Hindustan Unilever has laid down a five-pronged strategy to navigate the COVID-19 challenge. At the company's fourth quarter result announcement, CFO, Srinivas Pathak, said that supporting its people, protecting supplies, servicing demand, contributing to the society and maintaining and protecting its financial model would be its topmost priority. "Our strong balance sheet and cash positions us well and will be a source of competitive advantage for us. We are systematically reviewing all areas of cash generation and revaluating all costs in the light of the circumstance so that we can invest behind the best opportunities. We continue to set a high ambition of savings across the value chain," he said.
"HUL has a strong balance sheet, we have a great number of brands which cater to the heightened need in the area of health, hygiene and nutrition. We also have a great resilient pool of talent. We would do our best to remain competitive," added Sanjiv Mehta, Chairman and MD, HUL.
COVID-19 has severely impacted the FMCG major's fourth quarter performance. The disruptions created by the coronavirus lockdown has resulted in its sales declining by about 9 per cent, while volume growth decline by 7 per cent. Pathak said that half of the loss of sales could be attributed to reduced stock levels at its distribution locations as its primary distribution got disrupted. "The balance would be from lower stock at the retailer level and loss of consumer demand," he further explained. The company's full year (financial year 2019-2020) domestic growth stood at 2 per cent, while net profit grew by 12 per cent. "It was a year of strong double digit bottomline increase and with strong generation of cash," pointed out Pathak. Its revenue grew from Rs 38,579 crore in 2018-19 fiscal to Rs 39,136 crore in 2019-20 fiscal.
While COVID-19 has indeed impacted growth adversely in the fourth quarter, Mehta also pointed out that just before the outbreak of the pandemic, the markets were already slowing down. "If you look at the last three months ending February, we were still seeing markets slowing down from the December quarter."
While the times ahead are unprecedented and it is difficult at this stage to estimate the timeline of recovery, Pathak said that HUL will continue to be agile and responsive and will continue to manage pressure both from liquidity as well as volatility. "Our approach will be to protect our business model, grow competitively and contribute to the nation. Our portfolio of trusted brands, financial stability and quality of leadership teams will position us well to deal with the crisis for the changing world that will come afterwards. We also remain confident of medium to long-term growth prospects of the FMCG sector."
Pathak said that after the initial days of the lockdown, when supplies came to a standstill, the company has been working with various authorities to scale up its operations. We are at 70 per cent of our normative levels as we speak, and we are hopeful of improving this in the coming days. We have ramped up our supplies of sanitisers and handwash. We are operating with shorter planning cycles and stepping up agility and building resilience in the supply chain."
While demand patterns are changing, the company expects an upswing in health, hygiene and nutrition. "In the near term, we are likely to see adverse impact in discretionary categories and out-of-home channels. We are staying close to the consumers to adapt to the emerging patterns and bringing in relevant innovations to suit us both for the short term and for the medium term".
HUL, in the coming months would be rolling a host of new innovations in the space of health and hygiene, which includes Lifebuoy Germ-Kill spray, Domex Germ Disinfectant spray, Domex Germ Removal Wipes and Surf Excel Anti-Germ Wash Booster. The company also plans to significantly step up innovations under the Horlicks brand. HUL has completed the GSK acquisition and from April 1 onwards, GSK brands such as Horlicks would become an integral part of its portfolio. "We are very pleased with that acquisition and the prospects of that acquisition in our portfolio hasn't diminished at all. There might be short-term hiccups due to COVID-19 which will apply to most businesses, but we are absolutely delighted getting this great nutrition brand into HUL," said Mehta.
Will demand take off any time soon? Mehta said it was difficult to predict. "At this juncture there are many variables... a lot will depend on the trajectory of the virus, what is the success of the containment effort and the severity and duration of the economic impact."