Flat input prices help rise in operating profit margins
Hindustan Unilever Ltd. (HUL), the fast moving consumer goods (FMCG) giant, on Friday, reported a fall of 23.5 per cent in its net profit at Rs. 1,019.25 crore for the quarter ended June 30, 2013. The fall in profit is due to an exceptional gain of Rs. 106 crore compared to Rs. 605 crore in the same period last year (profit on sale of properties).
The net profit (before exceptional items) grew 4 per cent to Rs. 885 crore during the quarter.
HUL’s sales were up 7 per cent at Rs. 6,687.49 crore, while operating profit margin was up 70 basis points at 15.9 per cent aided by flat input prices and a 180 basis point drop in cost of goods sold. The volume growth was 4 per cent and advertising & promotion (A&P) spend by the company rose 19 basis points to 13.3 per cent during the quarter.
HUL’s personal care portfolio grew 2 per cent following low growth by Fair & Lovely. However, Lakme, Dove and Ponds saw double-digit growth as did Oral care.
Soaps & detergents sales grew 7.7 per cent to Rs. 3,408 crore, Packaged foods sales were up 5 per cent while beverage sales grew 16 per cent led by Taaza on the back of a reinforced marketing mix. In a statement, Harish Manwani, Chairman, HUL said, “in a difficult market environment, we have again delivered competitive growth and strong margin expansion through a sustained focus on innovation, in-market execution and robust cost management. While there are near-term concerns, particularly around slowing market growth, we are confident of the medium to long term prospects of the FMCG sector .’’
The HUL stock slumped by 3.38 per cent to close at Rs. 663.3 on BSE.
Analysts felt the reported numbers were in line with estimates. Rikesh Parikh, Vice-President, Equities, Motilal Oswal Securities, said HUL results “reflect the slowdown in personal products and processed foods category. Consumer demand has deteriorated sequentially, with disproportionate impact on discretionary and premium personal care and foods categories.”
According to Ritwik Rai, FMCG Analyst, Kotak Securities, “Weak underlying volume growth was the prime disappointment in HUL’s results, leading to a negative surprise at the topline. Weakness in volume growth is largely attributable to the personal products segment, concentrated largely in skin care. Soft growth in personal products revenues, along with declining margins in the segment, has also resulted in operating profit underperforming our expectations by 4 per cent. ”
Meanwhile, at the company’s annual general meeting, Mr. Manwani pointed out that businesses need to embrace a new paradigm of growth called responsible growth.
Addressing , Mr. Manwani said, “to be clear, business still needs to deliver the 3 Gs of growth – consistent, competitive and profitable growth. But in this new normal, these alone are not sufficient.
“The fourth G recognizes that it is the role of business to not just create economic value but also social value and do this in a sustainable way.”
He also spoke about how the megatrends of digitization, rise of the developing world and sustainability will shape the future.
On the key enablers for winning in a world market by volatility, uncertainty, complexity and ambiguity (VUCA), the HUL Chairman highlighted the need for both foresight and agility.
“The role of leadership is to have a clear point of view about the future and build an organization that can navigate towards that destination through good times and importantly, also in bad times,” he said, adding, “more than ever, businesses must have an insight into the changing needs and aspirations of their consumers to be successful.”
To win in a VUCA world, he said, a new kind of leadership is needed that is values-led and purpose-driven. “Being values-led is about the foundation that underpins the company. Being purpose-driven is about the common objective we work towards that is larger than the company itself.”