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FY-16: Challenging markets push HUL marketing spends up 16.9 percent

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BENGALURU:  Indian FMCG giant Hindustan Unilever Limited (HUL) spent 16.9 percent more towards Advertisement and Promotions expense (marketing spends, ASP) in the year ended 31 March 2016 (FY-16, current year) as compared to FY-15 on a standalone basis. HUL’s standalone ASP in the current year was Rs 4,526.17 crore (14.1 percent of Total Income from operations or TIO) as compared to Rs 3872.40 crore (12.6 percent of TIO) in the previous year.

Note: (1) The unit of currency in this report is the Indian rupee - Rs (also conventionally represented by INR). The Indian numbering system or the Vedic numbering system has been used to denote money values. The basic conversion to the international norm would be:

(a) 100,00,000 = 100 lakh = 10,000,000 = 10 million = 1 crore.

(b) 10,000 lakh = 100 crore = 1 arab = 1 billion.

(2) All numbers mentioned in this report are standalone numbers of HUL, unless stated otherwise.

HUL chairman Harish Manwani said, “In challenging markets and a deflationary cost environment, we have delivered another year ofcompetitive and profitable growth. The consistency of our performance is a result of managing our business dynamically, and executing ourstrategy with even greater rigour and discipline. Our sustained focus on investing behind brands, sharpeningour executional capabilities anddriving market development has enabled us to keep winning with consumers in a rapidly changing market.”

Trends:

This year, HUL’s marketing spends have been the highest in terms of absolute rupees. Over a four year period starting FY-13 until FY-16, HUL’s ASP has been the highest in terms of percentage of TIO at 14.1 percent. Even on a y-o-y basis, its ASP has been higherin terms of absolute rupees as well as on a percentage of TIO basisacross all the four quarters in fiscal 2015-16 as compared to the four quarters of fiscal 2014-15.

For Q4-16 (quarter ended March 31, 2016, current quarter) ASP was 6 percent more year-over-year (y-o-y) at Rs 1,089.95 crore (13.7 percent of TIO) as compared to Rs 1,027.89 crore but was 4.2 percent lower quarter-over-quarter (q-o-q) as compared to Rs 1,137.79 crore (14.3 percent of TIO).

During a sixteen quarter period starting Q1-13 until Q4-16, the Indian FMCG major’s ASP in Q1-16 was the highest in absolute rupees at Rs 1,153.39 crore (14.2 percent of TIO), while in terms of percentage of TIO in current fiscal, it was highest in Q2-16 at Rs 1,145.04 crore (14.6 percent of TIO). Please refer to Fig A below. ASP shows linear increasing trend, both interms of absolute rupees as well as in terms of ASP as percentage of TIO during the sixteen quarter period under consideration in this report.

It is seen from Fig A, that HUL’s ASP is generally the highest in absolute rupees in Q1 of a fiscal, the only exception being FY-14, when Q2-14 and Q3-14 ASP were higher that Q1-14 ASP. However, Q1 ASP has always been higher in absolute rupees than the previous year’s Q4 ASP. Based on this trend, it is likely that HUL’s ASP in Q1-17 will be more than or equal to Rs 1,090 crore

The company’s TIO in the current year increased 3.8 percent to Rs 31,987.17 crore as compared to Rs 30,805.62 crore in FY-15. TIO in the current quarter increased 3.5 percent y-o-y at Rs 7,945.66 crore from Rs 7,675.63 crore andwas almost flat (declined by 0.4 percent) q-o-q as compared to Rs 7,980.99 crore in Q3-16. Please refer to Fig B below. TIO shows a linear increasing trend during the sixteen quarter period under consideration in this report.

HUL’s Profit after Tax (PAT) in FY-16 declined 5.4 percent to Rs 4,082.37 crore (12.8 percent margin) as compared to Rs 4,315.26 crore (14 percent margin). PAT in the current quarter increased by 7 percent y-o-y to Rs 1089.59 crore (13.7 percent margin) from Rs 1,018.08 crore (13.3 percent margin) and increased 12.2 percent q-o-q from Rs 971.40 crore in Q3-16. PAT shows a linear decreasing trend in terms of percentage of TIO, but indicates a linear increasing trend in terms of absolute rupees during the sixteen quarter period under consideration in this report.

HUL’s Q1-16 report about categories

During the quarter, the Domestic Consumer business grew at 4 percent, with 4 percent underlying volume growth. Growth in the quarter was impactedby the phasing out of Excise Duty incentives, a one-time credit for excise duty refund in the base quarter and marginal price de-growth.

Soaps and Detergents: Volume growth partially offset by price deflation. Skin Cleansing was driven by strong volume growth on Dove, Lifebuoy and Hamam. In Laundry, growth was led by the premium segment,with Surf maintaining its strong double digit growth momentum. Comfort Fabric Conditioner delivered another strong performance on the

back of sustained market development. Household Care performance was led by Vim liquids.

The quarter witnessed price deflation in this segment, albeit at lower levels, arising from actions taken earlier to pass on the benefit of lowercommodity costs to consumers.

Personal Products: Healthy underlying performance

The reported growth for this segment was impacted by the phasing out of Excise Duty incentives, a one-time credit for excise duty refund inthe base quarter and the residual impact from the re-alignment of channel spends.

Skin Care delivered broad based volume growth across Fair & Lovely, Pond’s and Vaseline. The performance of Fair & Lovely was led by BBcream, whilst growth in Pond’s and Lakme was driven by the premium portfolio.

Hair Care registered another quarter of volume led growth, with Dove and TRESemmé leading the category performance.

In Oral Care, Close Up continued to do well, while Pepsodent core was relaunched in the quarter.

Color Cosmetics sustained innovation led double digit growth with Lakme Absolute and 9 to 5 strengthening its position in premium makeup.

Beverages: Consistent growth

Tea registered broad based growth, driven by market development and strengthened brand equities across the portfolio. Lipton Green Teamaintained its strong growth momentum. Bru Coffee delivered another quarter of double digit growth.

Packaged Foods: Double digit growth sustained

Market development continues to be a key driver of growth for this segment. Kissan delivered another robust quarter on both ketchups andjams, while the solid growth on Knorr was led by Instant Soups. Ice Creams registered double digit growth driven by sharper in-marketexecution on Kwality Walls and the extension of Magnum to new cities.

Water: Innovation led growth

Pureit delivered double digit growth led by the strong performance in the ‘Reverse Osmosis’ segment. The portfolio was further strengthenedwith the launch of the ‘PureitUltima with Oxytube’ device in quarter.

Click here for HUL’s investor release.

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