Adi Godrej’s address at the GCPL AGM

GCPL, 28 July 2014

Future Now - the tremendous potential that India and Godrej hold

India, today

2014 has been widely viewed as a landmark year for India. This is so, even as economies across the globe grapple with what has been a rather unprecedented last couple of years of turmoil and uncertainty. Against this backdrop, and the many redefining conversations on political identity, human rights, environmental concerns, technological prowess and corporate responsibility, India is entering a hugely transformational phase in her growth trajectory.

There is much hope riding on our new central government with a majority in parliament and the promise of a focused growth agenda. It could not have come at a more opportune moment. The future of our great nation holds tremendous potential. A recent PricewaterhouseCoopers estimate reports India being all set to become the third largest economy in the world by 2030. To put this in perspective - in 2013, India was pegged as the tenth largest economy. The rapid rise of the Indian economy with its young work force, is tipped to be the big driver of this growth.

We have our work cut out for us and there are ambidextrous demands of balancing immediate concerns with a longer-term focus. Economic reforms will certainly be a priority and it is anticipated that efforts will be directed towards building a sustainable platform for growth. The implementation of reforms like the Goods and Services Tax at the earliest will be critical to fast track growth for India. Another pressing issue is improving the ease of doing business in India, which requires a significant overhaul.

“We are fortunate to be at a turning point in India’s story and more importantly, to have the opportunity to craft its trajectory”

At the same time, we must seriously commit to larger socio-economic issues. Take poverty for example. Today, we are home to one in every three of the world’s poorest people. To add to this, income inequality is on the rise. While we pin our hopes on a young workforce, we need to make education and skilling and training a focus. There is huge scope to leverage technology, when we have an Internet user base of over 200 million; the world’s third largest. Investing in infrastructure, sanitation, health and safety is imperative for the inclusive growth of the India of tomorrow.

I firmly believe that the fundamentals of the Indian economy remain strong. As Corporate India, we must reassess the role that we will play in equipping our country to achieve her true potential. We are fortunate to be at a turning point in India’s story and more importantly, to have the opportunity to craft its trajectory.

Learning to thrive in uncertainty

At Godrej Consumer Products, we believe that uncertainty can offer significant opportunity to propel forward. Our success today is the result of us becoming much more agile as a company. Over the last couple of years, we have been leveraging our understanding of consumer needs to become more innovative in our product offerings and processes, strengthening our leadership positions in the categories that we are present in, and growing ahead of the market. We continue to make the right investments for the longer term, while managing our business prudently in the short term. Our operational excellence has held us in good stead, as has the great agility and resilience demonstrated by our teams, in what has been a turbulent market environment.

There are tremendous growth opportunities for us in India. We have served generations of consumers with world-class quality, reliable and affordable products. This is exactly what India’s rapidly emerging middle class is looking for. We see our focus on delighting these consumers as a significant competitive advantage, both now and in the future.

What makes it more interesting is that this trend is not unique to India alone. There are a lot of other emerging markets with similar consumer demographics as India. In fact, close to 80 per cent of the world’s population now lives and works in these countries. As incomes and aspirations rise, consumers in emerging markets will seek new and exciting products. New categories will therefore emerge. A large section of the population will also finally be able to afford branded consumer goods and will be looking for similar superior quality products at accessible price points. New distribution channels too will improve availability and enhance the buying experience. This rise of the middle class in emerging markets could arguably be one of the most defining trends in the coming decades.

Our 3 by 3 strategy, to become an emerging markets FMCG leader, is centered on this premise. We are focused on three business categories (personal care, hair care and home care) in three geographies (Asia, Africa and Latin America). Close to 47 per cent of our revenues now come from our international businesses, as compared to 15 per cent in 2009-10. This is one of the most significant changes for us as a company. Today, over two-thirds of our team members are based outside India and our products are available in more than 60 countries across the world.

Over the last few years, we have been building a strong platform for sustainable growth. At the same time, we also have a tremendous track record of value creation. In fact, over the last 10 years, we have achieved 15X sales growth at a compounded annual growth of 32 per cent and 12X profit growth with profit after taxes growth at a compounded annual growth of 28 per cent. The market has also rewarded us well for our strong performance, with a 21X appreciation in share price, delivering a compounded annual growth of 36 per cent since 2004. This places GCPL among the best performing FMCG stocks during this period.

The year gone by has, undoubtedly, been a challenging one for the FMCG industry, with growth slowing down across the home and personal care categories. We have however managed to navigate our way through this uncertainty and deliver a strong performance. I am pleased to share with you that GCPL has outperformed the sector and strengthened share across the categories that we participate in.

Sales for our consolidated business this year stood at 7,583 crore rupees, which was higher by 18 per cent than the previous year. Our India business grew by 14 per cent and international business, by 24 per cent. Net profit for the year was 760 crore rupees. The EPS for the year was 22.32 rupees. The total dividend paid amounts to 525 per cent i.e. 5.25 rupees per share.

Our biggest priority going ahead will be to sustain this profitable growth trajectory, while strengthening our company to continue winning in the future.

Our blueprint for growth

We have recently articulated the GCPL blueprint for growth. This will define our focus and approach over the coming years.

We have seven key elements in our playbook:

1. Extending leadership in our core categories in India

We believe there is considerable opportunity to leverage demand and increase consumption and penetration in our current categories of personal wash, hair care and home care. Today, we are one of the largest household and personal care companies in India. We are leaders in hair colour, household insecticides and liquid detergents, the number two player in toilet soaps and a fast-growing new entrant in air care.

Our focus is to continue to be innovation leaders and drive this to full potential. We see a lot of growth potential, from driving penetration and increasing consumption in our core categories, as well as extending into attractive adjacencies. For example, we have forayed into shower gels under the Cinthol platform and air fresheners in home care, under a new brand, Godrej aer; within insecticides, we are expanding our focus from protection against mosquitoes to dealing with other pests such as roaches.

We are also particularly interested in the potential that lies at the bottom of the pyramid in India. Most companies develop products for urban consumers and then adapt them for rural consumers. However, we believe that there is tremendous benefit in creating solutions specifically for these consumers. A great example of how we are doing this, is Good knight Fast Card. Our disruptive new innovation of a paper based mosquito repellent, which is available at just one rupee and does not require electricity, is changing the way we contribute not just to household insecticides as a category, but the larger issues of malaria and dengue that rural India battles with.

2. Capitalising on international growth potential

We continue to expand our international footprint in line with our 3 by 3 strategy. We want to drive growth in these categories where we are leaders and have a competitive advantage, by providing our consumers with superior quality products at affordable prices. This approach helps us capitalise on the potential of the emerging middle class in India and other emerging markets where we are present.

We are the number one player in air fresheners and wet tissues in Indonesia, and hair colour across various countries in Africa and Latin America. We are also leaders in hair extensions in Africa and the number two player in household insecticides in Indonesia.

We have made good progress on the next phase of the integration of the Darling businesses, which has enabled us to take our presence in Africa to the next stage. We are now strengthening and building processes and talent infrastructure for sustainable growth. Our UK business continues to outperform. Our Indonesia and Latin America businesses too have performed well, despite market challenges.

What sets us apart from traditional multinational corporations, is our unique operating model. We follow a multi-local model, centred on values-based partnering and operational autonomy at the local level. Over the last few years, we have successfully integrated our acquisitions. Our focus is now on defining the future roadmap to drive these businesses to full potential. We have acquired
strong local brands and are working with the country teams to accelerate growth momentum. We sustain the entrepreneurial spirit that has made these companies successful, while providing them with the benefits of strong processes and scale that GCPL brings.

As part of these efforts, we have reorganised our international businesses into three key clusters – Africa, Latin America & Europe, and Rest of Asia. The cluster heads, who are all seasoned Godrej leaders, are now part of the GCPL Leadership Team and therefore, more closely involved in the overall business. This new structure allows us to drive greater agility, increase cross-pollination and enhance collaboration across these clusters and our India business.

In our endeavour to synergise operations and products across geographies, we are also making a conscious effort to cross-pollinate products. This has translated into well- received launches in newly entered market segments. For instance, we have learnt a lot about air fresheners, with our Indonesian acquisition and enhanced the product to suit Indian needs. In hair colour, we brought in the crème in a sachet technology from our Argentina business, but reformulated the product and changed the packaging to launch the first hair crème-in-a-sachet in India at a disruptive price point of rupees 30. The idea of a paper- based mosquito repellent, Good knight Fast Card, came from our Indonesian business. We leveraged the idea, but substantially modified the product for the Indian market. Our cross-pollination relies on leveraging knowledge and technology, but it is not a ‘copy and paste’ model replicating products from one country to another. We tailor our products for the local consumer and this has held us in very good stead.

3. Accelerating innovation and renovation

Innovation has been a lead strategic growth driver for us. Over the last few years, we have re-architected our approach to innovation. We are accelerating our innovation pipeline, have set up a Global Innovation Council and are sharing learning across geographies to create more exciting products. Our innovations address both the bottom of the pyramid, as well as provide premium benefits to our mass consumers.

This is really helping us accelerate our revenue growth. We are doing a lot more experimentation and prototyping and employing design driven thinking to come up with bigger, better and faster innovations. We have cross- functional teams who come together to work on different innovation projects. To support our innovation efforts, we have significantly increased our R&D spend and are building a new state-of-the-art R&D centre at our headquarters in Mumbai. Distinctive and delightful design is a big differentiator for us and we have set up a Design Centre to lead these efforts.

Over the last 18 months, we have launched 12 new products in India, including air fresheners, crème hair colour in a sachet, anti roach gel, paper-based mosquito repellent, shower gel, the most powerful liquid vaporiser in the household insecticides category and more recently, a delightful range of hand washes, hand sanitiser and personal repellent. We have also launched a number of new products across our international businesses. All our innovations are doing well and are providing us with incremental growth. Today, almost 40 per cent of our incremental growth is being driven by new launches.

We have a very strong pipeline in place for the next three years.

4. Building a future ready sales system

We have done a lot of intensive on-the-ground work to enhance our go-to-market approach and deepen our distribution, both in rural and urban markets.

As part of our efforts, we are adding outlets and villages to our current reach. Today, we cover around 50,000 villages directly. In the last 12 months, we have added close to 10,000 villages. Our team is also working on improving productivity to increase the range of products sold. We have intensified our training efforts, deployed hand held terminals and are using business intelligence applications for better analytics to support sharper decision making. Over the last six months, we have equipped 2,000 sales representatives with hand held terminals. We have also added over 300 direct sales representatives to aid our distribution expansion. Part of our strategy focuses on increasing throughput through state specific market actions, better visibility and demand stimulation initiatives. As a result of our efforts, rural, which currently accounts for 28 per cent of our India sales, has been outpacing our urban growth.

Through better segmentation of sellers and more feet on the street, we have significantly expanded the number of outlets we cover in urban. We have also been focusing our attention on growing specialist channels like chemists and cosmetics.

5. Making our supply chain best-in-class

As we increase our global presence, having a best-in- class global supply chain will be a priority for us. We have established world class practices and centres of excellence. We are also working with our different international businesses to strengthen and enhance their supply chain processes. One of the major projects that we have run over the last couple of years involves deploying an ERP platform across our different business.

We have set up a cutting edge demand driven supply chain across our business, which has made us more responsive to fluctuations in consumer demand. We will continue to work on enhancing the agility of our supply chain and establishing new benchmarks in product availability.

Our efforts towards improving production efficiencies through relentless capacity debottlenecking projects, are showing strong results. Not only have we managed to increase production capacity and reduce conversion costs, but we are also making our overall system more ‘green’ by lowering specific energy consumption.

Being cost efficient is a key focus for us. Our team is engaged in exploring opportunities for strategic sourcing. These initiatives have significantly benefited our bottom- line and we will continue to look for opportunities to leverage this further.

6. Building an agile and high performance culture

We take much pride in being an inspiring place to work and are committed to building an agile and high performance culture globally. Our values of trust, integrity and respect for others have always been an integral, defining part of our business. At the same time, our exciting and ambitious growth plans allow us to offer unparalleled career opportunities relatively early on.

Our employer brand is built on the core philosophy of tough love. We expect a lot from our team members, differentiate on the basis of performance and potential through career opportunities and rewards and lay particular emphasis on developing, mentoring and training.

We firmly believe that passionate, rounded individuals with diverse interests make for better Godrejites. We understand that our team members play multi-faceted roles, both at home and at the workplace. This is why we encourage them, not just to explore their whole selves, but also create an enabling space for them to do so.

GCPL was ranked as the number 1 FMCG company to work for in India by the Great Place to Work Institute this year. We have featured in the list of best companies to work for 10 years in a row, which is a great achievement. We also ranked among Aon Hewitt’s top 17 Best Employers in India, and are one of the only two FMCG companies mentioned.

7. Re-enforcing our commitment to Godrej Good & Green

With the implementation of the new Companies Act, India is the only country in the world with legislated Corporate Social Responsibility (CSR). The new mandate requires us to spend 2 percent of our average annual profit on CSR activities. This is a very important move. It offers us a great chance to understand how we can best commit to driving the social progress of the communities that our businesses operate in.

The Godrej Group has always actively championed social responsibility. Like many global companies, we are furthering our commitment through ‘shared value’ initiatives that create both social and business benefits. We have crafted a vision for playing our part in creating a more inclusive and greener India, called ‘Godrej Good & Green’. As part of Good & Green by 2020, we will aspire to train 1 million rural and urban youth in skilled employment, create a greener India and innovate for good and green products.

GCPL plays a key role in Good & Green. Employability is very high on our agenda. We have introduced different programmes to support our efforts. These are showing good results. Godrej SALONi, trains young women in beauty and hair care, Godrej Vijay, trains rural youth in channel sales, and Godrej Sakhi, helps rural women to become entrepreneurs. To manage scale, we have built infrastructure to measure impact, enhance partner and programme capabilities and invested in technology solutions. Our Employability Portal now enables our partners to share critical programme and beneficiary information with us.

We are committed to environmental sustainability in our operations. We have implemented several initiatives to reduce specific energy and water consumption across all our manufacturing locations. We have also set targets for Godrej Sakhi graduates display handmade products improvement on environmental aspects for the near term, including energy and water consumption and greenhouse gas emissions and monitor them on a regular basis to ensure progress. Our new Green software too helps us map, understand and analyse our environmental footprint, from raw materials to finished goods, across all factories.

Brighter Giving, our employee volunteering initiative, encourages Godrejites to commit time to working with our different NGO partners. The response has been very encouraging and we are looking forward to scaling up this programme.

Today, we announced the results of our performance in the first quarter of fiscal year 2014-15. Consolidated net sales increased by 12 per cent and we recorded a healthy Profit Before Tax growth of 21 per cent. Net Profit (without exceptionals) grew by 3 per cent. The board has declared a dividend of one rupee per share.

This was a challenging quarter for the India business, given the continued slowdown in the Home and Personal Care sector. The India branded business grew by 7 per cent. Our international business recorded a strong 17 per cent growth. We feel optimistic that the worst is over. We are beginning to see improved consumer sentiment on the ground and are hopeful that this will start translating into better consumer demand in the quarters ahead.

Closing remarks

Our success can be attributed to a relentless focus on

our strategy, execution excellence, exciting innovations to delight our consumers and an agile and high-performing team. This, in turn, allows us to generate strong value for all our stakeholders. I am confident that with our clear strategic focus, superior execution and top-notch team, we will continue to deliver industry-leading results in
the future.

I would like to take this opportunity to acknowledge the many contributions, dedication and commitment of all our team members, which makes GCPL so successful. My deep appreciation to all our business partners, vendors and other business associates, for all their contributions. To the various central and state government authorities, many thanks for all the support that they continue to extend. Finally, I thank all our stakeholders for their wholehearted interest, faith and encouragement through the years, and look forward to their continued support.