Board okays transfer to P&L account; net down 22%
The country’s largest consumer goods firm, Hindustan Unilever, on Friday disappointed the Street as it missed estimates for its revenue and profit growth during the October-December quarter as it was hit by the phasing out of excise duty incentives, price de-growth as the benefit of lower commodity costs was passed on to the consumers, and lower other income.
However, in a move to reward shareholders, the company’s board approved a scheme of arrangement envisaging transferring the entire balance of R2,187.33 crore in its general reserves to the profit and loss account. The scheme, which will require the approval
of the shareholders, sanction of the court and other approvals as prescribed under the law, is a kind of a capital reduction exercise through a buyback of shares. The company said that it is doing so because given its strong financial position and track record of cash generation, the funds accumulated in its general reserves is in excess of its current and anticipated needs so as part of good corporate governance, it is paying it back to shareholders. The move will lead to improvement in the company’s earning per share but analysts saw it as an ambivalent move as the money could have been used to implement bigger ideas in future.
The company’s net profit during the period declined 22% on a year-on-year basis to R971 crore. Revenue increased 2.7% to R7,981 crore with volume growth of 6%, which was at the lower end of estimates. The company posted an exceptional loss of R79.6 crore during the period due to provision towards restructuring and select contested matters. Exceptional item also included profit of R36.91 crore on sale of surplus properties. HUL’s other income declined 18% to R139.6 crore in the quarter.
One-off income from sale of properties had helped HUL’s income in the same quarter a year ago, the company said in a statement.
According to Bloomberg estimates, the company was expected to report a net profit of Rs 1,033 crore, down 17.5% from a year ago, on sales of Rs 8,104 crore, up 6.9% year-on-year.
Operating profit (Ebitda) increased 7.5% on a yearly basis to Rs 1,430.8 crore and margin expanded by 80 basis points to 17.9% on the back of lower input costs. Raw material costs declined 7.4% (y-o-y) to Rs 2,689.4 crore on account of a fall in crude oil prices. Advertising and promotion expenses were down 0.6% to Rs 1,137.8 crore in same period.
Sanjiv Mehta, chief executive officer and managing director, said, “Rural growth has moderated in the quarter. Earlier rural growth used to be 1x to 1.5x of urban growth which is now similar to urban growth. Our quarterly growth continued to be impacted by phasing out of excise duty incentives and price de-growth as benefit of lower commodity cost was passed on to consumers. In 2015 soaps and detergents have seen price de-growth of 10% while in October-December the price de-growth in the category has been 2%. Benign commodity prices are continuing and we would take further call on prices depending on the market. While commodity prices are lower there are many low-price competitors mushrooming in the country who exit once the commodity prices starts to increase. We are very clear that we don’t want to miss out and lower our market share.”
The soaps and detergents segment continued to see price deflation in the quarter due to benign input costs. This business registered a 0.8% growth in revenue at Rs 3,629.82 crore with earnings before interest and tax (Ebit) rose 1.3% with margin expansion of 7 basis points compared with the year-ago period.
Revenue from personal product increased 5.6% year-on-year to Rs 2,592.9 crore with Ebit up 10% and margins rising 120 basis points. Reported growth of this segment was impacted by a delayed winter and one-time realignment of channel spends undertaken with a view to driving its effectiveness in the marketplace, the company said. The beverages business showed 7% growth during the quarter with Ebit rising 22.5% and margin expansion of 230 basis points year-on-year.
Shares of HUL on Friday closed down 2.70% at Rs 804.15 each on the BSE.