HUL 2008 TO 2013 ECONOMIC AND INDUSTRY ANALYSIS,COMPETITION

The year 2008-09 was characterized by the global economy suffering a slowdown due to the financial sector issues in the US which spread fast to the real sectors of the economy across the globe. Although Indias domestic economy grew strongly for th e whole year, many sectors like automotives, capital goods, consumer durables and realty decelerated significantly towards the second half of the year. The performance of the exports sector was well below expectations. Another major issue HUL had to contend with during the year was unprecedented volatility in the price of commodities, driven largely by the swings in petroleum crude prices. Many public policies were implemented to squarely address some of these issues in the economy. FMCG markets generally held well although some categories like fabric wash registered a slowdown in volume growth. Industrial production registered significant slow down, impacted by the global recession. Countrys GDP growth for the second half of 2008-09 was lower compared to the first half. Although FMCG markets somewhat held their value growth levels. There was pressure on volumes in categories like Soaps and Detergents, with signs of downtrading across segments. Government including Reserve Bank of India, launched fiscal and monetary measures to boost credit, investment and consumption. FMCG sector benefited from significant reduction in excise duty rates on finished goods. Benefit due to reduction inexcise duty rates from 14% to 8%in two phases (in December 2008 and February 2009) was pooled and passed on to consumers through price reduction in select packs.The year 2008 also witnessed high levels of volatility in commodity prices, essentially led by petroleum crude. Volatile commodity markets with petroleum crude prices at c.$ 90per barrel at the beginning of 2008 peaking to $ 147 per barrel before dropping to levels of c.$ 50. The severe impact of cost inflation was felt in inputs like vegetable oils, laundry chemicals, packaging and freight. Wholesale price inflation touched high levels during the year, before decelerating sharply towards the later part of the year under review. Your Companys good performance for the period 2008-09 has to be seen in the context of above economic background. Robust planning systems by HUL and strong dynamic performance management processes helped the business manage this volatility. Judicious and sensible price increases, together with continued aggressive cost savings programme enabled competitiveness of Companys brands in the market place. Competition was intense, both from existing and new players. HUL responded through increased brand investments, value enhancing innovations and powerful market activation. Eg: The HPC category was managed through multi-pack offerings, consumer promotions and moderate price increase in low unit price packs. Lifebuoy grew on the back of small and multi packs. Re-launch of Lux in variants like Strawberry and Peach supported by a new thematic communication enabled the brand to grow well. Dove and Pears grew ahead of the market in the premium category. 2009-10 The GDP growth rate in first three quarters of the financial year 2009-10 has been 6.7%. The downward pressure on GDP growth came in the form of poor monsoons which impacted the 'Kharif' (crops grown in June-September period) agricultural produce this year. While the services sector has been growing at a rate of over 7.9%, the industrial growth accelerated sharply from 2% to 11.6% over the last four quarters. Towards the end of the fiscal year, export growth has returned to positive. Food inflation, along with firming up of global commodity prices, has spilled over into prices of domestic commodities and services as well with the overall consumer inflation rate hovering at over 15% for several months. The wholesale price inflation touched 9.9% in February 2010, surpassing Reserve Bank's estimate of 8.5% by March end. . Despite this, HUL managed to achieve a turnover of Rs. 1,000 crores with good profits and strong cash delivery. In the Home & Personal Care exports segment, despite the difficult environment, the turnover in existing product-customer channels was maintained to previous year levels. Eg, The Pears franchise grew handsomely by double digits, notably in the United Kingdom and the Emirates. One of the key immediate issues for HUL in this year was food inflation. This, along with firming up of commodity costs has created an inflationary business environment. FMCG markets continued to grow but at a slower pace. . Cash generation was significantly enhanced by placing specific focus on the reduction of Working Capital through improved inventory management and debtors reduction, while simultaneously enhancing customer service The growth was supported by innovative ways of penetration in the market and cost cutting to not allow the higher input costs to be passed on to customers. This was done via market development of new categories like Hair Conditioners, Deodorants and Soupy Snacks. Deployment of an end-to-end technology solution which helps reduce inventory cycles while enabling optimum service levels ensures minimum costs incurred. Salesmen are equipped with hand-held devices which help to improve on-shelf availability of products while also building assortment at individual store level. Merchandisers are equipped with hand-held devices to improve in-store display of our products so that our products are top-of-mind whenever a shopper makes a purchase , which keeps HULs product ahead of other products in the consumers line of vision. In the Beverages business Coffee markets had decelerated significantly in comparison to earlier years due to adverse climatic and weather conditions. Through key innovations, HUL was able to register volume growth in the second half of the year. Eg: The re-launch of 'Bru' was amplified with the Aroma proposition (through aroma lock) and improved sensorials. Similarly

HUL 2008 TO 2013 ECONOMIC AND INDUSTRY ANALYSIS,COMPETITION

Lifebuoy too was re launched. HUL lost its leading market share in Soaps and Detergents which it regained next year with strong media campaigns and trade activation programs. 2010-11 Indian economy has recovered considerably and rapidly from the slowdown caused by the Global Financial Crisis in 2007-09 by now reflected by 8.6% growth (Advanced Estimates)in 2010-11. The economy experienced a more balanced and positive growth in 2010-11, aided by a solid recovery in agriculture and continued good performance of industry and services. There has, however, been a deceleration in industrial growth in the second half of the year and a further deceleration in the last quarter of 2010-11. The inflation rate measured in terms of year-on-year change in the WPI is 8.31% for February 2011, compared to 8.23% in January 2011. This increase is attributed to a surge in the prices of non-food items, despite a moderation in the inflation of primary articles, particularly due to a decline in prices of food articles and minerals. In fact, inflation for nonfood articles increased from 23.9% in January 2011 to 29.8% in February 2011 .The price of crude oil, which was hovering below USD 80 per barrel till September 2010, skyrocketed to over USD 100 per barrel in March 2011, and is expected to remain volatile The FMCG markets in India grew in low double digits during the last quarter of 2010-11 In HPC(Househols and Personal Care business) Volatile and rapidly changing commodity markets posed a major challenge in the latter half of 2010, where both vegetable oil and crude oil prices increased significantly. The impact of cost inflation was felt in inputs such as Palm oil, laundry chemicals, packaging and freight cost. The business was managed dynamically with increased frequency of cost and pricing review, and aggressive cost saving programmes, which helped to minimise price impact. In FOODS business: HUL multiple challenges, which include: High competitive intensity from MNC, National as well as local players in many categories; your Company has responded through increased brand investments and value-enhancing innovations and countered this through consumer-centric value packs. The exports business continued to focus on growth ,despite a sluggish recovery in most overseas markets, turnover grew by 9.3%. A robust value analysis and cost savings programme enabled improve margins, thereby driving profit growth ahead of turnover growth. The company delivered double digit growth in the face of intense competition in Foods business where availability and visibility are the most important drivers of growth for the category . Eg:88 Swirls Parlors of Kwality Wals Ice cream were set up to increase accessibility. 2011-12 This year was characterized by the Central Government capping the subsidies at 2% of GDP and some measures to widen tax net were taken.The area in which there has been relief is the decline in inflation rate from the near double digit rates seen in the past two years. Although there are risks associated with the petroleum sector prices and some of the food sector prices, the non-food manufactured products prices have shown deceleration. The opening up and expansion of the economy, rising income levels and changing consumer beliefs and behaviours have led to an increase in consumption improving opportunities for HUL. : HPC business registered double digit volume growth and a robust price growth, leading to a value growth of 19.4%. Volatile and rapidly changing commodity markets, including vegetable oil and crude oil, coupled with fluctuating currency markets posed a major challenge during the year.In HPC the impact of cost inflation was felt in inputs such as palm oil,laundry chemicals, packaging and freight cost. : A robust value analysis, cost saving program, leveraging of government incentive for exports and a favorable exchange rate in later quarter enabled your Company to improve margins in Export business. 2012-13 HULs Domestic Consumer business grew by 16% with 7% underlying volume growth. All segments grew in double digits. Within the domestic economy, growth slowed much more than anticipated, with the GDP growth for fiscal year 2012-13 being pegged at 5.0%, the lowest in a decade. Inflation, which remained high through most part of the year, eroded domestic consumer savings and curtailed consumption reflecting in slowing market growth. Cost inflation impacted several input costs.Even in this challenging environment, the Company delivered profit growth through robust cost saving programmes and dynamic pricing without compromising on the competitiveness of brand investments, both in terms of technology as well as advertising and promotion. In Foods and beverages business, Food category continues to represent a significant consumer and business opportunity given the shifts in the income pyramid, increase in working women, growing health concerns and need for taste with convenience. HUL currently imports a large portion of deodorants in the aerosol form. Unilever is in the process of implementing a project to establish a world class deodorants manufacturing facility in India and this plant will provide regular supply of high quality deodorant products to service markets across the world, including India.This will surely improve HUls competitiveness in the face pf intense competition. The focus on innovations to have a competitive edge resulted in successful launches / re-launches in brands like Surf Excel and Rin. In the personal care business the Company continued its focus on market development by investing strongly behind the emerging high potential hair conditioners segment, thereby growing ahead of the market. HUl has managed to stand steady in the face of major challenges with its constant improvement in product categories and better service to consumers by providing them good value for their money.

HUL 2008 TO 2013 ECONOMIC AND INDUSTRY ANALYSIS,COMPETITION