Unilever blames India, Brazil for earnings woes
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Unilever Plc, the Anglo-Dutch parent of Hindustan Unilever Ltd (HUL), said challenging conditions in India and Brazil, two of its largest markets, had crimped its earnings last year.
The company’s 2016 revenue declined 1% to €52.7 billion. Net profit rose 5.5% to €5.5 billion. The Indian unit contributes a little less than 10% of overall revenue and a little more than 10% of profit.
“We have delivered another good all-round performance despite severe economic disruptions, particularly in India and Brazil, two of our largest markets,” Paul Polman, Unilever’s CEO, said in a conference call with investors on Thursday.
Unilever attributed the poor performance of its Indian unit to demonetisation (India scrapped old high-value currency notes on 8 November).
“In India, growth was below historic levels, particularly in the last quarter when demand was adversely impacted by the removal of the Rs500 and Rs1,000 notes,” said the company in its 2016 full year results statement on its website.
And it expects the recovery to be slow. The consumer goods giant also expects the March quarter performance to be soft. Restocking will start by February and March, and it will be “April as we come out of this”, Polman said.
To be sure, the maker of Knorr soups, Surf detergents and Lux soaps had mentioned the tepid performance of its Indian unit even in the September quarter as costlier inputs forced HUL to raise prices of some skincare products, affecting sales.
Sales (in terms of volume) at the Indian subsidiary have now shrunk for two quarters in a row. In September, HUL reported a 1% decline in sales volume, the first in 30 quarters. The decline in December was even sharper at 4% because of demonetisation, which also affected the wholesale trade that is largely cash-dependent.
The India business may continue to face headwinds in the short term from the implementation of the goods and services tax (GST) which may come into effect starting 1 July. “We have to see what the consequences are (of GST) as we work our way through to it,” Polman said, although he recognized that GST will benefit the firm in the long term.
In the December quarter, HUL’s net profit rose 6.83% to Rs1,037.9 crore, boosted by a one-time gain from the sale of properties. Revenue fell 1.24% from a year ago to Rs8,226.5 crore. The fall in revenue was lower than the volume decline as the firm raised prices of some personal care and home care products, mainly due to commodity price increases; palm oil and crude oil prices have risen sharply.
Since the announcement of its earnings on Monday, HUL’s shares have risen 0.68% while the Sensex has gained 2.2%.