Hindustan Unilever (HUL) held conference call to discuss the results for the quarter ended December 2008. Following are the key highlights of the meet:
Highlights of the meet
The company’s net sales for the quarter ended December 2008 has increased by 17% to Rs 4307.71 crore. FMCG sales grew by 21% with a 21% growth in Home and Personal Care (HPC) and 24% growth in Foods businesses.
Input cost inflation has started receding and if sustained, will reflect in lower consuming cost. However, impact of high input cost inflation continued in this quarter. The operating profit margin (OPM) of the company inclined by just 82 basis points to 16.1%. The net profit has declined by 2% to Rs 615.74 crore
FMCG business volume grew by 2% for the December quarter because of high single digit volume growth in personal product and food business, which was partly offset by the impact of slowdown in Soaps and Detergents due to high input cost, led price growth and market volume contraction in Detergents.
In FMCG, soaps & detergent sales grew by 25%, personal products by 11%, beverages by 24%, processed foods by 18% and ice-cream by 16% for the December quarter.
The company’s aggregate market share has come down. The volume too down during the quarter.
The company’s net sales for the twelve months ended December 2008 increased by 19% to Rs 16345.19 crore, led by 12.7% price growth and 7% volume growth. OPM of the company saw a decline of 67 basis points to 13% due to incline in raw material cost. As a result, the net profit of the company inclined by 9% to Rs 2101.47 crore.
The company has raised average consumer prices in most categories especially in soap and detergent due to high commodity prices. Also unit price link and grammage adjustment were made during the year. This has impacted the volume in soap and detergent business.
In last 15 months, the company has gone for the 15% to 18% cumulative price hike across products. It is unlikely there will be any fresh price hike in this year.
The company has started reducing prices in last 1 month in mass and discount personal wash category and key SKUs price points. The company has reduced prices in detergent segments in mass brands in key SKUs, Rin and other products, which are at Rs 2 and Rs 3 price points. The company has totally passed on benefits of excise duty, which takes place in December 2008 on certain SKUs to drive the volume of that brand.
HPC Business grew 21% driven by price growth in Soaps and Detergents and all round volume growth in Personal Products. Laundry business grew strongly across all brands and growth in Personal Wash was led by Lux, Lifebuoy, Dove and Pears. Lux has performed very well but Dove was not so good. With the fall in input cost, the company has taken appropriate action like reducing prices across selective SKUs and increment in grammage, which will drive the volume in future.
Personal product has grown by 11% largely on volume and has not seen any major price hike across the category. Shampoo category continued growth momentum with robust volume growth, led by Sunsilk. Sachet continues to grow well. In hair care, oral and deodorant segments volume growth was more than price growth.
Growth in Skin category was driven by Fair & Lovely and by Close Up in the Oral category. Dove range of deodorants was launched in this quarter and Surf Excel Quickwash was re-launched.
Personal wash and personal product categories have shown fall in market share and the company has developed plans to address the issue. In Personal wash, the company will look at whole category while in hair care category; focus will be only on required brands.
The company’s 30% to 35% personal product sales come from rural areas.
Foods business grew by 23% with a strong performance across Beverages, Processed foods and Ice-Cream. Tea, Processed Foods and Ice-Cream all delivered strong volume growth. Process foods business is doing well led by Knorr brand. In Ice-cream, Gelato range was launched in this quarter. Innovation in food portfolio leads to fall in margin and profit. The company is more focused on food segment for its future growth. As such various innovations in food segment is going on and new launches have taken place in last year. The company has launched Amaze brand (which is under test market condition), Knorr Soup and Knorr meal maker and Jam in exciting format in 2008.
In processed food, the prices of tomato, wheat and sugar is affecting the margin and bottom line.
In Ice cream business, high brand investment and one time small write off has affected the margin and bottom line.
Personal care and food business has shown good growth in volume
Pure-It water business now has a national footprint with availability across more than 700 towns and in 20 towns. Business of new instrument and cartridges are both doing well. Performance in this new category is tracking in line with plans.
On the input side front, the prices of palm oil and polymers have fallen while that of caustic soda, soda ash and tea are still high. With the declining input cost, the margin is expected to go up.
The company goes for forward contract in palm oil products and has no hedging policy. The company sources other raw materials on contract basis, benchmark to international prices. Company in open auction buys tea while coffee is sourced directly from Plantation Company.
The advertisement and promotion (A&P) spend was 10% of the total turnover of the company, a growth of 16% for the December quarter and will remain competitive for March quarter. The A&P spend is not plan on quarter on quarter basis. It depends on new launches, focus of the brands, products and on competition.
The media inflation will moderate in 2009 compared to 2008.
There has been similar growth in volume in both rural and urban regions. Since penetration is low in rural areas, growth opportunity is more.
The capital employed has increased during the quarter due to final dividend provision numbers, price inflation and increase in number of days stock hold.
As per AC Neilson figures, the FMCG sector has grown by 13% to 14% in 1HCY08, 18% in September quarter and 25% December 08. The company was able to grow better than industry but for the December quarter. The company clearly specified that there is no buoyancy in the FMCG sector as highlighted in media nor there is any slowdown. One thing is sure that such 13% price increase is not possible in next year. The resultant growth in margins due to ease of inflation and raw material prices coming off will depend upon how the current demand grows going forward.
The management does not expect any slowdown in FMCG sector in medium term, farm loans waiver, rural employment and fiscal stimulus will help the mass consumption items in FMCG sector in short term. Shampoo, toothpaste and skin cream sector has shown a good growth. 50% of the rural market is isolated from the volatility of stock market and commodity market. Low inflation, government spending in rural area and good monsoon will give good growth for the FMCG sector.
On future outlook for the company, the management expects the first half year growth will be driven mainly due to price hikes which had taken place during last year and for rest of the year, volume growth will be responsible for the top line numbers.
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