What is our MD & CEO’s take on reinventing Marico
DEAR SHAREHOLDERS,
I am pleased to share with you an update on the overall performance of your Company during FY2017-18.
Against the backdrop of structural reforms and a challenging input cost environment, the past year was a test of resilience for the Indian economy and our business. However, relentless focus on execution and cost management and the strength of your Company’s brands have helped us manage the headwinds and deliver a modest performance.
We are market leaders in 90% of our portfolio and continue to accelerate category leadership in newer markets. While our FY18 performance was soft, our commitment to deliver enhanced value for our stakeholders remains steadfast as we strive to deliver top-quartile performance and predictable sustainable growth in the coming years.
FY2017-18 OVERVIEW
During the year under review, the consolidated topline grew by 7%, with an underlying volume growth of 1.3%. The consolidated profit after tax registered a growth of 2%. More than 90% of the portfolio witnessed market share gains, despite Goods and Services Tax (GST) affecting business in the first half, sluggishness in the edible oils segment as well as concentrated price increases in the coconut oil portfolio in the second half impacting volume growth.
The India business grew 9% with an underlying volume growth of 1.5%. Annual volume growth was dampened by destocking in trade prior to GST implementation. The India business operating margins were dented by significant inflation in copra prices. The international business grew 9% in constant currency terms with an underlying volume growth of 1%.
In the India business, the Coconut Oil franchise reached a volume market share of 59% on the back of healthy offtake growth. The Value-Added Hair Oils portfolio also improved its volume market share to 34%. The Leave-in Hair Serums portfolio showed signs of sustainable growth. In the second half, the Male Grooming portfolio came back to a double digit growth path, signalling an upward trend. However, Saffola Edible Oils had a challenging year. We have now diagnosed the issue and rolled out a multi-pronged action plan to ensure recovery and growth. Saffola’s Oats franchise consolidated its lead in the savoury oats category with a volume market share of 70%. Your Company also passed on the benefits of reduction in GST rates to consumers by lowering retail prices of Value-Added Hair Oils and Saffola Edible Oils in July 2017 and Premium Hair Nourishment, Male Grooming and Skin Care portfolios in November 2017.
During the year, growth in the rural business outpaced growth in urban. e-commerce and Modern Trade posted healthy growth and should lead growth in FY19. e-commerce is now over 1% of the India turnover.
During the year, the international business grew 9% in constant currency terms. Though adverse forex movements muted the reported value growth, margins remained healthy. Bangladesh grew in double digits, while Vietnam had an exceptionally muted year due to sluggish growth in the male shampoo category and instability in our Go-to Market execution. We are taking definitive steps to reignite growth in this category. We are also strengthening our GTM by investing in a top-notch IT backbone. Middle East and North Africa showed signs of recovery where we remain cautiously optimistic about the future. New country markets such as Nepal and Myanmar showed positive movements. In South Africa, the integration of the newly acquired ethnic hair styling brand, Isoplus, has progressed well.
STRATEGIC OVERVIEW
During the year, we continued to focus on strengthening the core portfolio, driving premiumisation in leave-in hair nourishment, creating new engines of growth with portfolio expansion in existing and new markets, while also tapping into the bottom of the pyramid and embracing digital and e-commerce.
The leadership team’s focus on nurturing new engines of growth in Premium Hair Nourishment, Male Grooming, Skin Care and Healthy Foods shall ensure broad-based growth in the coming years.
With rural sales contributing 32% of domestic revenues, the Company expects to take this up by at least 3-4 percentage points in the next 3-5 years by driving penetration through price point packs and focused GTM initiatives.
In sales and distribution, we are leveraging IT and digital technology to enable automation which will improve resource allocation and enhance sales productivity. With the use of analytics, we will continue to drive efficiencies and deliver better business outcomes.
During the year, we made a strategic investment in Revofit, an integrated fitness and holistic wellness solutions app, which complements our aspirations in the nutraceuticals and wellness space. The performance of Beardo, in which your Company invested in the previous year, was also satisfactory.
In the international business, we will invest towards scaling up the Male Grooming and Nourishment platforms, drive existing markets to their full potential and build One Marico synergies by leveraging digital, analytics and IT, while harnessing global capabilities and the expertise of our Centres of Excellence (COEs).
BUSINESS OUTLOOK
For FY19 and beyond, we retain the target of 8-10% volume growth in India accompanied by healthy market share gains. Accelerated innovation and our focus on Digital will be strong enablers. In the international business, while we will aim for a breakthrough performance in Bangladesh, we will also direct our efforts towards establishing a stable and predictable growth trajectory in the rest of the business, thereby delivering double-digit constant currency growth on an overall basis, in the medium-term.
While driving growth, we will continue to retain our focus on best-in-class governance, risk management and talent acquisition and development.
Given the stable macro environment and early forecasts of a normal monsoon, we hope for healthy consumption growth, especially in the rural segment. The Government’s thrust on improving farmer disposable incomes should further provide the much needed fillip to rural consumption.
While the current inflationary input cost environment may impact profitability in the first half, we believe that focus on franchise expansion with threshold margins will stand us in good stead to write a medium-term profitable growth story.
COMMITMENT TO ‘MAKING A DIFFERENCE’
We exist for all our stakeholders and Marico is fully committed to its purpose of ‘Make a Difference’ to all of them.
Our sustainability initiatives are focused around six areas – Sustainable Procurement, Energy Management, Water Management, Waste Management, Product Responsibility and Future-ready Capability Building.
Our brands, Nihar Naturals Shanti Amla Badam and Saffola, continue to stay true to their purpose, creating a social impact through education of underprivileged children and spreading awareness about heart health, respectively. Our community support programme, Sakshar Beti (translation: ‘literate daughter’), empowers the girl child through education, and health camps organised at our plants for members as well as the community, enables access to better healthcare facilities.
MARICO OF THE FUTURE
The culture of innovation, empowerment, agility, bias for action and consumer-centricity, will enable us to build a ‘Marico of the Future’ and continue on the path of profitable growth and maximise shareholder value over the long-term.
Recognising that Digital is the future, we are embedding digital in consumer engagement, creating digital brands and charting aggressive growth plans for e-commerce. We are also working towards a differentiated operating model to accelerate our Horizon 2.0 initiatives. Our investments in Beardo and Revofit will augment our efforts further.
We take much pride in fostering a challenging, enriching and fulfilling workplace that maximise our people's potential. We deliver on this proposition by placing early responsibility, building both leadership and functional capabilities and creating an empowering work culture.
As we focus on steering our growth story firmly forward, I am happy to share that your Company has been ranked among the Top 50 ‘India’s Best Companies To Work For’ and also ranked the 8th Best Workplace in Manufacturing in India, as per studies conducted by Great Place to Work Institute. The dedication, ownership mentality and commitment of the members has made this possible and I would like to thank everyone for their consistent engagement and support in our journey.
I also take this opportunity to express my sincere gratitude to our shareholders, Board of Directors, Management team, customers, suppliers, bankers, investors and partners for their trust and abiding faith in Marico.
Warm regards,
Saugata Gupta