Hindustan Unilever : Transcript

"Strategic investments in OZiva & Wellbeing

Nutrition"

December 8, 2022

Speakers:

Mr. Ritesh Tiwari, CFO and Executive Director, Finance and IT

Mr. A Ravishankar, Group Finance Controller and Head of Investor Relations

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Moderator: Ladies and gentlemen, good day, and welcome to Hindustan Unilever Limited Conference Call. As a reminder, all participant line will be in the listen-only mode and there will be an opportunity for you to ask questions, after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. A. Ravishankar, Group Controller and Head of Investor Relations. Thank you, and over to you, sir.

A. Ravishankar: Thank you, Faizan. Good evening, everyone, and welcome to the conference call of Hindustan Unilever Limited. Thank you for joining us on a very short notice. As you would have seen, we have announced our entry into the Health

• Wellbeing category with strategic investments in Zywie Ventures Private Limited and Nutritionalab Private Limited.

This conference call is being organized to talk about this in further detail and address any questions that you might have. On the call with me is Ritesh Tiwari, our Chief Financial Officer. Ritesh will start with his prepared remarks, which I expect to take around 10 minutes. Post that, we will have time for Q&A. I would request that you keep your questions focused only on this topic. Also to ensure we take questions from all participants, I request you to restrict your questions to a maximum of two at a time. You are welcome to join back the queue if you have any further questions. Before we get started with the presentation, I would like to draw your attention to the safe harbor statement included in the presentation for good order sake. With that, over to you, Ritesh.

Ritesh Tiwari: Thanks, Ravi. Good evening, everyone, and super thanks for joining us at a very short notice. As you have seen, we have announced our entry into fast- growing Health & Wellbeing category, which is squarely in line with our strategic priority of getting into high growth basis. I would like to start by talking you through the Health & Wellbeing category in some detail. As we had mentioned during our Capital Markets Day, one of the mega consumer trends that we're witnessing is consumers focusing on their health in a very holistic manner.

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The pandemic further expose consumers to unprecedented health risks, leading to a reassessment of their priorities. Consumers are adopting healthier food habits and fitness regimes, which are prioritizing personal well-being. They are more conscious of the need for preventive care. Growing awareness amongst consumers and their increasing affluence is rapidly changing their approach towards Health & Wellbeing. At the same time, India continues to suffer from a very large micronutrient deficiency challenge, something that we've spoken multiple times in our conversations.

A large section of Indian population suffers from Iron and Vitamin D deficiency. Whilst the diets of many Indians meet the required calorie intake, they are unbalanced and do not have necessary micronutrients, zinc and vitamins. We also have a very large diabetes problem. Therefore, clearly, Health & Wellbeing is a category that is an inflection point with fast evolving consumer preferences and unmet consumer needs. In many ways, the category has moved from being a problem solver to lifestyle pursuit of consumers. Consequently, this is reflected in the sizable market potential that this category has. According to Euromonitor, vitamins, minerals and supplements is estimated to be INR 30,000 crores market.

Our focus is to play in some of the fast-growing demand spaces within this category, like Sleep, Beauty from Within, Women's Health, Gut Health, plant- based and so on. These are demand spaces, which are being disrupted and have a potential for high growth through market development activities. There are really three big thrusts to our strategy in Health & Wellbeing category. The first and probably the most critical is to have a portfolio of fast-growinglifestyle-led and science-backed products.

We will build this through the inorganic route as well as dipping into Unilever stable of Health & Wellbeing brands when appropriate. Unilever globally has built a EUR 1 billion business with strong brands like Liquid I.V., OLLY and Nutrafol. The second is our clear focus on product segments that are getting disrupted, some of which I spoke in the previous slide. Within that, we will focus on disruptive formats and channels where we are able to unlock superior growth through market development activities.

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The third focus is to deploy the unique HUL capabilities in terms of market development, distribution, digital and R&D to scale these brands up. Equally, we will benefit from the expertise that Unilever has built in this category globally. With that, let me move on and talk about the partnership we are embarking today with two great brands, OZiva and Wellbeing Nutrition.

Beginning with Zywie Ventures Private Limited, whose brand trademark is OZiva. Founded in 2016, OZiva is a plant-based and clean label consumer wellness brand focused on the need spaces such as Lifestyle Protein, Hair & Beauty Supplements and Women's Health. In line with our clear strategic focus, their product portfolio is science-backed with clinically proven ingredients. OZiva is a digital-first brand with an omnichannel approach, available on its D2C website, digital marketplaces and a growing offline presence.

The company has a strong in-house R&D team comprising of PhDs, Phyto- chemists and Biotechnologists. Further, they have a good social media presence. For instance, the brand has more than 200,000 followers on Instagram. The company has an annual run rate of over INR 100 crores with more than 3 million consumers and a high revenue retention rate.

Let me now move on to Wellbeing Nutrition, which is brand trademark of Nutritionalab Private Limited. Founded in 2019, Wellbeing Nutrition has pioneered disruptive formats in India with focus on convenience of consumption. These include Melts, Slow-Release Capsules and Marine Collagen Powders. The range of science-backed and benefit-led clean products are focused on future proof need spaces such as Sleep, Beauty, Everyday Health and Gut Health.

They have presence in D2C, digital marketplaces and are expanding in offline retail channels. The company has annual run rate of over INR 50 crores with around 2 million consumers and a high revenue retention rate. Let me now touch upon the key aspects of transaction structure for both these deals. In case of OZiva, HUL will acquire 51% equity stake in Zywie Ventures Private Limited through a combination of private infusion and secondary buyouts for

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a cash consideration of circa INR 264 crores. The balance, 49% will be acquired at the end of 36 months based on a pre-agreed valuation criteria.

The current OZiva team led by Co-Founders, Aarti and Mihir will continue to operate all functions of the business. HUL will have a representation on the board and will provide necessary capabilities and support to scale up. We will be taking about 20% stake in Nutritionalab Private Limited through a combination of primary infusion and secondary buyouts for a cash consideration of circa INR 70 crores. Here as well, the existing team, led by Founder, Avnish, will continue to operate all functions of the business, HUL will be represented on the Board.

We expect both deals to be completed in next one month to three months, subject to customary closing conditions. Let me conclude by summarizing why we believe HUL is well placed to support, scale up and unlock value in these brands. One, we have a proven track record of building categories of future by doing market development at scale. As I mentioned earlier, these are disruptive need spaces where the key job to be done is market development to unlock superior growth.

Second, our unparalleled distribution network gives us an opportunity to scale up physical reach in the right channels and at the appropriate time. I already spoke about Unilever's global capabilities in this category, which we will be able to leverage upon. Further, you have seen our R&D progress in the country. All of this will help build a science-backedbenefit-led disruptive product portfolio. Finally, this category will sit within our Beauty and Personal Care division and will benefit from our strong presence in beauty and well-being space. With this, I complete my prepared remarks, and we will take some questions now.

Moderator: The first question is from the line of Shirish Pardeshi from Centrum Broking.

Shirish Pardeshi: Ritesh, Ravi, thanks for the opportunity and congratulations for this two acquisition. Just two broad question. To start with, you mentioned that INR 30,000 crores, the total market potential. Now I just wanted to understand in terms of OTC and vitamins, if you can split to how big is the market, and maybe if you can split minerals and separately? And second question is that

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