Words: 4566
For the duration of presentation, all participants’ line will be in the Liechtenstein mode; and we will have a session after the presentation. I would like to now hand over the conference to Mr… Diners Taper, General Manger, Investor Relations. Over to you, sir. Thank you, Sourwood. Good evening and welcome to the March Quarter 201 3 Results Conference Call of Hindustan Milliner Limited. As always, we have this evening with us Mr… Nit Parlance, CEO and Mr… R. Sahara, SCOFF on the call from the HULL end.
As a customary we will start the presentation from Sahara where he shares aspects of our performance in March Quarter, and then hand over to Nit for him to share his perspectives on the business performance. Before we start the presentation and hand over to Sahara, I would like to draw your attention to he safe harbor statement included in the presentation for good orders sake. With that, thank you. And over to you, Sahara. Thank you, Diners. And welcome everyone to our results call for March Quarter as well as the financial year which ended 31 SST of March.
Before I move forward, just to set the strategy, as you know, the strategy of the company is enshrined in what we call Compass which is the strategic framework. Our business philosophy, business model is outlined in the sustainable living plan, and our goals remain unchanged which is about delivering growth that is Competitive, Consistent, Profitable and Responsive. So no change in our strategy, no change in the goals that we are trying to deliver. Before we go into the performance of March Quarter, a few words around the business environment in March Quarter.
FMC markets continue to grow in March Quarter; however, we did see moderation in both volume and value growth across several FMC categories. This was particularly pronounced in the Modern Trade channel as well as in discretionary categories overall. Further, price growth in the Soaps and Detergents categories has been Page 2 of 29 Diners Taper: R. Sahara: fading in the market. The environment related to input cost was overall fairly ensign; however, competitive intensity remained high during the quarter.
To give you a flavor of the input cost environment, the four key drivers that are shown in this chart, you will see that while Brent crude remained broadly at the same level sequentially versus December Quarter and slightly lower compared to March Quarter, North Indian Tea continued to show an inflationary trend. On the other hand, palm oil was distinctly weaker and softer both relative to the prior quarter and the prior year. Exchange rates have clearly stabilized though on a one-year basis there seems to be a depreciation of about 8 odd percent. So overall input cost both fairly benign.
In this environment think we have delivered growth that is consistent, that’s broad-based, that’s competitive and delivered an improvement in margins. Our Domestic Consumer Business grew by 13% with underlying Volume growth at about 6%. The reported Underlying Volume growth includes the impact of the up-stocking at end of March in preparation for the transport strike. Stripped off this, the underlying Volume growth in March Quarter would be around 5. 5%. Our Home and Personal Care categories grew at 13% in the quarter, while our Foods and Beverages categories grew by 15%. Operating margin expanded by a further 60 basis points.
This is after taking into account a step-up of 90 basis points in our A spends. This operating margin improvement is also after absorbing the increase level of royalty cost which kicked in from 1st February. Estimated impact in this quarter is about 30 to 35 basis points. Profit after Tax before exceptional items showed a healthy improvement of 18%. If you look at the next chart, which is really about the four key segments, think it is broad-based growth with Soaps and Detergents and Personal Products growing at more or less similar levels. Beverages continues to be the star performer.
And we will talk a little bit more in detail later, while Packaged Food growth was modest at 7%. As always, innovations continued to be a key contributor to our growth agenda. You can see on this chart examples of some Innovations we brought to market. And you will observe that these are straight across a fair number of page 3 of 29 March Quarter and Full Year 2012-13 Conference Call 29th April 2013 categories whether it is Deodorants or Skin Care or Hair Care with the Dove Hair therapy launch or in Oral Care where we expanded our Toothbrush oratorio, and the couple of offerings in our Ice-cream category in preparation for the summer season.
Alongside innovation, we also had some impact activations in this quarter which is worthy to call out. In the case of Lifebuoy, the activation at the ‘Gumbo Meal’ which is something that you might have picked up in the external media reminding consumers the importance of washing hand with soap before important activities. So this was quite a big event at the Gumbo Meal in 2013. Another example from the same event was the activation which was led by the Close-Up brand of helping people with hat is called Human Tags to find young children etc. Who might have found themselves somewhat lost in this Gumbo Meal.
And now I’ll move to give you a flavor of the performance of individual categories and start with Skin Cleansing first, broad-based growth in the quarter led by volumes. In fact, our key brands Lax, Lifebuoy and Dove all delivered double-digit volume growth. As I mentioned earlier, pricing in the quarter was slightly negative. This is really the impact of softening palm oil prices being passed on to consumers. In terms of the segments of tomorrow, we continue to strengthen our Body ash portfolio with the relay inch of Dove body wash during the quarter.
Moving on to Home Care, which delivered double-digit growth across formats, in Laundry, growth was led by the premium segment with both Surf and Ring delivering double-digit volume growth. Surfs performance was led by the Surf Easy Wash re-launch which took place towards the end of 2012. And Ring was led by a strong performance in our Bars business. In the case of Wheel which we had called out last time as an area needing attention, I am happy to say that the performance has improved in the quarter with actions underway to step up further.
Household Care continued to deliver strong performance, led by Vim. Moving to Skin Care. Skin Care as we had mentioned last time is one of the categories clean rely where market growths have seen slowdown as discretionary consumption has been impacted. Notwithstanding the significant slowdown in the Page 4 of 29 March Quarter and Full year 2012-13 conference call 29th April 201 3 market, we have seen strong double-digit performance from two of our large brands Pond’s and Lake. Pond’s led by Age Miracle which sustains the strong growth momentum and Lake led by Perfect Radiance.
Fair & Lovely s holding share, its very, very high share, in a segment of the market which is the mass skin lightening segment. It is clearly showing very slow levels of growth. The Backwash portfolio was expanded further with new offerings in both Lake and Pond’s. Hair Care continued a good momentum of growth with strong volume led double-digit growth. Sunlit, Clinic plus and Dove grew very strongly led by bottles. In Clinic Plus clearly the re-launch the second half of 201 2 is continuing to deliver strong results, whereas Sunlit growth was stepped up on the back of impact activations.
Dove saw the engage being strengthened with a split ends variant being launched in the quarter. Tiresome which we launched in September quarter last year continues to perform well and gain grounds, while conditioners had one more successful quarter. Dove Elixir Hair oils which we have launched to a gain of 2012 continues to show good performance with the response from consumers being positive. Overall Hair, therefore, very strong quarter. Moving on to Oral Care, we have seen broad-based growth across the portfolio, across both Close-up and Posted with the core parts of Posted, Close-Up stepping up their growth performance.
In Toothbrushes, while in one hand we rationalized the portfolio, we also launched a premium offering of Posted Expert protection toothbrushes. Moving on to the Foods and Beverages section. In Beverages you have seen good work momentum over the last couple of quarters. And this has been sustained in March Quarter as well. Tea sustained strong growths with broad base growth across brands, all of the brands grew in double digits and Tag in particular performed Very well On the back of a strong marketing mix. Coffee maintained its double-digit growth momentum.
Coming now to Packaged Foods, the growth was led by Kinsman and Nor. Kinsman, in particular, Kinsman ketchup Page 5 of 29 grew very strongly with the new inspire campaign resonating with consumers. In Nor, we saw further acceleration in growth in the Soups portfolio. Nor Soupy noodles which we re-launched at the end of December Quarter has received encouraging response from consumers. In our Ice-cream business, Quality Walls registered a modest growth. This is a continuation of December Quarter last year and it’s clearly reflecting the slowdown in the market place.
Nevertheless, we have got ready a series of exciting innovations some of which were launched at the end of March Quarter and some of which goes onto the market in April to leverage the onset of the summer season. Finally, Purest continues to grow, but in a slowing Durables market. In this market Purest strengthened its market position and innovations are clearly a key driver with the recent Purest UP launch being well received. Our service standards are actually the differentiator that are helping the brand through what we call the Purest promise.
And our focus in market execution continues to progress well. So that’s a quick summary of each of the categories. Looking at the financial performance, which I am sure you have seen the results are already, very strong performance in our Domestic Consumer Business both in terms Of top line as well as in margins. TO give you a sense Of how our operating margins place through to net profit, you can see the various line items on the chart and essentially it’s reasonably a good story all across with financial income stepping up aided by dividends from our subsidiaries.
Exceptional items in this quarter was modest. And tax rates have gone up from what was 21. 5% in March quarter last year to 22. 8% for this quarter. Just to say that the overall tax rate for financial year ending March 2013 was 24%. So in summary if you look at March quarter, we would call it out as being a quarter which was once again demonstrated broad based growth and profit improvement with 6% GIVE underpinning 13% growth in Domestic Business and margins improving by 60 basis points after Page 6 of 29 absorbing a step up in the A&P and the new royalty arrangements. Loud like to just spend a couple of minutes on the highlights for the financial year. If you look at the summary highlights, it’s another year that has delivered on the Key Goals we called out. Our Domestic Consumer Business grew by 16% with a strong underline volume growth of 7%. In absolute terms, the incremental turnover that our Consumer Business has added in the financial year is a very substantial 3300 chores. The growths have also been very profitable with operating margins now just shy of 15%.
These results are yet one more confirmation that our strategy is on track and is delivering. A quick run through of the four segments. Our Soaps and Detergents segment grew by 19% at the good mix of I. JPG and price growth. And as you can see in the chart, all of the segments and formats grew in double digits. We continue to drive category predomination, and this along with a strong cost management resulted in our segmental profits being ahead of top line growth. Personal Products has shown a healthy growth in a fairly challenging competitive environment.
In the financial year Personal Products grew at 13% with a broadly equal split of Underlying Volume Growth and Price. All of the three large categories Skin, Hair and Oral Care grew in double digits with the Skin growth clearly showing a slowing trend in the latter half due to the reasons we already talked about. Our focus on market development in Personal Products continues. Segments of the future in Personal Products owe contribute more than 1 000 cores turnover to the company. Segmental profit growth is slightly below top-line growth and we have invested in additional brand support to drive growth.
Third category, Beverages, has been a strong performance in the year with good volumes and an overall topping growth which is pretty healthy and competitive. This growth has been broad-based across both Tea and Coffee. And we have continued to drive not just the core, but also the future segments. Profit growth has been quite strong page 7 of 29 despite the environment of firm cost particularly in the later part of the year. SST segment, Packaged Foods, has grown by 10%, a growth that has been led by the core. I talked earlier about Kinsman Ketchup showing strong growth in March Quarter.
This is now the third consecutive year of double-digit growth in Kinsman Ketchup. Nor growth has been led by Soups. And having re- launched Soupy Noodles towards the end of last year we now look forward to continuing to build momentum. Growth in Quality Walls is a tale of two parts of the year. The first half being a very strong performance and the second half clearly showing much lower level of growth impacted by the slowdown in he market. As you look at the P for the full financial year, the year with the turnover of 25200 chores, operating margin just shy of 15% and a net profit growth of 41%.
PAT(bee) which is really the underlying profit growth grew by 28% the difference being some significant disposal of properties. Just to give you also a sense of another important dimension of performance which is the cash generation I am really pleased to say that Our operating cash both from profits, another from Working Capital movements have stepped up almost thousand chores between IFFY and FYI 3. So we continue to deliver strong enervation of cash from operating profits as well as driving Working Capital for greater efficiency.
In terms of Dividends you would have seen the press release where the board has proposed a final dividend of RSI. 6 per share. So the interim plus final dividend totals to RSI. 10. 50 which is a 40% increase on financial year ending March 2012. Including the special dividend, the total dividend translates to RSI. 1 8. 50. Therefore, in summary it’s another year of Competitive and Profitable growth, a performance that is broad-based led by good BUG, good improvement in operating margin and as I said earlier a confirmation that our strategies are on track and delivering.
The cash delivery has also been strong at about 4500 chores which has enabled the company to Page 8 of 29 declare a healthy dividend including the special dividends of RSI. 8. As we look ahead, the positive outlook for FMC categories for medium to long-term is something that we would clearly reaffirm. We believe that with our strong portfolio of brands and our superior capabilities, we are well positioned to deliver to our strategic goals, which is Consistent, Competitive, Profitable and Responsible growth.
In the near term, however, we do see a concern around iteration in market growth rates as well as the inflationary pressures on consumer wallets. In particular, this will impact discretionary categories and it is our role to make sure that we remain competitive and give value to our consumers through this period. Over the future, as I said earlier, we remain committed to our strategy. And with that, I would like to close this presentation and pass over to Nit for his observations. Nit Parlance: Thank you, Sahara.
And welcome to all of you on this call. You have just heard Sahara talk about the performance in this quarter. Let me start by saying that o believe that we have delivered another quarter of consistent broadside performance particularly when you look at in the context of the current business environment. We have grown competitively, delivered healthy volumes against the backdrop of our market which has seen some slowdown. We have also continued to grow our margins even after making significant investments behind our brands and our capabilities.
Now, the current slowdown in the market in my judgment is partly on account of the weakening consumer sentiment due to the stubborn consumer price inflation and partly on account of the Modern Trade channels where growth rates eave come up sharply due to the significant rationalization of stores and far fewer new store openings. In addition to this, the lower price growth component is also impacting the overall value growths in the market. The fact that there are these near term headwinds is not new news, but it is the context that we need to be conscious of for the next few quarters.
We believe this is a transient phase and does not alter our view of the fundamental drivers of consumer demand in an evolving India. We remain confident of the page 9 of 29 medium on long-term outlook for the FMC business and also believe that ell positioned as markets and opportunities evolved and hence remain committed to our strategy. You heard me say this before and am going to repeat it that we don’t run this business from a quarter-toaster basis, and hence I am not typically concerned on what would happen in the next quarter or so.
What is important for us is to continue doing the thing that will enable us to win with our consumers both today and tomorrow. Let me spend a few minutes on our Personal Products performance, an area which normally draws your attention. Our Personal Products growth during the quarter was 2% in a market which as Sahara has said has shown significantly lower growth. This has been most pronounced in Skin Care. And consequently has had a significant impact on Fair & Lovely. Having said that, the good news is that Fair & Lovely continues to hold its share in the segment.
As far as the rest of the Skin portfolio is concerned, the sustained performance in Pond’s is really encouraging. Pond’s has now become a thousand-core brand this year. And it gives me confidence of the progress that we are making on building authority, an expertise on the beauty business in which Pond’s participates. I am also particularly pleased with the performance of our Hair & Oral business, both of which have seen stepped up performance. The growth on Hair has been broad-based driven both by activation as well as innovation, while Clinic Plus, Sundials and Dove have done well, Tiresome continues to gain ground.
And as a matter of fact within the first six months of its launch, it is among the leading brand of conditioners in Modern Trade. A great example to how we can leverage the global Milliner scale to win locally. Dove is another addition this quarter to the thousand core club and exemplifies how e have leveraged the equity of a brand by taking it across categories to build a winning portfolio. As far as Oral is concerned I am heartened to see the progress that we have made. Our performance has improved over the last year with each passing quarter.
Therefore, when I look at the totality of our UP business, I know we are making good progress to further strengthen our position across the portfolio. And hence, although there are near term concerns in the market growth given the relatively discretionary Page 10 of 29 nature of the UP categories, let me reiterate that we see UP or Personal Products as a key focus area and will continue to invest behind this business as you will see reflected in our results. Coming now to the Full Year performance.
As I look at our results, I can see that it is another year that we have delivered Consistent, Competitive and Profitable growth. The state of the Business looks healthy and we continue to invest behind innovation and capability building while driving the execution in the year even harder. With over 3300 chores of incremental turnover added to our Domestic Business, and a 7% BUG, a 16% USGS and 80 basis points of operating margin or BIT argil expansion in the last 12 months, I believe, our strategy is well on track and is delivery.
In addition to this, we have made good progress in our Sustainable Living Plan agenda. Looking forward, our priorities therefore remains unchanged. We want to win into marketplace and deliver growth which is Consistent, Competitive, Profitable, and Responsible. That’s all from me. Diners Taper: Thanks Nit, thanks, Sahara. With this we now move on to the question and answer session. May I remind you that this call is only for Institutional Investors and Analysts, and therefore, if anyone has from this call eave a question, you might like to get in touch with us at Investor Relations.
What I now like to do is to hand you back to Sourwood who will the moderate the next sections of questions. Over to you, Sourwood. Thank you so much, sir. With this we are going to start with the Q interactive session. So would request all the attendees and the participants, if you wish to ask any question, kindly press “O” and “1” on your telephone keypad and wait for your name to be announced. I repeat, attendees, if you wish to ask any question, kindly press “0” and “1” on your telephone keypad and wait for your name to be announced. And the first question is from Mr…
Banners Roy from Edelweiss Capital. The line has been unmated, you can go ahead and ask your questions, please. Page 11 of 29 Boneshakers: Hi sir, congrats on the very good set of numbers. My first question is the Detergent business. In SQ, we have seen the promotional activity and the price cuts also, both by the competition and by Levers also increase remarkably. So in the raw material side, we have not seen the commence rate cooling off. So does this really reflect the competitive intensity has gone up and if you could tell us the reasons behind that?
I think we have always maintained this category has been competitive. At different times, the analysts have been of the view that it is reducing or not. We have always believed that the Laundry category has been competitive with intensity both from local and regional players as well as global players in this marketplace. We don’t see any change in that. We do see some differences that as when commodity costs starts dropping a bit, advertising and promotion intensity goes up. We are beginning to see that in the Laundry category.
You would recollect that a few quarters ago, when commodity cost were high in this pace, we used to say that the advertising and promotion intensity in the Soaps & Detergents space have come down. We are seeing a reversal of that. Overall, it really means that players manage the totality of the P&L between different line items. And therefore, I am not very surprised when am seeing some of that going up. Contrary to what you said, that commodity cost have not moved. I think commodity costs are a little softer than what they were a year ago.
And therefore, there is a benefit that we have got. Of course, the reduction in commodity cost is not the same as you would see in our Soaps cuisines as Palm oil is corrected far more sharply than you would see in the area of crude and the consequent impact on raw materials that we use in our business. As far as our competitiveness is concerned, our approach has not changed. We will do what it takes to make sure that our brands remain competitive both in terms of product quality and in terms of setting a strategic price.
Performance is generally good. Some actions that were taken on Wheel towards the end Of last quarter which we talked about. They are beginning to see results. We believe more can be done and we are doing ore of that in order to step up our performance at the lower end of the market which can do with some Page 12 of 29 Management: improvements. At the middle and the top end of the market, our performance has been very good and we hope to sustain that as we move forward. Boneshakers: Sir, my second question is on the Fair & Lovely business.
In that in the last two quarters we have seen, first, an increase in the price and then think there was again a opposite action of increase in the volumes. So one is why such change in strategy within three months of price hike and when do we see stabilization happening there? So the last bid is can’t be certain in terms of what has happened. But I think we need to see the Fair & Lovely performance in the context of the overall market. In the overall UP market that we talked about, the most significant impact in terms of growth rate as reported is in Skin Care is most specifically in Face Care.
That’s where Fair & Lovely operate. And it is more pronounced in the mass skin lightening space. The overall face market has slowed down, more pronounced in mass skin lightening where essentially the market is made up of Fair & Lovely which has a very large share. The share of Fair & Lovely in the arrest has been maintained. So that’s the positive story. It is not that we are losing to someone else. However, given the overall context that we find ourselves in growth rates that have come off for the market and consequently for Fair & Lovely as well.
We are keen to try and do things to step up market growths and drive this harder. And what you have seen from time-to-time is nothing but some actions which have been taken so whether it is higher fill level which has been given on the sachet in the recent past has really been to incentives people to try and buy this, who might have found he price increase in the short-term to be resulting in a situation where people were wondering whether to buy it or not and this was really to incentives more people to come in and reward some of our loyal users.