Higher royalty “no big deal”, says Unilever CEO Paul Polman

 

The increase in royalty payable by Hindustan Unilever (HUL) to its parent, Anglo-Dutch corporation Unilever, is “no big deal” and should not be an area of concern and is quite normal, according to Paul Polman, CEO, Unilever.

HUL came in for adverse attention amongst investors and the market earlier this year when it decided to increase royalty payable to Unilever from 1.40 per cent of sales to 3.15 per cent in phases by 2018.

Area of concern

“That should not be an area of concern. In fact, anything you do there is someone who says that’s my concern. And since you now have the Internet, it looks as if the whole world is saying so, which is not the case at all,” Mr. Polman said, answering a question about investor concerns over the issue.

Mr. Polman, who is on a visit to India, was addressing a select group of journalists at the company’s headquarters here on Thursday. “The success of HUL that you see now is because HUL can benefit to a great degree due to the global scale of this company. We have centralised our R&D, manufacturing, we’ve created global categories that are stronger than before. Our model now is much more of inter-dependent. As a result, some of the cost base has changed and the right cost base has to be reflected. That is why you have seen these adjustments in HUL,” Mr. Polman said.

Quite normal

Asked whether the royalty should have been linked to specific instances of technology transfer, Mr Polman said: “No, it is based on turnover because it is based on actual cost of services provided. It is a function of the portfolio, of the services provided. It’s quite normal, no big deal as far as I’m concerned. Nor was that received as a big deal by anybody.”

Talking about the general environment of pessimism in the country, Mr Polman said that HUL has been around long enough to be successful in this environment as in other times and its growth reflects that. “ While there are always opportunities to make the country better, we have to be as much a part of that solution,” he said.

“We don’t run our businesses on the basis of short-term factors or by the financial markets. We run them on the basis of opportunities and nothing has changed on this front. Maybe the growth is a little less, but we’ve seen this before. And growth through development has bumps, it never is a straight line,” Mr. Polman added.

Pressure points

Alluding to the present challenges, Harish Manwani, Chairman, HUL and COO, Unilever, said that the markets have slowed down and competitive intensity had gone up. “These two are not new but when they come together you have to get a little sharper,” Mr. Manwani said.

Mr. Polman added that the company has always taken the position to accelerate its investments to get closer to the consumer during difficult times.

“We are outgrowing the market. Unilever is growing at 6 per cent globally in personal care when L’Oreal, P&G are growing at 1-3 per cent.

“We find opportunities to grow. We are opening more Lakme stores at one end, and, at the other end, we make sure that brands like Lifebuoy, which is growing in double digits, reach more villages. We work on both sides of the value chain a little bit harder,” he said.