HINDUSTAN LEVER LIMITED

Analyst's Meet held on JANUARY 29, 2003

Low cost competition not new to us

• Hindustan Lever Limited today declared its results for the fourth quarter and year ended December 31, 2002. The company reported a 6.67 per cent decline in its topline. Net sales for the year ended December 31, 2002 stood at Rs 9954.85 crore compared to Rs 10,667.56 crore in the previous year ended December 31, 2001.

• Replying to analyst queries on whether the decline in topline growth and the loss of market share in the oral and shampoo segment was due to low-cost competition garnering market share, MS Banga, chairman, Hindustan Lever, said, `Low cost competition is not new to us. If you go back about 15 years, we faced competition from a low-cost competitor in the detergent market and today wheel is the biggest brand in the detergent market.`

• `Today we face low-cost competition in the hair and toothpaste market. But we are formulating a strategy to over come this. We have certain advantages which help us face competition,` he added.

• `Firstly, we have the understanding of the market, we know which strategy to adopt when. Secondly we have a technology advantage we can leverage on our parents technology and bring to the market newer products. Thirdly we have the advantage of scale and supply chain capabilities,` Banga said, adding, `In terms of scale, we have buying benefits, be it the media, suppliers, etc. All these cannot be replicated easily and it is the totality of this that will make us a winner.`

• Commenting on the performance of the company, Banga, said, `In 2002, we vigorously pursued our strategy of strengthening our brands to deliver sustainable quality growth in the face of intense competition, a sluggish economy and declining market. HPC power brands beat the market by growing at 3.7 per cent. In fact, for the last three quarters they have grown by 5.8 per cent. We have also continued to improve the profitability of our foods portfolio and have increased gross margins by about five per cent, making these businesses increasingly `fit for growth`. Our new strategy in ice-cream focussing on premium value-added products in metros has started delivering and the business has reduced its losses by almost half. We have made significant progress in divesting non-core businesses and have in the last year effected the disposal of Seeds and Diversey Lever.`

• Speaking about the performance of the company, Sundaram, CFO, HLL, said in his opening remarks that group sales for the year 2002 (comprising HLL and its subsidiaries) have declined by 5.4 per cent essentially due to phasing out of traded exports. Home and personal care grew by 3.4 per cent. A continuing thrust on innovation saw brands such as Lifebuoy (+24%), Fair & Lovely (+18.6%), and Lux (+14.7%) deliver robust growth.

• In Foods, the culinary business grew by 7.6 per cent, driven largely by a focus on seamless integration, launch of value-added products and innovation, which saw the Knorr brand grow by 56.5 per cent. A number of innovations have been seeded in the market place. These include Knorr Annapurna 4 'o clock Tiffin, Kissan flavoured spreads, and Knorr Annapurna Spices and Cooking Aids.

• HLL power brand strategy has helped its soaps business beat the declining market and post strong growth in 2002. With consumer-excitable innovations, quantum jump in quality and market activation, Lifebuoy, Lux and Liril posted double digit growth.

• HLL`s 107-year-old brand, Lifebuoy, was re-launched with a new formulation as a milled toilet soap and a completely new positioning as a family health soap. The strategy, to maintain the leadership of India`s largest selling soap and extend its health equity beyond its 60 crore existing consumers restored the growth of Lifebuoy, said Banga.

• Lux, which had been re-launched earlier in 2001, reaped the benefits of the significant investment made in product quality and effective market activation. This led to stronger double-digit growth during 2002. The brand`s equity has been further extended to open a new premium segment of Face and Body Wash. The response to this extension has been encouraging.

• The growth of Liril was sparked with an exciting new addition, Liril Icy Cool Mint. Along with Lux, Liril too has been extended as a body wash to open up this new premium segment.

• In detergents, HLL`s mass market brand, Wheel, continued to post good growth with its proposition of great clean with less effort. Following its successful re-launch earlier in 2001, it had emerged as India`s number one detergent brand by value.

• HLL initiated several steps to strengthen the quality of its mid-price and premium detergent portfolio of Rin, Surf and Surf Excel. While overall shares have been held in a sluggish market, Rin Shakti Powder, Surf and Sunlight have posted encouraging volume growths. The test-market of Rin Supreme nil mineral bar in Tamil Nadu has shown good results.

• HLL`s skin care business posted a 22 per cent growth in 2002, propelled by Power Brands. Fair & Lovely and Pond`s skin applications, each posted double digit growth, with innovative products, appropriate packaging and effective advertising, despite a declining market.

• Fair & Lovely further consolidated its leadership. Ayurvedic Fair & Lovely, launched during the year, has become the second largest brand in the skin care market, after Fair & Lovely.

• HLL`s beverages business continued its strategy of profitable growth, significantly improving profitability in 2002, over and above the very impressive gains in the previous year. This was achieved through portfolio upgradation by focussing on Power Brands, and securing cost advantages through a radical re-engineering of the supply chain.

• The conscious rationalisation of the brand portfolio coupled with the impact of historically low prices of loose tea for the fourth year in a row, led to a decline in turnover. India`s packet tea market itself declined by over nine per cent in 2002 due to a shift from packet tea to loose tea.

• HLL has achieved significant growth in the out-of-home segment, particularly in the tea and coffee vending channel, a strategic thrust area for the business. The Lipton brand, with products both in the hot and cold formats, has been extended to Bangalore, with a very encouraging response. Focus on hot tea shops, particularly in the south, also continued with a series of steps, like special packs, daily supplies and loyalty programmes. The out-of-home segment and Lipton will be major growth drivers in the years to come.

Bonus debentures and special dividend

• The Mumbai High Court has approved the scheme of arrangement for issuing bonus debentures of face value of Rs 6 each for every equity share and payment of special dividend of Rs 2.76 per share. The proposal now awaits the approval of Reserve Bank of India. The issue of bonus debentures and payment of special dividend is expected to be completed in second quarter of 2003.

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Source : IRIS