Hindustan Unilever Ltd 500696
Q4 2013 Earnings Call Transcript
Transcript Call Date 04/29/2013

Dinesh Thapar - IR: Thank you, Sauradeep. Good evening and welcome to the March quarter 2013 results conference call of Hindustan Unilever Limited. As always, we have this evening with us Mr. Nitin Paranjpe, CEO and Mr. R. Sridhar, CFO on the call from the HUL end.

As is customary, we will start with the presentation from Sridhar where he shares aspects of our performance in March quarter and then hand over to Nitin for him to share his perspectives on the business performance.

Before we start the presentation and hand over to Sridhar, I would like to draw your attention to the Safe Harbor statement included in the presentation for good order sake.

With that thank you and over to you Sridhar.

Sridhar Ramamurthy - CFO: Thank you, Dinesh, and welcome everyone to our results call both for March quarter as well as the financial year which ended 31st of March.

Before I move forward, just to set the strategy. As you know, the strategy of the company is ensigned in what we call (Come First) 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. FMCG markets continued to grow in March quarter. However, we did see moderation in both volume and value growth across several FMCG 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 fading in the market.

The environment related to input costs was overall fairly benign, 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 the chart, you will see that while Brent crude remained broadly at the same level sequentially with the December quarter and slightly lowered compared to March quarter, North Indian tea continue 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 are clearly stabilized though on a one year basis there seems to be a depreciation of about 8%. So, overall input costs were fairly benign. In this environment, I think we have delivered growth that is consistent, that’s broad based and competitive and delivers 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 a transport strike, stripped of this, the underlying volume growth in March quarter would be around 5.5%.

At Home and Personal Care, categories grew at 13% in the quarter while our Foods & 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&P spends. This operating margin improvement is also after absorbing the increased level of royalty costs which kicked in from first 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, it is really about the four key segments. I think this broad-based growth with Soaps & Detergents and Personal Products growing at more or less similar levels. Beverages continues to be the star performer, and we'll talk a little bit more in detail later while Packaged Foods growth was modest at 7%.

As always, innovations continue to be a key contributor to our growth agenda. If you see on this chart, examples of four innovations we go-to-market and you will observe that, these are spread across a fair number of 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 portfolio, and a couple of offerings in our Ice Cream category in preparation for the summer season.

Alongside innovation, we also had some impactful activations in this quarter which is worthy to call out. In the case of Lifebuoy, the activation at the Kumbh Mela is something that you might have picked up in the extranet media, reminding consumers the importance of washing hand with soap before important activities. So, this was quite a big event at the Kumbh Mela in 2013. Another example from the same event was the activation which was led by the Close Up brand of helping people with what is called human tags to find young children, et cetera who might have found themselves somewhat lost in this Kumbh Mela.

I'll now move to give you a favor 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 Lux, Lifebuoy and Dove all delivered double-digit volume growth. As I mentioned earlier, pricing in the quarter was flat to 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 wash portfolio with the relaunch 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 Rin delivering double-digit volume growth. Surf performance was led by the Surf Easy Wash relaunch which took place towards the end of 2012 and Rin was led by strong performance in our bar business. In the case of Wheel which we had called out last time as an area needing attention. 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 clearly where market growth have seen slowdown as discretionary consumption has been impacted. Notwithstanding the significant slowdown in the market, we have seen strong double-digit performance from two of our large brands, Ponds and Lakme; Ponds led by Age Miracle which sustained the strong growth momentum; and Lakme led by Perfect Radiance. Fair & Lovely is holding share – it's very, very high share in its segment of the market, which is a mass skin lightening segment is clearly showing very slow levels of growth. The facewash portfolio has expanded further with new offerings in both Lakme and Ponds.

Hair Care continued a good momentum of growth with strong volume led double-digit growth. Sunsilk, Clinic Plus and Dove grew very strongly led by bottles. In Clinic Plus clearly the relaunch in the second half of 2012 is continuing to deliver strong results, while Sunsilk growth was stepped up on the back of impactful activations. Dove saw the range being strengthened with Split ends variant being launched in the quarter. TRESemme which we launched in September quarter last year continues to perform well and gaining ground, while conditioners had one more successful quarter. Dove Elixir hair oil, which we had launched towards the end 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 Pepsodent, with the core parts of Pepsodent and Close Up stepping up their growth performance. In toothbrushes, while on one hand we rationalize the portfolio, we also launched a premium offering of Pepsodent Expert Protection toothbrushes.

Moving on to the Foods & Beverages section. In Beverages you have seen good growth momentum over the last couple quarters and this has been sustained in March quarter as well. Tea sustained its strong growth with broad-based growth across brands, all of the brands doing double-digits and Taaza 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, growth was led by Kissan and Knorr. Kissan, and in particular Kissan Ketchup, grew very strongly with the new Inspire campaign resonating with consumers. In Knorr, we saw further acceleration in growth on the soups portfolio. Knorr Soupy Noodles which we relaunched at the end of December quarter has received encouraging response from consumers. In our ice cream business, Kwality Wall's registered modest growth. This is a continuation of December quarter last year and it's clearly reflecting the slowdown in the marketplace. Nevertheless, we have a got ready a series of exciting innovations, some of which we launched at the end of March quarter and some of which goes into the market in April to leverage the onset of the summer season.

Finally, Pureit; Pureit continues to grow but in a slowing durables market. In this market, Pureit has strengthened its market position and innovations are clearly a key driver with the recent Pureit UV launch being well received. Our service standards are a clear differentiator that are helping the brand through what we call the Pureit promise, and our focus on end market execution continues to progress well. So that's a quick summary of each of the categories.

Looking at the financial performance which I'm sure you've seen the results already, really 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 plays through to net profit, you can see the various line items of the chart, and essentially its reasonably good story all across with financial income stepping up aided by dividends from our subsidiaries. Exceptional items in this quarter was moderate 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 '13 was 24%.

So in summary, if you look at March quarter, we will call it out as being a quarter which has once again demonstrated broad-based growth and profit improvements with 6% UVG underpinning the 13% growth in domestic business and margins improving by 50 basis points after absorbing a step up in A&P and the new royalty arrangements.

I'd 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 underlying volume growth of 7%. In absolute terms the incremental turnover that our consumer business has added in this financial year is a very substantial INR3,300 crores. The growth has also been very (indiscernible) 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% with a good mix of UVG and price growth, and as you can see on this chart, all the segments and formats grew in double digits. We continue to drive category premiumization and this along with 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 Product grew at 13% with a broadly good split of underlying volume growth and price. All of the three launch categories Skin, Hair and Oral Care grew double-digits with the Skin growth clearly showing a slowing trend in the latter half due to the reasons we already talked about.

Our 4% market development in Personal Products continues. Segments of the future in Personal Products now contribute more than INR1,000 crores turnover to the Company. Segmental profits growth is slightly below the top line growth as 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 13% top line 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 this four, but also the future segments. Profit growth has been quite strong despite an environment of foreign cost particularly in the latter part of the year.

The last segment Packaged Foods has grown by 10%, as growth that has been led by the Knorr. I talked earlier about Kissan Ketchup showing strong growth in March quarter. This is now the third consecutive year of double-digit growth in Kissan Ketchup. Knorr growth has been led by soups and having relaunched Soupy Noodles towards the end of last year, we now look forward to this continuing to build momentum.

Growth in Kwality Wall's is a tale of two parts of the year, the first half being a very strong performance and the second half clearly showing much low level of growth impacted by the slowdown of the market.

As we look at the P&L for the full financial year, the year with the turnover of INR25,200 crores, an operating margin just shy of 15%, and a net profit growth of 41%. (PAC BEI), which is really the underlying profit growth grew by 28%, the difference being some significant disposing of properties.

Just to give you also a sense of another important dimension of performance which is the cash generation, and really pleased to say that our operating cash both from profits as well as from working capital movements, has stepped up by almost INR1,000 crores between FY '12 and FY '13. So we continue to deliver strong generation of cash from operating profits as well as driving working capitals for greater efficiency.

In terms of dividend, you have seen the press release, where the Board has proposed a final dividend of INR6 per share. So the interest with final dividend totals INR10.50 which is a 40% increase on financial year ending March '12. Including the special dividend, the total dividend translates to INR18.50.

Therefore, in summary, it's another year of competitive and profitable growth, performance that is broad-based led by good UVG, good improvement in operating margin, and as I said earlier, a reconfirmation that our strategy is on-track and delivering. The cash delivery has also been strong, at about INR4,500 crores which has enabled the Company to declare a healthy dividend including the special dividend of INR8. As we look ahead, the positive outlook for FMCG categories for medium to long-term is something that we will 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 moderation in market growth rate as well as the inflationary pressures on consumer wallets. In particular, this will impact discretionary category and it is our role to make sure that we remain competitive and give to our consumers through this period. Over the future, as I said earlier, we remain committed to our strategy. And with that I'd like to close this presentation and pass over to Nitin for his observation.

Nitin Paranjpe - CEO: Thank you, Sridhar, and welcome to all of you who are on this call. You've just heard Sridhar talk about the performance in this quarter. Let me start by saying that I too believe that we've another quarter of consistent broad-based performance, particularly when you look at it in the context of the current business environment. We've grown competitively, delivered healthy volumes against the backdrop of a market which has seen some slowdown. We've 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 channel where growth rate has come off sharply due to the significant rationalization of stores and far fewer new store openings.

In addition to this, the lower price growth confidence is also impacting the overall value growth in the market. The fact that there are these near-term headwinds is not real news, but it is a 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 medium-to-long term outlook for the FMCG business and also believe that we are well positioned as markets and opportunities evolve and hence remain committed to our strategy.

You've heard me say this before and I'm going to repeat it that we don't run this business from a quarter-to-quarter basis and hence I'm not particularly concerned on what will happen the next quarter or so. What is important for us is to continue doing the things 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 share in the quarter was 12%, in a market which as Sridhar 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 thus far is really encouraging. Ponds has now become INR1000 crores brand this year and it gives me confidence of the progress that we are making on building authority and expertise on the Beauty business in which Pond participates.

I'm also particularly pleased with the performance of our Hair and Oral business, both of which have seen stepped up performance. The global hair has been broad-based driven both by activations as well as innovation. While Clinic Plus, Sunsilk and Dove has done well, TRESemme continues to gain ground, but as a matter of fact within the first six months of its launch is amongst the leading brands of conditioners in (indiscernible), a great example of how we can leverage the global Unilever skills to win locally. Dove is another addition in this quarter to the INR1,000 crore club and exemplifies how we've leveraged the equity of our brand by taking it across categories to build a winning portfolio.

As far as oral is concerned and (indiscernible) see the progress that we've made, our performance has improved over the last year with each passing quarter. Therefore, when I look at the totality of our PP 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 market growth given the relatively discretionary nature of the PP categories, let me reiterate that we see PP or Personal Products as a key focus area and we'll continue to invest behind this business as you will see reflected in our results.

Coming now to the full-year performance, (indiscernible) of our results, I can say that there is another year that we've 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 execution in the year even harder. With over INR3,300 crores of incremental turnover added to our domestic business and a 7% UVG or 16% USG and 80 basis points of operating margin, our (indiscernible) margin expansion in the last 12 months, I believe our strategy is well on track and delivering.

In addition to this, we have made good progress on our Sustainable Living Plan agenda. Looking forward, our priority, therefore, remains unchanged. We want to win in the marketplace and deliver growth, which is consistent and competitive, profitable, and responsible. That's all from me.

Dinesh Thapar - IR: Thanks Nitin, thanks Sridhar. With this, we'll 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 else on this phone has a question, you might later get in touch with us at Investor Relations. What I'd now like to do is to hand you back to Sauradeep who'll moderate the next section of questions.

Over to you Sauradeep.

Transcript Call Date 04/29/2013

Operator: Abneesh Roy, Edelweiss Capital.

Abneesh Roy - Edelweiss: Congrats on the very good set of numbers. My first question is on the detergent business, in Q4 we have seen the promotional activity and the price cuts also both by the competition and by Lever also increase markedly. So in the raw material side we have not seen the commensurate cooling off. So does this really reflect that the competitive intensity has gone up? And if you could tell us the reasons behind that?

Nitin Paranjpe - CEO: I think we've always maintained that this category has been competitive. At different times the analysts have (been of the view) that it is reducing or not. We always believed that the laundry category has been competitive with intensity both from local and regional players as well as global players in this market place. We don’t see any change in that. We do see some differences that as when commodity costs start softening a bit advertising and promotional intensity goes up. We are beginning to see that in the Laundry category, you would recollect that the few quarters ago when commodity costs were high in these space, we used to say that the advertising and promotion intensity in the soaps and detergents space has come down. We are seeing the reversal of that. Overall, it's really means that players managed the totality of their P&Ls between different line items, and therefore I'm not very surprised when I'm seeing some of that going up. Contrary to what you said, that commodity cost haven't moved. I think commodity cost have been little softer than what they were a year ago, and therefore there is a benefit that we've heard. Of course, the reduction in commodity cost is not the same as you would see in our soaps business, where 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 (indiscernible) basic price. Performance is generally good. There were some actions that were taken on wheel towards the end of last quarter which we talked about. We are beginning to see results. We believe more can be done and we are doing more of that in order to step up our performance at the lower end of the market which can do with some improvement. 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.

Abneesh Roy - Edelweiss: So, 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 I think there was again opposite action of increase in the volume. So, one is, why such change in strategy within three months of (indiscernible). And when did you see stabilization happening there?

Sridhar Ramamurthy - CFO: The last bit is I 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 PP market that we talked about, the most significant impact in terms of growth rate that’s reported is in Skin Care, most specifically in face care, that's where Fair & Lovely operates. And it is even pronounce in the mass skin lightening space. The overall face market has slowed down, more pronounce in mass skin lightening, where essentially the market is made up of Fair & Lovely which has very large share. The share of Fair & Lovely in the market has been maintained, so that's a positive story, it's not as we losing to someone else. However, given the overall context that we find ourselves in, growth rates 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 growth and drive this harder, and what you've seen from time to time is nothing but some actions which have been taken, so whether it is a higher fin level, which has been given on the sachet in the recent past has really been to incentivize people to try and buy this who might have found the price increase in the short-term to be resulting in a situation where people who are wondering whether to buy it or not and this was really to incentivize more people to come in and reward some of our live users. Every time we move price in the sachet, and I remember this for the last several years when we moved from 5 to 6 or from 6 to 7, now from 7 to 8, we do see several months of adjustment and it takes time before the volumes start getting back, that's what we are experiencing now. I hope it corrects and stabilizes quickly, but I'll be hard-pressed to give you a timeline in terms of when the good happens.

Abneesh Roy - Edelweiss: Sir, one small follow-up on that Fair & Lovely if you see is, you said market share has not been lost, but the entire category, entire Dove segment, there is a slowdown. And also in the presentation you said in the shampoo, the bottle segment has done well. There was no mention of sachet. So how has the sachet done and in the context of higher volumes being given there are promotional, was that impacting the overall growth in sachet. So my overall conclusion in this is, is the lower end of the consumption suffering more compared to say the mid-end? Premium end is obviously suffering, but compared to mid-end is the lower end suffering more?

Sridhar Ramamurthy - CFO: Not really, the reason – so those sachets have also grown. You just try to call out something sort of stands out. When you look at our portfolio, even if you look at the comment we made on shampoo, so Clinic Plus has also grown very well, which as you know (indiscernible). Similarly if you look at, for example, tea we've had good growth on Taaza which is in the (indiscernible), as we've have had good performance in 3 Roses and Red Label and so on. So (purely in-sourced) while we've had good performance in Lux and Dove. We've also had good performance in Lifebuoy. So I don’t think there is any such distinction, we just try and specifically call out the few items that are in that particular quarter standing out. Abneesh, I think we'll have to now move to the next person, so that people get a chance to ask questions. If there's a follow up, we can pick up later.

Operator: (Percy Panthaki, IFL).

Percy Panthaki - IFL: Couple of questions. Firstly on the segmental margins, couple of segments which stand out, beverages and personal products. On beverages if my understanding is correct, the commodity prices are holding firm or are inflating. Plus you have certain promos like INR10 on Ponds. So, just wondering what is the reason for the margin expansion in Beverages. And similarly in Personal Products, is the margin contraction a result of higher ad spend or is it because of a mix effect where the Skin Care is going slower?

Sridhar Ramamurthy - CFO: So let me take the second question first, you are right that the deduction in margin in Personal Products is primarily a function of increased investments in A&P. There is also a contributory factor of the Skin Care contribution being lower, but the primary factor is the A&P spend levels. As far as beverages are concerned, yes, you know the margins have improved. I think we are seeing good growth coming too, so also we get leverage than you have good growth we get goo leverage. Plus we have been taking some actions within our supply chain to improve the cost efficiencies in our supply chain and we have seen that also delivering results but benefits for us in the quarter.

Percy Panthaki - IFL: Secondly, on the environment on pricing and costs. So, on pricing, one very simple question I don't know whether you will be able to answer it is, do you think that the current market environment is conducive to taking price increase. And this is in conjunction of how costs have also moved. So, for March quarter, apart from palm oil and correct me if I'm wrong – apart from palm oil, I don't think that there has been any significant cost deflation in any of your other inputs. So, in absence of any cost push inflation, is there sort of – will consumers be willing to accept price increase on their product portfolio in the next 3 to 6 months?

Sridhar Ramamurthy - CFO: From our perspective our focus is always to make sure that we are on the one hand competitive and on the other hand giving consumer good value. That’s the primary lens with which we look at things, right. It's not that we take price increase for the sake of taking price increase. You are absolutely correct that palm oil has been the key commodity which has shown a very significant reduction in their input costs, that is not the case in the others. So I have to say in other segments, there is a lot more stability while they have not (Indiscernible) the inflation. Therefore, if cost environment which is benign, then frankly there is no real need for us to be taking price increase, right. We want to make sure we continue to give value to consumers and we drive our margins through both volumes, deliver it from volumes through mix and further cost efficiencies through the value chain.

Percy Panthaki - IFL: Just if I may, corollary to this question, I mean, in recent quarters, we have not noticed any negative correlation between price growth and volume growth, so it is not as if it price growth increases, there is a volume backlash. So in that context, if the pricing growth reduces, do you think that overall sales growth could also reduce, because the volume growth might not bounce and pick up the slack of price growth?

Sridhar Ramamurthy - CFO: I think if you're – let me make it very straightforward, the pricing component of top line growth clearly is going to be lesser from the information we know today, because the price increases we took last year have either already or will soon anniversary. Second, there is a cost situation which is benign, yeah, so both of these factors mean that pricing to manage cost is going to be a much smaller contributor going forward. Now, what will happen to volume growth, how much it will pick up, et cetera, frankly it's not something that we want to get into. In any case, we don't really give any guidance at all. That will really depend on various other economic factors and we'll have to wait and see how consumer demand progresses.

Operator: Prasad Deshmukh, DSP Merrill Lynch.

Prasad Deshmukh - DSP Merrill Lynch: I have two questions. Firstly, what is your inventory practice in the beverages business, especially given tea as such is a seasonal crop?

Nitin Paranjpe - CEO: I'm afraid that's something that's sort of getting into the area where it becomes competitively sensitive. So I would not want to comment on any detail, except to say something perhaps which you already know, which is that tea is sourced from within the country and there are specific seasons when tea is available. It is not something that's available 365 days a year. There is obviously a strategy around holding the right levels of inventory, but I cannot give you any more specific answers.

Prasad Deshmukh - DSP Merrill Lynch: All right. Second question is now that we're seeing softening of raw material costs, will it be possible to just give some historical precedent in terms of how the smaller players behave versus say larger players who usually focus on increasing spends on advertising and promotions?

Nitin Paranjpe - CEO: Prasad, yes, one can look certainly at history and history will give you enough examples that when commodity costs soften some of the local players become more active. But having said that India is sort of changing fairly dynamically and I'm not sure to what extent the past will necessarily be a guide to the future.

Operator: Pritesh, Emkay Global.

Pritesh Chheda - Emkay Global: A little more comments on the oral care side of the business in terms of the double-digit volume growth. If you could also give us some thoughts on the market and the market shares there?

Nitin Paranjpe - CEO: I think, Pritesh, we are quite pleased with our Oral Care performance, and from whatever we can see our growth is pretty competitive, it's ahead of the market. Other than that, I think we are doing all the right things in terms of making sure we participate in all parts of the category. So, we are quite pleased with our performance.

Pritesh Chheda - Emkay Global: Second, sir if you could quantify the pricing actions if any in the Soaps & Detergents segment in the last quarter in terms of …?

Sridhar Ramamurthy - CFO: I don't have an immediate number at hand, but accept to say that price basically was a deflating factor in the quarter for soaps.

Pritesh Chheda - Emkay Global: And how about for detergents?

Sridhar Ramamurthy - CFO: Detergents, there have been some pricing – some contribution from price, but clearly the anniversary effect that's taken place, because there is no further huge inflation we are seeing. If at all, we are seeing some slight trending down in input cost of ingredients that go into laundry, so their price contribution is reducing in detergents.

Operator: Nillai Shah, Morgan Stanley.

Nillai Shah - Morgan Stanley: First question is basically on the productions, your mid segments improving better then segment in the bottom end. You really aren't seeing any signs of consumer down-trade in last two years. Why do you think that is a case at this point in time?

Sridhar Ramamurthy - CFO: I can just give you some hypothesis but not necessarily a statement of fact. So, I think in 2009, when we saw a lot of down trading that flows in an environment, first of all, we saw down-trading in detergents and tea at that time, it is not that we saw down trading in Personal Care, and this time around, we have seen reasonably good growth in all segments and down-trading is a phenomenon that to be honest has to be seen over a slightly longer period, so you need to see towards two, three, four quarters and not a single quarter. Hypothesis, you can have many hypothesis, but one of the certain differential factors between 2009 and today is that in 2009, there was also a very significant concern about job security amongst the large number of population. That has additional sort of factor that is not coming through and we are talking to a consumers, though the inflationary pressures are certainly there being felt by consumers.

Nillai Shah - Morgan Stanley: Then, second question is basically on the volume growth. You've laid a lot of emphasis on saying that the volume growth indeed has been ahead of industry growth as a whole for the categories. But is there any chance that your ad spend promotions price actually accelerate going forward, because 6% is not really the kind of number that you want to be at, and the 5.5% is actually the number that you want to be at ex-Skin?

Nitin Paranjpe - CEO: So, if you're asking do we want to see higher levels of growth driven by volumes, the answer is of course yes. There are different levers, ad spend is one lever. You talked about the P&L lever which is ad spend or pricing but I think more importantly, these are the operational levers of innovation of driving execution even better in the marketplace, et cetera. So for sure, we will be driving all of these levers hard to make sure that we grow our business strongly, but we have also to see our growth in the context of the market we operate in. And the fact is that the market growth as I mentioned earlier on in the presentation, has clearly moderated as we have seen in the quarter, and we have to wait and see that in the near term, we might see a little bit small period of moderate market growth before things pick up. In the medium to longer term, we remain very positive.

Nillai Shah - Morgan Stanley: So, in category like Fair, for instance, wouldn't you be making the market as such?

Nitin Paranjpe - CEO: No. So I think in terms of the whole Skin Care of which Fair is one component, Ponds is another, Lakme is other from the HUL stable and there of course we’ve got competition. We have seen slowing growth – market growth I'm talking about in Skin Care as while. So it's not just Fair & Lovely. In Skin Care as a whole we've seen a slowing rate of growth. And that is clearly the factor of discretionary consumption slowing down that's playing through. So it is an overall phenomenon. On our parts we're making sure that our brands remain strong. They get refreshed and rejuvenated from time to time and we put the appropriate investments in order to drive the competitive growth.

Operator: Richard Lui, JM Financial.

Richard Lui - JM Financial: Sir, with respect to your comment on slowing discretionary spends, would not the higher end Ponds and Lakme be a bit more discretionary than Fair or is your reading that the discretionary spend issue is more prominent among (upper) and (last row) section of consumers?

Sridhar Ramamurthy - CFO: Yeah, Richard, the hypothesis that there is obviously an interplay between what is discretionary for one group of consumers may not necessarily be discretionary for another group of consumers. So there is some interplay there. But when you just back and see, overall, there is certainly an element of slowing growth that we've seen in the market, so I'm talking about market reported growth, is very clearly something we've seen. For example, one of the things we called out in our Skin Care chart was we talked about the fact that Ponds growth was led by very solid performance in anti-ageing. Now you can infer that the anti-ageing product at this point of time is more likely to be consumed by a section of consumers, but maybe the budget pressures are not as severe today or maybe they are non-existence today. And therefore, for them it's really about what are the products and regime that they want to consume. So, a long answer to your question that, yes, there is some differentiation across consumers.

Richard Lui - JM Financial: You know the other point relate to this is also you have (indiscernible) budget. Should not one have actually seen some down trading especially in beverages, especially we spoke about that sometime back. The result obviously doesn't suggest anything like that. So, I mean short question is that I mean do you think there is any other issue in Skin other than just people to cringing back on discretionary items or so called discretionary items?

Sridhar Ramamurthy - CFO: I think, the situation is that the way consumer dynamics are, it's is not so straight forward to be able to make some of these conclusions. We don't see those patterns stay out exactly the same way as we would step out of site. And yes, if there a possibility then there could be something beyond just slowing down at markets for Skin Care, maybe we could and these are the sorts of things that we keep asking, but I would be honest to say that we don't have an watertight answer for all of these things. And we observe some things which are there. Our job of what we can do, we can't answer all of this perfectly, but what we can do is to make sure that all our brands in our categories at all points in time remain competitive in the context that we find ourselves in. And because we have a portfolio, portfolio at the top, middle and the bottom, we have that much better place to address different scenarios as they emerge sometimes consistently across categories, sometimes seemingly inconsistent in terms of behavior across categories.

Richard Lui - JM Financial: I had other question on PP margin. Now, that has become really volatile these days. On the adverse impact due to lower Skin Care growth, I think the same issue was there in DQ as well, but I remember PP margin had expanded that quarter, if you can just throw some light on this one please.

Sridhar Ramamurthy - CFO: I think Richard the reason you see this being volatile, I'm afraid is because I think you'll pay a lot of importance to quarterly margins and I think we've said on multiple occasions that you want to look at performance whether it is growth, whether it is margin and particularly segment margins. Looking at it quarter-to-quarter is likely to give – likely to mislead rather than give more clarity. In terms of this quarter, I think I called out that a large proportion of the real margin being lower was the increased investment in A&P. In a few previous quarters, we've also made references, for example, to the timing at which (mode) for relaunches, (mode) for innovation come into the business and get charged off. So, these are things therefore when you look at a quarter's numbers, there is too much noise really to just take a slightly longer term picture.

Operator: Sanjay Singh, Standard Chartered.

Sanjay Singh - Standard Chartered: Just wanted to know that your volume growth, the 6% or 5.5% this quarter. Now does it get held by anyway in the changes on the Weights and Measures Act, because some of the 90 grams soaps would have become 100 grams?

Sridhar Ramamurthy - CFO: Well when you take in aggregate for the business as a whole, not really. There will be some ups, there will be some downs, and thankfully I must say I do not try to really look at it from that dimension. It's I don’t think a major factor. There will be both positives and negatives. It's possible that on aggregate the rates might actually be slightly down. So no, not really.

Sanjay Singh - Standard Chartered: Just another clarification I wanted in terms of volume calculation. If there is any (indiscernible) free promotion, does it come into the volume growth calculation? So if 100 gms plus 45 gms for you, does it mean a 25% growth in volume?

Sridhar Ramamurthy - CFO: Sure, if you're giving more volumes to the consumer, whether it is as a promotion or whether it is selling the higher pack size or whatever it is, if it volumes that we're selling to the consumer, it would come into our volume growth; that's correct.

Sanjay Singh - Standard Chartered: Now I think just somebody asked on the personal product margins, I understand short-term movements are there, but overall even the last 4, 5 years we have seen a trending down, albeit very marginally, so if I'm talking about FY '08 used to be some 27%, 28%, and we're now at 24%, 25% kind of levels. So is this something (because) where we see a competitive intensity high in this segment or where (Fair) keeps on growing slower than the overall PP growth and hence margins would come off a few bps here and there every year per se.

Nitin Paranjpe - CEO: I think I've said this also earlier, personal products as a segment has got – as a set of categories has got a very strong potential to grow. Part of the work we have to do is to really develop the market and for that we need to invest behind developing the market. The personal products was grouped together as one group obviously has a variety of categories from Skin Care to Hair to Oral and so on. And obviously each of these operate at different margins. I think the most important point is that this is a very exciting space, got great growth potential, and broadly speaking, the segment margins are about 900 to 1000 basis points higher than the Company average. So as fast as we keep driving superior growth and then it becomes very accretive to the business whether the margin percentage is 10 or 20 basis points here or there, it's to my mind be lesser of the two, the more important priority is to drive growth.

Operator: Vivek Maheshwari, CLSA.

Vivek Maheshwari - CLSA: One more question on Personal Care margins, the 215 basis points decline of that, would be possible to quantify royalty impact? Because my sense is royalty will have a disproportionately higher sale in case of Personal Care, is that a fair assumption?

Sridhar Ramamurthy - CFO: Not really. I talked about royalty being about 30 to 35 basis points overall impact for the quarter and it would not be dramatically dissimilar for Personal Products. So, the biggest driver really is the step-up in spend in A&P, and then of course you have got a raft of other factors.

Vivek Maheshwari - CLSA: The reason I asked this is because in case of Soaps & Detergents, there will be the (indiscernible) – Hindustan Unilever brand would be much higher than compared to what it would be before Personal Care. Is that a fair assumption?

Sridhar Ramamurthy - CFO: That is possible, all I'm just saying is if we look at the 215 basis points that you are trying to quantify, Vivek, and try to get – it's a priority of drivers. The biggest driver by far more than half is A&P.

Vivek Maheshwari - CLSA: The second one is, the royalty would be hitting other expenses, right, in the main P&L?

Sridhar Ramamurthy - CFO: That is correct.

Vivek Maheshwari - CLSA: So, I mean, other expenses as a proportion of revenues are down to 60 basis points if I adjust this 30, 35 basis point, there is a 95 basis point savings in other expenses. Could you indicate broadly which head would've seen this kind of saving?

Sridhar Ramamurthy - CFO: There are a variety of things that go into other expenses. For example, our entire area of distribution cost – logistics cost, distribution cost, they are entirely part of other expenses. When you look at all of the overhead costs of running the establishment other than people are all in other expenses, royalty, as you pointed out in other expenses, and I've been said our task and our focus is really to make sure we manage our costs very, very tightly. One part is on the supply chain and the other part is on all the other cost, whether it is marketing spends, whether it is overhead, whether its distribution cost. So it will be across the board, and this is not necessarily a new phenomenon. One of the things that we've talked about earlier is our approach in managing cost is a holistic end-to-end approach. So across the whole value chain, whether it is on cost to do with materials, whether it's some cost to do with conversion, whether it is on cost to do with our marketing spend or indeed cost to do with overhead. So across the whole value chain, we try and manage our costs tightly and keep generating new savings ideas and programs.

Vivek Maheshwari - CLSA: Finally on financial other income, the 50% increase you talked about dividend, so is this coming in from the export business that you have (it)?

Sridhar Ramamurthy - CFO: That is correct.

Vivek Maheshwari - CLSA: Finally one last bit, the impact of transporter led stocking is 50 basis points, is that correct?

Sridhar Ramamurthy - CFO: Well, actually if you see the UVG that we've talked about in this chart, it has rounded off at 6%, with real numbers of total 6.3% or so. That's sort of if you take one decimal point number and I think (this coverage is up around) 5.5%.

Vivek Maheshwari - CLSA: 5.5%. So you're saying 80 basis points roughly the impact is?

Nitin Paranjpe - CEO: Yeah, I mean 6.3 minus 5.5 is 80 basis points, that's correct.

Operator: (Rahul Thakur, ICICI Bank).

Rahul Thakur - ICICI Bank: Sir, I would just want to ask one question. If we look at the segmental capital employed, then we see a significant increase in the soaps and detergents segment. Is there any particular reason for that or is it just seasonality or something?

Nitin Paranjpe - CEO: If you look at variety of things, there is one of the things, especially there is an impact from seasonality. The second is that when you look at capital employed, there is also an element of both the capital expenditure that we're putting in plus any strategic stocking from time to time, which we do, which is different from time to time. So there is no – I think the way to look at, I would say, the capital employed is really to look at it on annual basis. When we (focus) the balance sheet you will see and we gave you a little bit of flavor in our cash flow statement that overall working capital has continued to show good improvement and it's been primarily led by a further improvement in our stock days on hand.

Operator: Jamshed Dadabhoy, Citigroup.

Jamshed Dadabhoy - Citigroup: So my question pertains basically to some consumer insight on Fair & Lovely if you all could provide it. FAL has been struggling for three quarters or so now. And my understanding about the product is that, it has been applied fairly regularly in order to maintain the lightening impact or the lightening effect. So, are we saying that current consumers have actually started using the product less and less or are you saying that new consumer acquisition has come off dramatically over the last three quarters?

Nitin Paranjpe - CEO: I think I wish I could give you simple answers, but you can be sure that a lot of thinking and a lot of data currently is going on with the business. The reality is that it's a bit of both. There is some consumption which is coming off as people are trying in the early days to extend the (Indiscernible) buying tube for INR7 the beginning sachet, now they're buying for INR8 and therefore wanting to stretch it a little longer, that's part of it. And the second part is the net impact in terms of additions, because some people continue to move up to other brands. There are new people coming in. That balance has been a little lower in the last two or three quarters than it was in the earlier periods. So it is a combination of these two which are here, and the earlier experience shows that whenever you make a take-home price increase, there is the period of adjustment which takes place. But consumer mindsets are such that over a period of time, you get adjusted to the new reality of an INR8 price point and having to get back towards they were probably takes time. We hope we are closer to the end of that period rather than the beginning, but it's not abnormal. It is taking time and we'd like it to get over soon.

Jamshed Dadabhoy - Citigroup: Is there any thought that the consumption has come off because the efficacy of the product has improved as active ingredients means something like Niacinamide or something being increased.

Sridhar Ramamurthy - CFO: I think I'd like to believe that product has become much better, but the result of that should not be people using less, but more people wanting to use more. But no, there is no such understanding.

Jamshed Dadabhoy - Citigroup: Second and quick, this is housekeeping question, what is your total reach today, direct and indirect?

Sridhar Ramamurthy - CFO: We shared the picture a year ago and we do not want to talk about what our reach is. We talked about adding 1 million outlets over the couple of years getting to a range of about 2 million outlets, and that's really all that we would want to talk about.

Operator: So at this time, there are no more questions and audio. So I will hand it over back to the management, if there are any questions over the web.

Sridhar Ramamurthy - CFO: We do have a couple of questions on the web, so there is one from Nikhil Vora, that’s coming in, says, Hi, Nitin, three questions, one, water, has it now become relevant to call for a standard profit and loss statement, meaning is there adequate scale of profits that is now measurable? The second question is on TRESemme, just your sense. If the cost of entry or a later entry now cost us a lot more or it's not changing too much? And the third, internal management responsiveness to change, I believe you are returning the digital world. Can you throw more light on actual changeovers within the top management?

Nitin Paranjpe - CEO: So let me just take the last one in terms of our overall responsiveness to change. There are many things that we need to both structurally in terms of our processes and ways of working and in terms of building capabilities. We talked a couple of years ago how we systematically looked at our business to see what proportion of our business had the capacity to make changes to pricing, to pack sizes, etc. to respond to the changes that the marketplace might require. We've made very good progress on that. But it's not just about making hardware changes and technology changes in the factory. It has to be about finding a way as to reduce decision-making time and execution time, and therefore we have in place the internal processes which get cross-functional teams to meet every Monday to assess the situation in terms of costs, competitive action, and determining our response. So essentially our planning cycle as well as our execution cycle our (daily cycle) we've made a lot of progress, but again this is an area where we would like to continue making progress. We're also wanting to reduce the amount the finished goods that we have in our business, because we can all of this but if your finished goods that you carry aren't significant, it just delays the action that you would be willing to take. So apart from releasing cash in the business and reduce inventory, it also improves the agility and responsiveness (for traders). As far as the first and second point, Sridhar will discuss.

Sridhar Ramamurthy - CFO: I think as far as water is concerned, no, it's still well below the thresholds that are required for calling it out as a separate segment and therefore at this point of time that's not relevant. I think as far as TRESemme is concerned, I'm not sure what you mean by the cost of entry or later entry, now cost is lot more, etc. I think we look at it as a strategic addition to our portfolio where we had a great brand that has come newly into the Unilever stable through the very differentiated offering of giving a salon-like experience to consumers and therefore we feel it's a right time for us to bring it into the Indian market as the international portfolio.

Nitin Paranjpe - CEO: And in this I think the timing was right as in the performance in Modern Trade that has been around for a while has been very, very good. Like you heard us say earlier, in the traditional (indiscernible) we've got the leadership position, strong presence in conditioners, building a strong presence already in shampoos. So, it was clearly a brand and our position which was right for the market at this point in time.

Dinesh Thapar - IR: I think with that we would like to now bring the call to a close. Just before that, as you know an audio-visual replay of this event will be available on the Investor Relations website and you can also go back and refer to it. With that I’d like to bring the call to a close. Thank you everyone for your participation and have a great evening. Bye.

Operator: Thank you so much. With this, we conclude the conference for today. Wish you all a great evening ahead. Wish you all a great evening ahead. You all can disconnect your lines. Thank you so much.