Global consumer goods major Unilever is betting big on India and China to drive growth for the company going ahead.
Alan Jope, chief executive officer of Unilever said Hindustan Unilever Ltd (HUL) is a phenomenal business and the number one player in the country where it has a long history, unique network and strong consumer relationship. India currently contributes to 10 percent of Unilever's turnover and the company expects India to bring in 20 percent of Unilever's global growth by 2030.
"84 percent of the India business is winning volume share, with the most recent portfolio addition of Horlicks addition, which is doing very well. We see significant opportunity to develop that market further," Jope said during the analyst call on Thursday.
As part of its long term growth strategy, Unilever has set a target of accelerating growth in India, along with the US and China. US, India and China currently contribute to 35 percent of Unilever's business. Jope said these geographies will account for 60 percent of Unilever's global economic growth by 2030.
"Unilever has strong brand and category leadership positions in the USA, India and China, with around 35 percent of our turnover coming from those three countries alone, and we believe we can bring sharper focus in those geographies and build even stronger positions. There is also significant opportunity beyond these markets and we will continue to build on our strong operating businesses in the world’s fastest growing economies," the company said.
Jope added that while the US will be a contributor in the long term, markets such as India, China have become more important.
Unilever announced its October-December 2020 (Q4) quarter results on February 4 registering a sales growth of just 1.9 percent and a volume growth of 1.6 percent. Underlying operating profit decreased 5.8 percent to €9.4 billion.
Volume growth was impacted due to lockdowns across the globe, especially in China and India. However, emerging markets grew 1.2 percent as growth returned in these two geographies.
"Strict lockdowns in China and India led to market declines in the first and second quarters respectively, with both markets subsequently returning to growth during the year. China has normalised in many categories, while economic activity in India picked up particularly in the final quarter," Unilever said in a statement.
However, Unilever anticipates some inflationary pressures, especially in India due an increase in prices of commodities such as palm oil and crude oil. Unilever's chief financial officer Graeme Pitkethly said that input costs are likely to increase further this year, adding that they will be ‘at the top of their pricing game’ in 2021.
Going forward, the company also expects revenue growth to be impacted due to weakening of currencies in emerging markets and is aiming for an underlying sales growth of 3-5 percent as India and China markets recover.
The company also outlined its plans to drive long term growth through a 5-point strategy and a multi-year financial framework. The five strategic choices included developing Unilever’s portfolio into high growth spaces, winning with brands as a force for good, accelerating in the USA, India and China and leverage emerging markets strength, leading in the channels of the future and building a purpose-led, future-fit organisation and growth culture.
As part of its multi-year financial framework, Unilever aims to deliver long term value creation by evolving its portfolio and driving earnings growth, a strong cash flow and a growing dividend.
It is aiming for profit growth ahead of sales growth, on a comparable basis and expects savings of €2 billion per annum from its 'Fuel for Growth' savings programmes. It has also planned for a restructuring investment of around €1 billion for 2021 and 2022, with the amount lowering thereafter. It also aims to bring its net debt to underlying EBITDA at around 2x.
However, the company’s results, especially slow growth in emerging markets, left analysts disappointed. While the stock fell around 4 percent on Thursday on the London Stock Exchange, it was trading nearly 1.5 percent down on Friday in early trade.
(Edited by : Jomy)