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Q2-2016: HUL YoY marketing spends up 23.8%

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BENGALURU: Indian FMCG giant Hindustan Unilever Limited’s (HUL) Advertisement and Promotions expense (marketing spends, ASP) in Q2-2016 (quarter ended 30 September, 2015, current quarter) was 23.8 per cent more at Rs 1145.04 crore (14.4 per cent of Total Income from operations or TIO, approximately $176.7 million) than the Rs 925.05 crore (12.1 per cent of TIO) in Q2-2015 but was 0.7 per cent lower than the Rs 1153.39 crore (14.2 per cent of TIO) in Q1-2016.

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

(2) All figures in this report are standalone figures filed by the company. The trends are based on the numbers submitted by the company or picked up from the company’s website. For performance of HUL’s various product lines please refer to the attached earnings release for Q1-2016.

(3) The US dollar figures are approximately based on a conversion rate of 1US$ = Rs 64.79 at a particular time on October 19, 2015.The converted numbers have been rounded off.

HUL chairman Harish Manwani said, “The business delivered another quarter of profitable volume-led growth. We continue to invest behind our brands and in-market executional capabilities to drive the competitiveness of our portfolio. The deflationary commodity cost environment is likely to continue in the near term and our strategy of delivering consistent and competitive growth with sustainable improvement in operating margin remains unchanged.”

Advertising and Sales Promotion trends

HUL’s ASP in Q1-2016 was the highest during a four quarter period starting Q1-2013 until Q2-2016 in terms of absolute rupees. Q2-2016 ASP (current quarter) in terms of percentage of TIO was the highest during the period under consideration. Further, during the period under consideration in this report, ASP in absolute rupee spends shows a marked linear increasing trend, while ASP in percentage of TIO terms shows a slight linear increasing trend. The company’s lowest ASP was in Q2-2013 at Rs 768.98 crore (12.2 per cent of TIO) in absolute rupee spends during the period under consideration, while the lowest in terms of percentage of TIO was in Q4-2014 at 11.8 per cent of TIO (Rs 840.34 crore). Please refer to Fig A above.

If the company follows the trends of the past three fiscals, at least one or more quarter in FY-2016 will see higher ASP in terms of absolute rupees than Q1-2016.

HUL Revenue and PAT

Please refer to Fig B above. HUL reported 4.1 per cent growth in TIO in Q2-2016 at Rs 7955.39 crore as compared to the Rs 7639.33 crore in the corresponding year ago quarter, but was 1.8 per cent lower than the Rs 8105.13 crore in Q1-2016. The company’s TIO shows a linear increasing trend as indicated by the broken blue trend line in Fig B. TIO in Q1-2016 is the highest reported by the company during the 13 quarter period under consideration in this report.

HUL’s PAT in Q2-2016 was lower by 2.6 per cent at Rs 962.24 crore (12.1 per cent margin) as compared to the Rs 988.1 crore (12.9 per cent margin) in Q2-2015 and was 9.1 per cent lower than the Rs 1059.14 crore (13.1 per cent margin) in Q1-2015. During the period under consideration, HUL’s highest PAT was in Q1-2013 at Rs 1331.19 crore (20.9 per cent of TIO), both in terms of absolute rupees and in percentage of TIO. While PAT in absolute rupees shows a linear increasing trend as indicated by the broken pink trend line in Fig B below, while in terms of percentage of TIO, the linear trend is declining as indicated by the broken yellow line.

Company Speak

During the quarter, the Domestic Consumer business grew at five per cent, with seven per cent underlying volume growth. The growth in the quarter continued to be impacted by the phasing out of Excise Duty incentives and price de-growth, as the benefit of lower commodity costs was passed on to consumers.

Soaps and Detergents: Robust volume growth partially offset by price deflation. Skin Cleansing was driven by double digit volume growth on Dove, Pears, Hamam and Lifebuoy. The liquids portfolio registered another robust quarter.

In Laundry, growth was led by the premium segment, with Surf maintaining its strong momentum and Rin accelerating post relaunch. Comfort Fabric Conditioner delivered another strong performance on the back of sustained market development. Household Care growth was driven by Vim, with the tubs and liquids portfolio doing well. The segment witnessed further price deflation in the quarter due to soft commodity costs.

Personal Products: Healthy double digit growth

Skin Care delivered broad based growth across Fair and Lovely, Pond’s, Lakme and Vaseline. Fair and Lovely continued to do well, while the performance of Pond’s was led by premium skin lightening and Lakme by Perfect Radiance and CC Cream. The facial cleansing portfolio sustained high growth.

Hair Care maintained its momentum with another strong quarter of volume led double digit growth, as Dove growth accelerated and TRESemmé gained further ground.

In Oral Care, Close Up registered double digit growth on the back of impactful activation.

In Colour Cosmetics, Lakme delivered another quarter of innovation led double digit growth across the core, Absolute and 9 to 5 ranges.

Beverages: Steady performance

Tea growth was led by Red Label and another quarter of high growth on Lipton Green Tea, driven through impactful market activation. In Coffee, Bru Gold continued to lead category premiumisation and performed well.

Packaged Foods: Eighth successive quarter of double digit growth

Packaged Foods saw double digit growth across all key brands, driven by the continued focus on market development. Kissan sustained robust activation led growth across both Ketchups and Jams while Knorr growth was led by the strong performance on Instant Soups. In Ice Creams, Kwality Walls had a good quarter on sharper in-market execution and Magnum continues to perform well and delight its consumers.

Water: Leadership sustained in a challenging market context In a soft market, Pureit continued to drive the performance of premium devices with a focus on Modern Trade and in-store execution. The business benefited from a strong performance in the e-commerce channel.

The Board of Directors have declared an interim dividend of Rs 6.5 per equity share of face value Re 1 each, for the year ending 31 March, 2016.

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