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Unilever Sri Lanka growth

A key player in the FMCG market, Unilever Sri Lanka has made good progress to achieve double digit growth figures.

Unilever makes big strides, geared to step further ahead in FMCG

A key player in the FMCG market, Unilever Sri Lanka has made good progress to achieve double digit growth figures. But the company has today come under intense pressure from the economic setbacks that have hit the people with the rising cost of living also adversely affecting the FMCG industry.

Chairman of Unilever Sri Lanka Amal Cabraal spoke to Daily Financial Times of the declining trends observed in certain segments and the other worst hit areas geographically while also noting the expected toll its likely to take in the next year. The high palm oil levy added to industry performance and the grave setbacks that have hit on the industry as a whole were highlighted.

How would you consider your performance to have progressed during the course of the year to date?

We have been a large company present in this country for over 70 years. Back in the 1990s the company knew that if we were in line with GDP growth or more then it would be good. In 2001 we set out a vision for this company to double its business in 5 years.

I can very proudly say that Unilever Sri Lanka realized this vision and doubled its business not in 5 years but in 4. By end 2006 we doubled our vision. We had to move to a 15% annual compound growth. My leadership and I have again decided to double our business. By 2010 we want to be twice the size.

In months gone through we are on track. This year per se our top line sales have been growing steadily. But had price increases steadily due to inflation. Also our market shares have grown, but we will not meet our ambitions due to the rising cost of living. We have driven a lot of cost efficiency in the company. Ideally we should have passed on our cost to the consumer. But we cannot do that and we will fall short of our profit ambition this year.

The principle raw material for palm oil has increased 50% in comparison to last year. This is compounded by a devaluing rupee and the levy by the government.

All of this has not been passed onto the consumers. But soap and margarine costs will have to increase which we started from last month.

Being a global MNC obviously we have strengths connecting with our global unity network. We have continued to build in the capability of skills of our people.

95% of products we market in this country are made in Sri Lanka and we will continue to do so provided the local policies are conducive. Unilever serves around 20 million consumers and our primary purpose is to serve our consumers. But if economic policies are not encouraging then we have to manage it the best possible way.

Sunlight, Lux, and Lifebuoy are kept in tune with today, particularly with the younger generation. We have invested in our people, manufacturing and brands which are most important and also growing with our links with the people.

It’s the perceptions we are after. It’s only success in business in a responsible manner that will move us up the ladder. Consistent and competitive profitable growth is what we see and we will continue to provide brands.

We have a mantra in the company to explain this that’s the G3 mantra – growth raised to the power of 3 which means growth of our brands, people, and links with the country we serve. I believe you need an engaged employee team. The information given on the company’s performance is done with the attendance of all which is then cascaded to the factory people as well.

How would you perceive the industry’s growth to have taken place?

Volumes in FMCG are on a declining trend but actual growth so far is buoyed by 14%. So people are buying less. The urban sector is growing at 17% while the rural sector is growing at 13% in the top five categories of milk powder, biscuits, malted milk, skin cleansing and washing soap contribute to 50% of FMCG market in value. We can already see a drop in buying of optioned extras or non essentials.

Next year there will be some significant drop. But trend lines are declining. We are also seeing pack-sized downgrade. We are also some geographies declining. The less developed provinces are declining and the Western Province is affected in certain categories. Also within the FMCG basket, the contribution of essential food and beverages items is increasing due to the milk powder prices going up, while the contribution from home and personal care categories is declining.

Modern Trade or supermarkets, which was growing at 30%+ in the last few years is slowing down, especially outside Western province. Home and personal care is shrinking not hugely but its there because people have to go for food.

Any pressing issues in your opinion concerning the industry that should be addressed & could be highlighted?

The challenge is to have consistent, competitive profitable growth. We have been in Sri Lanka for over 70 years and we want to remain in this country for a long term. For us to grow and move forward we need to add value to our consumers, customers, employees and our shareholders. But the high inflation and high cost of financing which also impacts our business partners profitability as well as growth is coming under pressure and needs immediate action.

Our principal raw material Palm Oil is charged an effective duty of over 40%. Such high levies on a raw material will make soap and margarine products too expensive for consumers and as such will make business unviable. The government has recognized this and given a 3 month window of lower duties, which we hope will be continued, as this will help us minimize the cost burden on the consumers for products such as soap and margarine.

My suggestion to the government is that it ought to separately recognize palm oil imported as a raw material for value addition such as soap and margarine manufacture and apply the lower duty rate applicable to raw material imports. As today, both palm oil imported a raw material as well as palm oil imported for cooking purposes which directly competes with coconut oil and has no real value addition are charged this very high duty and levies amounting to over 40%.

Government should also expedite the VAT recovery process; this is impacting the export business which brings in much needed foreign currency to Sri Lanka.

Finally we need peace and a more conducive business and economic environment to invest and grow, as otherwise, investors may decide that there are better investment locations than this country.

Given the potential or peaceful Sri Lanka our GDP ought to be in the double digits. India and Pakistan are growing at these rates and therefore we can’t be happy with 6% growth. If we continue to be in this mess we will continue to miss out on a great growth opportunity.

Private sector led export and worker remittances for overseas workers have helped. The road to peace is looking long and arduous. What we should do is invest in building capabilities, target infrastructure improvements. Because when peace returns then we will have a much strong launching pad for prosperity. But I don’t think adequate skills are available, and building and infrastructure are crawling.

Our aim is to be consistent, profitable growth, and do that through our brands. Unfortunately the economic conditions and high interest rates are not helping us. With interest rates anything close to 20% are keeping our partners to contracting.

What is your general perspective of the industry & the current situation in the country in relation to industry performance to date?

Currently the macro economic and political environment is not the most conducive for business growth.

The civil war, 17% inflation, high interest rates, high fuel and electricity costs and the devaluation of the rupee are having a negative impact on business – yes the country GDP is estimated to grow at around 6% but we should not be happy with this. as I believe the potential for growth in a peaceful Sri Lanka is in double digits like our neighbours India and Pakistan.

So 6% growth in my opinion is low and what is worrying is that the quarter on quarter GDP growth rates are coming down. In sum, as a country we are continuing to miss out on great economic growth opportunities.

Having said that, despite the adverse conditions, Sri Lanka’s economy unlike the economies of most other countries that have had to face similar conditions remains resilient...mainly due to a strong private sector led exports and the increasing foreign remittances from our workers abroad.

Given the circumstances the country is in and the road to peace looking long and arduous, as a country we should use this time to build and consolidate fundamentals like infrastructure, skills development etc., so that we will be in a better position to reap the rewards when the economy turns around.

However, whilst some infrastructure projects such as the coal power plant and the South Harbour have commenced, the level of infrastructure as well as the rate of infrastructure development is much behind the emerging economies in Asia. For example, we still don’t have an express way to the airport. Unfortunately Sri Lanka will lose investor confidence if it does not focus on this area.

It is important to keep the basis of economic resilience primed – the private sector should be encouraged, infrastructure should be developed and skills of the workforce and professionals developed. Then, when peace comes, Sri Lanka would have a strong launching pad to propel forward.

What are the Unilever Sri Lanka’s plans for the next year & the future?

We continue to upgrade our products. But very soon you will see new products coming out before the end of the year in the personal care and foods segment.

There will also be re-launches carried out. If we don’t act on declining trends we need to act on the market.

Despite the challenging business climate, we have once again embarked on doubling our business over the next 5 years starting 2006. So this is the second year and so far we are on target. Needless to say, this time around it’s much tougher as we have to grow from a much higher base while also facing greater competition and significant economic challenges.

As for our brands, as I said before, we have doubled their growth and plan to do so once again over the next 5 years. We have been investing heavily behind our brands while keeping them fresh and up to date. Even our oldest and biggest brands Sunlight, Lifebuoy and Lux are constantly relaunched and are all doing well. We have also introduced a number of new brands like Clear shampoo, Comfort fabric softener, Rexona deodorants and Axe male grooming products with much success to cater to the changing needs of our consumers.

Our people have grown too. Today most of the key jobs are given to Sri Lankans. So much so, we only have one expatriate manager among us. This is probably the lowest number of expatriates we have had in our 70 year history. The business is headed by me and in the history of the company I am only the second Sri Lankan to hold the position of Chairman.

Little over 20% of our senior to middle level managers is on expatriation working in Unilever companies around the world. So our people are reaping the dividends of our growth and success. Attracting, developing and retaining talent will remain a key priority for the company.

Unilever helps the community

Our links with the community have grown significantly. We believe that corporate social responsibility is not a collection of one-time projects, but a continuing and integral part of our work, which we pursue with passion and persistence as we do our business results. For example, Signal has for the last 25 consecutive years carried out programmes in schools and among the community to raise Sri Lanka’s oral hygiene standards to be amongst the best in Asia.

Astra margarine, has been helping groom and develop champion sportsmen for years, and is now nurturing Sri Lanka’s young cricketers, in partnership with Sri Lanka Cricket. Astra sponsors no less than three national schools cricket tournaments for the Under-13, 15 and 17 age groups, involving hundreds of schools and thousands of children throughout the country.

Lifebuoy’s mobile showers provide refreshing baths to thousands of pilgrims at various locations around the country and the ‘Lifebuoy Clean Hands’ programme in schools promotes good hygiene habits aimed at reducing disease.

Pears, the trusted baby care brand through its ‘Safe Hands’ programme under the auspices of the Sri Lanka College of Pediatricians continues to uplift the standards of medical facilities for mothers and babies across the country.

Water is essential to our business just as it is essential to life. When drought gripped the north central part of our country, Sunlight stepped into to provide water by digging wells in Medirigiriya and Welikanda. We also support post graduate study on water management at the Peradeniya University and are funding a project of the International Water Management Institute (IWMI) to develop an early warning system for droughts.

Unilever Sri Lanka Ltd.

258 M. Vincent Perera Mw

Colombo 14

Sri Lanka

+94 (0) 11 4700 800

communications.usl@unilever.com

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