The announcements were made by Dadiseth to reporters soon after a presentation on Hindustan Lever's results for 1997, featuring a 35 per cent net profit rise. Notices for the Ponds-HLL merger were sent to the stock exchanges on Thursday morning. The moves come after Hindustan Lever generated substantial cash flow during the year by achieving higher operational efficiency, cutting down on interest cost through lower working capital use, and deploying the accruals in low-risk instruments.
Purchase of manufacturing facilities of Lakme Ltd at Deonar in Mumbai and Kandla in Gujarat.The Tata shares in Lakme-Lever, the marketing and distribution arm of Lakme, and the Lakme brands are being purchased for a total consideration of Rs 200 crore, while the manufacturing facilities are yet to be valued. The Levers move marks yet another Tata exit from an area that does not go with new Tata group's focus areas, three years after they sold their soaps and detergents business to Hindustan Lever.
The moves announced on Thursday, which will increase the share of personal products in Hindustan Lever turnover to around 17 per cent from around 11 per cent, will decisively swing the Unileversubsidiary away from the product portfolio composition of its parent. As much as 50 per cent of Unilever's portfolio globally is accounted for by its foods business. In India, the figure is now 17 per cent; it will fall to around 10 per cent after the Lakme acquisition. Part of Rs 200 crore acquisition cost for the Lakme brands and businesses will come from the redemption of Rs 70 crore worth of optionally convertible debentures issued by Lakme to HLL when the Lakme-Lever JV was formed two years back. The remaining Rs 130 crore will be paid in cash.
It appears that the basic issue in Hindustan Lever's purchase of the cosmetics business was the question of further investment in the business -- something the Tatas didn't want to do.
According to a Tata Services press release issued soon after the Levers announcement, the investment required for growth in the face of business challenges was assessed to be much higher than that projected when the joint venture for cosmetics was initially formed. The releasewas quiet on future plans for what remains of Lakme Ltd (only the cash from the sellout and the corporate entity remains-its only other investment in pharmaceuticals was sold out earlier in 1997). But it is expected that the cash generated will be used to invest in a retail joint venture with Littlewoods, an international retail chain.
HLL is expected to be increasingly more aggressive in the cosmetics business and is targeting a turnover of Rs 600 crore in three years' time. The business will derive synergies from Unilever's larger personal products portfolio which consists of internationally well-known premium brands like Elizabeth Arden, Calvin Klein and Rimmel.
For the proposed amalgamation of Pond's India with HLL, the companies have appointed YH Malegam, senior partner of SB Billimoria & Co, and Arun Gandhi, senior partner of NM Raiji & Co as joint valuers to recommend the share-exchange ratio. The company said that the managements have started drawing up the proposed scheme of amalgamation andother plans for integration. Harish Manwani, the HLL director in charge of personal products, will head the combined Levers personal products might. Hindustan Lever is already an overwhelming market leader in the category. Meanwhile, after a bruising battle in a difficult year for sales, HLL announced a turnover (along with its subsidiaries) of Rs 9,335 crore against Rs 8,001 crore last year. While the company said that is was withdrawing from loss-making businesses like canned foods, it would derive much more thrust from tomato-based businesses like sauces and has already acquired market leadership in this field, with a 10 per cent increase in volumes to 11,300 tonnes.
Dadiseth reiterated that the company would retain and/or acquire those businesses which have the potential to drive the topline growth of the company. "The company would maintain its topline growth by keeping price increases to a maximum of 5 per cent," said Dadiseth.
In its first comparable financial results after the merger with BrookBond Lipton India Ltd (BBLIL), HLL has posted a 35.3 per cent rise in net profit to Rs 560.37 crore as against Rs 414.26 crore for the year ended December 1997. The company's board has declared a final dividend of Rs 9.50 per share which takes the total tally to Rs 17 per share (170 per cent).
Dadiseth said the Pond's merger and the Lakme acquisition would give the company greater focus and give it bigger scale. So what is the next target? "We aim at 20 per cent turnover growth every year from now on, which, on the huge base we have, is no mean task."
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
