What Our MD & CEO has to Say

Dear Shareholders,

After a modest FY18, your Company bounced back to deliver a healthy operating performance overall. Consumption trends were stable through the year after witnessing intermittent disruptions in the last two years. We continued to register market share gains in each of our key portfolios, as brand offtakes grew ahead of the category. With unrelenting focus on franchise expansion and future readiness, your Company synchronised its efforts towards rejuvenating the core and revving up the innovation engine.

As we look ahead, it is clear that the world around us is changing at an accelerating pace. Digital technology, in particular, is transforming every aspect of the way we live, work and shop. Companies that thrive in this increasingly dynamic environment will be those who ‘innovate to disrupt' and respond effectively to rapidly changing consumer preferences and an evolving competitive landscape.

We are confident that fostering a culture of innovation, empowerment, agility, bias for action and consumer-centricity will enable us to create franchises that are 'built to last' and stay undeterred in our journey towards sustained profitable growth and maximisation of shareholder value over the long-term. We will continue to significantly invest behind our biggest assets – brands and people.

FY19 Overview

During the year under review, the consolidated topline grew by 16%, with an underlying volume growth of 8%. The consolidated profit after tax registered a growth of 14%, excluding one-offs. The businesses also delivered a respectable operating margin of 17.5%.

The India business grew 16% with an underlying volume growth of 8%. Growth was broad based as the core portfolios grew largely in-line with expectations and the newer portfolios such as Healthy Foods, Premium Hair Nourishment and Male Grooming marched ahead at a much brisker pace. The International business grew 9% in constant currency terms with key markets such as Bangladesh, Vietnam and MENA delivering double digit constant currency growth.

In the India business, the Coconut Oil franchise strengthened its leadership at 59.4% volume market share, having gained 45 bps during the year. Value  added Hair Oils, though, fell short of the double digit volume growth aspiration due to the combination of a one-off decline in CSD in Q2, channel clearing in Q4 prior to price decrease taken from April 1, 2019 and underperformance of premium offerings during the year. We expect to resume double digit volume growth in this portfolio through driving premiumisation, enhanced participation at the bottom of the pyramid and scaling up new launches.

Nihar Naturals Shanti Badam Amla has firmed up a volume leadership position in hair oils during the year. Parachute Advansed Aloe Vera was taken national this year, while we are enthused by the launch of Nihar Naturals ExtraCare Hairfall Control Oil and Hair & Care Dry Fruit Oil. Parachute Advansed Coconut Crème Oil range and True Roots have been noteworthy innovations in our efforts towards addressing consumer needs such as making hair oiling more convenient and anti-greying respectively. The new variants of Livon Serum tap into a new pool of consumers by addressing specific hair types and truly owning ‘salon finish’ as a benefit. Saffola Edible Oils did much better than last year on the back of focused marketing campaigns and tactical pricing interventions. We are cautiously optimistic on the potential of the franchise. Saffola Masala Oats extended its lead in the savoury oats category with a volume market share of 72%, while we continued to launch new variants. We added three new flavours this year. Saffola FITTIFY Gourmet and Coco Soul ranges were sizeable additions to the Healthy Foods portfolio. Male Grooming grew healthily too, while we brought newer editions of Set Wet perfume sprays and a Charcoal added range under Set Wet Studio X. Another exciting initiative this year was our foray into the masstige skin care segment with Kaya Youth O₂, with a view to leverage the strong equity of the brand ‘Kaya’ and make it accessible to a wider consumer set.

In the traditional channel, rural grew nearly 2.5x of urban this year. Modern Trade and E-commerce continued to gain ground speedily, contributing 13% and 4% of the annual India turnover respectively. Channel partnerships, customised portfolio and commensurate investment towards brand building hold us in good stead to further capitalise on the robust growth expected to play out in these new-age channels.

During the year, the international business grew 9% in constant currency terms with healthy improvement in profitability. The diversification path in Bangladesh continued to pay dividends. We also ventured into the baby care segment in this market with the Parachute Just for Baby range. Vietnam recovered impressively after a sluggish last year as the Home and Personal Care segment bounced back. We also forayed into female grooming under the brand Sedure. The Middle East and North Africa had a good year but we remain cautiously optimistic about the future. South Africa has been weak in a tough macroeconomic backdrop.

Strategic Overview

During the year, we stayed put on our strategic pillars namely, strengthening the core portfolio, driving premiumisation, creating new engines of growth with portfolio expansion in existing and new categories and markets, while consistently moving along the path of sustainable growth. Disruptive innovation, go-to-market upgradation in both traditional and new age channels, leveraging digital and analytics and nurturing talent and culture will remain key enablers in this journey.

In India, we witnessed healthy growth in rural through the year. With significant government support expected to supplement rural disposable incomes, the trend is likely to sustain unless monsoons or food inflation raise any alarm. Currently at 32% of domestic revenues, the Company expects to take rural share of sales up by at least 3-4 % points in the next 3-5 years by driving penetration at the bottom of the pyramid and deepening direct reach.

Your Company introduced several new and distinctive products into the market this year. These initiatives will be supported with aggressive investment behind brand building and go-to-market in order to build scalable franchises and thereby drive premiumisation.

Digital has reinvented the way we engage with our consumers. The emergence of trendspotting and social listening tools has opened up exciting new possibilities for engaging with the digital natives. The share of the digital medium in our overall media spends has also been on the rise. Responding to these macro trends, Marico has already upped spends on digital marketing, analytics and automation. These investments in Digital and IT-led automation should pave the way for transformation, especially in sales and distribution. We believe accelerated adoption of analytics-driven solutions will be instrumental in building a nimbler organisation and driving efficiencies across the value chain.

In the International business, strengthening the leadership and capabilities as well as cost optimisation would be key focus areas. We will continue our efforts toward broad‑basing the topline in Bangladesh and Vietnam. We will also judiciously invest behind brands and go-to‑market initiatives in the MENA region. In South Africa, we will aim to protect the core franchise of ethnic hair care and health care over the medium term. We will continue to invest in Myanmar and new export markets which show potential.

Business Outlook

For FY20 and beyond, we retain the target of 8-10% volume growth in India accompanied by healthy market share gains. As cost pressures in the India business relatively ease, operating margins are expected to trend upwards despite the higher investment ask from recent innovations. Going forward, we would push the A&P spends to circa 10% of sales on an annualised basis. In the international business, we are confident of charting a stable and predictable trajectory of double- digit constant currency growth over the medium term.

Commitment to sustainability

At Marico, sustainability dwells in our overall strategy through our focus on achieving environmental stewardship and driving social progress of the communities that we touch.

Through our flagship program, Parachute Kalpavrisksha, we continue to work closely with the farmers’ community to enhance their financial income through best farm practices. In our pursuit to be a water steward organisation, we have augmented our water conservation program from previous year. Through a host of initiatives, this year we have created 550 Million litres of water harvest capacities across various water- stressed regions in the country.

Responding to the impact of climate change, we have taken very specific and focused efforts to enhance the renewable energy share at our operations. Marico has completed its Extended Producers Responsibility (EPR) commitment for FY19 with respect to collection and effective disposal of last mile multi-layered plastic waste.

Our brands, Nihar Naturals Shanti Badam Amla and Saffola, were committed to their purpose of education of underprivileged children and spreading awareness about heart health, respectively.

Nurturing Talent that wins

No strategy is good if it’s not executed well. People make a difference. Your Company’s talent value proposition aims at providing challenging, enriching and fulfilling careers to its employees. We call them members. We have been working hard towards building a culture of meritocracy, diversity and inclusion at workplace that would foster innovation and growth mindset. Our efforts seem to be paying off. I am pleased to share that your Company has been recognised as one of the Top 25 Workplaces in Asia by the Great Places To Work Institute. We have been ranked 21^st in the Large Workplaces category across Asia. It is the sincere commitment and spirit of our members that keeps us going and I express my gratitude for their consistent engagement and support in our journey.

Looking Forward

We are at the cusp in your Company’s history - from a company that has delivered a consistent performance over the years to an institution that would aggressively innovate to disrupt and in the process create sustainable value for all its stakeholders. This journey would be incomplete without the continued support of these stakeholders. I take this opportunity to express my sincere gratitude to all of them - our shareholders, Board of Directors, management team, customers, suppliers, bankers, investors and partners for their trust and unwavering faith in Marico.

Warm regards,

Saugata Gupta