Hindustan Unilever : JQ’22 Earnings Call Transcript (PDF 360KB)

June Quarter 2022 Earnings call of Hindustan Unilever Limited

Moderator: Ladies and gentlemen good day and welcome to Hindustan Unilever Limited Conference Call for the Results for June Quarter 2022. As a reminder all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing '*' then '0' on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. A. Ravishankar - Group Controller and Head of Investor Relations. Thank you and over to you sir.

A. Ravishankar: Thank you Steven. Good evening, everyone and welcome to the Conference Call of Hindustan Unilever Limited. We will be covering this evening the Results for June Quarter ended 30th June 2022.

On the call with me from HUL is Mr. Sanjiv Mehta - CEO and Managing Director and Mr. Ritesh Tiwari - Chief Financial Officer, HUL.

We will start the presentation with Sanjiv sharing an overview of our performance in this quarter and the operating environment. Ritesh will then cover our financial results in more detail and share our future outlook as well.

Before we get started with the presentation, I would like to draw your attention to the safe harbor statement included in the presentation for good order sake. With that over to you Sanjiv.

Sanjiv Mehta: Thank you Ravi. Good evening, everyone. Thank you for joining us on the call

and it is always a pleasure to interact with all of you.

Let me begin with a quick summary of our performance for the quarter and then cover the external environment and our strategy. Then we will have our CFO - Ritesh take you through the results and the outlook.

In this quarter we grew our top line at a strong 19% with a decent underlying volume growth of 6%. In an environment that was extremely challenging, we focused on growing our consumer franchise and protecting our business model. Our growth has been ahead of the market and we continue to gain value and

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volume shares in more than 75% of our business. Our EBITDA margin at 23.2% remained healthy in the context of the unprecedented inflation that the country as well as the industry is witnessing. Overall, this has been a good start to the fiscal year and we are on a strong momentum with 11% EPS growth, clearly reflecting the strength of our brands, the capabilities that we have, the strategic clarity and our agility to run the business.

Now let me spend some time on the external environment - the inflationary situation and the market growth. Inflation has been a big challenge for the industry for the last few quarters. There've been periods of high inflation in the past as well but what makes this different and challenging is the fact that prices of several commodities have inflated to the decadal highs at the same time. While the chart that you see is not an exhaustive one, but it gives you a good idea about the kind of inflation that the industry is witnessing. Against the 10- year median price you will notice that Brent crude, caustic soda, polyethylene, and barley have all inflated by more than 50% and the prices are at an historic high. Palm oil which has seen more than 100% inflation has softened in the recent days from its peak. Tea saw extremely high inflation in 2021 and since then has cooled off from the peak but it is still at relatively high level.

The other source of inflation has been the currency depreciation. With dollar strengthening and the USD-INR rates that was relatively stable around 74-75 is now hovering around 80. So very clearly there are two things. One is that several commodities are at the decadal highs. Secondly despite the recent cooling of a few commodities, most of them remain significantly elevated versus the long-term averages.

Let me now talk about the FMCG market growth in reference to the categories we operate in and as all of you know it's pretty broad-based categories that we operate in. In June quarter markets have grown in mid-single digit driven by price growth. Volumes continued to decline. Rural growth continues to lag growth in urban markets. We should also keep in mind that optically on a year- on-year basis June quarter looks better than March quarter, but that is on a low base of 2021 where the country was going through second wave of COVID. However, when we look at the market growth on a 3-year basis to compare against the normalized baseline we can see that the volumes are nearly flat,

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both in March quarter and June quarter. There is a slight uplift in value growth, which is due to incremental pricing. Rural growths also remain in the same trajectory. In such inflationary scenarios, it is but natural for consumers to feel the pinch of increased pressure on their wallets and they adjust volumes and prioritize essentials over discretionary to manage the household budgets. In these difficult times, as we have articulated in the past we have two clear imperatives. First, we need to navigate the short-term challenges with agility and grow our consumer franchise while protecting our business model. Secondly, we need to continue single-mindedly on our journey to create a purpose led future fit HUL and deliver on our 4G growth agenda.

We are making great progress on the five strategic choices that I had covered in detail during our March Quarter Results. Just to recap for your benefit:

• First is developing a portfolio by growing the core ahead of the market, accelerating market development or creating the future market and driving premiumization, where we are with all the thrust over the years are over indexed to the market. We are investing behind our brands and in market development of under-penetrated categories. We continue to upgrade the consumers to higher order benefits, thereby growing our premium portfolio at twice the growth rate of the rest of the business.
• Second, win with our brands as a force for good, powered by purpose and innovation, our focus is on providing value to the consumers through superior products and impactful innovations.
• Third, leading the channels of the future, we continue to expand our presence in e-commerce and drive digital adoption through our e-B2B app Shikhar which has now been adopted by over 9.5 lakh or 9,50,000 retail outlets. Put together our total digitized demand capture is now more than 20%.
• Fourth, build differentiated structures and capabilities through our Reimagine HUL program, to digitally transform HUL from linear value chain to an interconnected web of ecosystems powered by data and technology. Leveraging our WIMI strategy to de-average India and find growth opportunity.

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• The last one, is to build a purpose led future fit organization and growth culture by empowering our people, giving them the environment to thrive and outperform.

Talking about purpose:

We have taken a big step in this quarter and announced our full suite of ESG commitments across the three focus pillars of planet, people and the society. Unilever globally has always stood out as being the pioneers in sustainability with the vision of making sustainable living commonplace. Way back in 2010, many of you would recall that ahead of the industry, Unilever had codified what was famously called the Unilever sustainable living plan which detailed out our sustainability strategy. In early 2021, Unilever fully integrated the business and sustainability and announced a single integrated compass strategy with very clear time bound actions. Now we took inspiration from Unilever's compass to create our time bound and focused ESG commitments. What you see here is of course a very busy chart, since we have been really busy charting our ESG commitments.

Let me now talk about a few of these:

Under our first pillar which is improve the health of the planet. We have taken a target to achieve zero emissions in operations by 2030, which will be ahead of India's COP26 commitment. Further we aim to have net zero emissions from all our products from sourcing to point of sale by 2039. We are also committed to transitioning from fossil fuel-based carbon in our cleaning and laundry products by 2030. By 2023 we want to create a deforestation free supply chain, in palm oil, paper, board, tea etc. Contribute to creating cumulative water potential of 3 trillion liters in India by 2025. By 2025, 100% of our plastic packaging will be reusable, recyclable, or compostable.

Our second pillar is to improve people's health, confidence, and well-being. Here we are committed to doubling the number of products sold that deliver positive nutrition by 2025. We will also take action through our brands to improve the health and wellbeing and advance equity and inclusion.

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