volatility and recessionary conditions in Europe. India's
competitive advantages of good quality leather and the ability to service
small orders were neutralised by China's significant cost advantages and a
well developed market for components. The shoe-upper business continued to
deliver profits. In the shoes segment, major markets in the European Union
were price sensitive, with some key customers switching to low cost
locations. In order to achieve cost competitiveness and remain viable, the
Company has taken steps to restructure the high cost manufacturing facility
at Puducherry. Collaboration with a Design Centre in China to provide a
stream of new designs and cost effective components has been helpful.

HUL shareholders have already approved the divestment of this business, but
we are yet to find a suitable buyer. In the meantime, steps are being taken
continuously to improve the performance and profitability of the business.

4.5 Water:

Pureit is a unique in-home drinking water purification system, offering
water 'as safe as boiled', thereby protecting children and families from
waterborne diseases. It is the only purifier in the world that provides
this level of safety without depending on cooking gas, electricity and
pressurised tap water, and is affordably priced.

Following awards for Pureit during the year reflect the high public
recognition for the same:

* Golden Peacock product innovation award.

* Innovation award in India from the United Kingdom Trade and Investment
organisation, and

* Water Digest award supported by UNESCO for the best domestic nonelectric
water purifier.

Pureit has been nationally extended with its footprint in 28 states. The
business has developed a unique customer acquisition system and strong
capabilities in supply chain and customer service. More than one million
units of Pureit were sold during the period of April 2008 to March 2009;
sales turnover of the business was Rs. 190 crores for this period. The
business is in an investment phase, we continue to commit resources in this
business, mainly to fund brand development and sales infrastructure. The
potential for the business is high given the critical need for clean water
at low cost.

4.6 Hindustan Unilever Network:

The strategy of the network is redefined in line with its vision of
empowering modern Indian woman by serving her with superior beauty and
healthcare products through customised and professional services.

Accordingly the network channel has been repositioned, to offer premium
products in the two growing categories of Beauty Solutions and Health &
Wellness, under two core brands viz. Aviance and Ayush respectively. This
is an important channel and the key challenge to drive the business to
scale through outstanding execution remains.

4.7 Beauty & Wellness Division:

Growing disposable income and changing lifestyles in urban India have led
to greater awareness about personal grooming, health and wellness. The
emerging trends augur well, for Beauty and Wellness services sector,
presenting a large and exciting opportunity. We currently operate in this
segment through a largely franchised network of Lakme Beauty Salons and
Ayush Therapy Centers.

We have licensed lakme' and lever Ayush' brands to, lakme Lever Private
Limited', a subsidiary Company. This creates the necessary focus for the
services business and nurtures a dedicated customer service mindset. Lakme
Lever Private Limited will evaluate options towards developing a uniquely
different, new business model for this opportunity, with singularity of
purpose and dedicated focus. In the meanwhile the existing network of
franchisees would continue to grow in the segment.

ADDITIONAL INFORMATION : ECONOMIC VALUE ADDED (EVA) What is EVA?
'Traditional approaches to measuring 'Shareholder's Value Creation' have
used parameters such as earnings capitalisation, market capitalisation and
present value of estimated future cash flows. Extensive equity research has
now established that it is not earnings per se, but VALUE that is
important. A new measure called 'Economic Value Added' (EVA) is
increasingly being applied to understand and evaluate financial
performance. ' EVA = Net Operating Profit after Taxes (NOPAT) - Cost of
Capital Employed (COCE), where,

NOPAT = Profits after depreciation and taxes but before interest costs.
NOPAT thus represents the total pool of profits available on an ungeared
basis to provide a return to lenders and shareholders, and

COCE= Weighted Average Cost of Capital (WACC) x Average Capital Employed

* Cost of debt is taken at the effective rate of interest applicable to an
'AAA' rated company like HUL with an appropriate mix of short, medium and
long term debt, net of taxes. We have considered a pre tax rate of 5.92%
for 2008-09 (9.45% for 2007) after taking into account the trends over
the years and market situations.

* Cost of Equity is the return expected by the investors to compensate them
for the variability in returns caused by fluctuating earnings and share
prices.

Cost of Equity = Risk free return equivalent to yield on long term
Government Bonds (taken at 7.62% for 2008-09) (+)

Market risk premium (taken at 11%) (x) Beta variant for the Company, (taken
at 0.623) where Beta is a relative measure of risk associated with the
Company's shares as against the market as a whole.

Thus HUL's cost of equity = 7.62% + 11% (x) 0.623 = 14.47%

What does EVA show?

EVA is residual income after charging the Company for the cost of capital
provided by lenders and shareholders. It represents the value added to the
shareholders by generating operating profits in excess of the cost of
capital employed in the business.

When will EVA increase?

EVA will increase if: a. Operating profits can be made to grow without
employing more capital, i.e. greater efficiency. b. Additional capital is
invested in projects that return more than the cost of obtaining new
capital, i.e. profitable growth. c. Capital is curtailed in activities that
do not cover the cost of capital, i.e. liquidate unproductive capital.

EVA in practice at Hindustan Unilever Ltd.

In Hindustan Unilever, the goal of sustainable long term value creation for
our shareholders is well understood by all the business groups. Measures to
evaluate business performance and to set targets take into account this
concept of value creation.

EVA TRENDS: 1999-2009 (UNAUDITED):

Rs. crores
1999 2000 2001 2002 2003
Cost of Capital
Employed (COCE):

1. Average Debt 162 93 50 45 881

2. Average Equity 1908 2296 2766 3351 2899

3. Average Capital 2070 2389 2816 3396 3780
Employed (1)+(2)

4. Cost of Debt, post- 8.61 8.46 7.72 6.45 4.88
tax %

5. Cost of Equity % 19.70 19.70 16.70 14.40 12.95

6. Weighted Average Cost 18.83 19.27 16.54 14.30 11.07
of Capital % (WACC)

7. COCE: 3 x 6 390 460 466 486 418
Economic Value Added
(EVA)

8. Profit after tax, 1070 1310 1541 1716 1804
before exceptional items

9. Add : Interest, after 14 8 5 6 43
taxes

10. Net Operating Profits 1084 1318 1546 1722 1847
After Taxes (NOPAT)

11. COCE, as per (7) above 390 460 466 486 418

12. EVA: (10)-(11) 694 858 1080 1236 1429


Rs. crores
2004 2005 2006 2007 2008-09
Cost of Capital
Employed (COCE):

1. Average Debt 1588 360 163 382 342

2. Average Equity 2116 2200 2515 2402 1928

3. Average Capital 3704 2560 2678 2784 2270
Employed (1)+(2)

4. Cost of Debt, post- 5.19 3.38 5.90 6.24 3.91
tax %

5. Cost of Equity % 14.77 15.50 16.38 17.59 14.47

6. Weighted Average Cost 10.66 13.80 15.74 16.03 12.88
of Capital % (WACC)

7. COCE: 3 x 6 395 353 421 446 *365
Economic Value Added
(EVA)

8. Profit after tax, 1199 1355 1540 1743 2444
before exceptional items

9. Add : Interest, after 82 12 7 17 17
taxes

10. Net Operating Profits 1281 1367 1547 1760 2461
After Taxes (NOPAT)

11. COCE, as per (7) above 395 353 421 446 365

12. EVA: (10)-(11) 886 1014 1126 1314 2097

* COCE is computed for 15 months

Economics Value Added (EVA):

Rs. crores
Economics
Value
Added
(EVA)

1999 694
2000 858
2001 1080
2002 1236
2003 1429
2004 886
2005 1014
2006 1126
2007 1314
2008-09 2097