Cream report locks in to hindustan unilever ltd. strategic framework the compass

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3. Strategic Framework - the Compass: 4Gs
3.1 Goal - Consistent Growth
2011-12 and 2012-13 had steadied the boat but Q1-Q3 2013-14 is rocking it.
The maximum Growth Rating Earnings [i.e. P&L and B/S, E in CREAM] has reached is 3.
From 3 a linear advancement to 4 was called for but never reached. Consistent Growth is not seen in the period under review.
The business segments in the running have reached a point of diminishing returns.
Strategic Framework on Consistent Growth needs recalibration.
The ratings beg to be optimised.
3.2 Goal - Competitive Growth
CREAM™ Report in case of HUL is made up of 189 process blocks, each owned by 5 categories of people, common throughout - 4 of Fiscal Responsibility and 1 from Ethical Responsibility.
CREAM Ratings as above warrant optimising to 5.
Each process block is independent yet yoked together by the 5 categories of people. The 189 process blocks cover every activity of a Company, qualitative as well as quantitative.
Corporate tries to rule its conduct by means internal to itself that process block owners compete with each other to reach the optimum level of performance for each block.
Optimised CREAM™ Report Ratings are a veritable gallery of competitive advantage a Company can show case to outside market.
CREAM™ Report analysis of HUL identifies several lacunae detrimental to this process block - Strategic Framework - Competitive Growth.
3.3 Goal - Profitability Growth
CREAM™ Report looks at Sustainable profits as a factor of Sustainable Value System and Sustainable Efficiency.
Accounting Quality and Management Quality represent the value system whereas Corporate Governance and Risk Management efficiency, each reflected in a Balance Sheet and Profit & Loss Statement respectively.
The profits ratings are lower in Q1-Q3 2013-14 compared to previous year.
One of the main reasons is shifting of focus to investments in the year 2007 at the expense of Trade Payables assuming thereby that there is surplus cash.
Market Investment as an SBU is welcome but it was not done so that focus needed for the five business segments has been lacking. With the result five segments are shrunk to become four.
3.4 Goal - Responsible Growth
CREAM™ Report as above comprises of measuring 189 process blocks, qualitative and quantitative assessment of corporate management, under the principle of return on Intangible which is action or inaction as the numerator and human energy the denominator.
CREAM™ Report advances the measurement to a daily basis as Governance is a dynamic function.
Each process block is owned by 5 categories of people with one necessarily being of Ethical Responsibility.
Aligning Fiscal Responsibility to Ethical Responsibility ensures Responsible Growth, a prerequisite for this process block.

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Cream report locks in to hindustan unilever ltd. strategic framework the compass

  1. 1. CREAM™ Report Locks in to HUL Strategic Framework - The Compass CREAM™ Report Locks in to Hindustan Unilever Ltd. Strategic Framework - The Compass An IBCM© Research Publication IBCM© Research 2014
  2. 2. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Copyright Published by Jayaraman Rajah Iyer Inactivity Based Cost Management - Copyright © REGN. NO. L-27490/2006 DATED December 1, 2006 Govt. of India, Copyrights Office, by the Author, Jayaraman Rajah Iyer ALL RIGHTS RESERVED. No part of this Publication may be reproduced, stored in a retrieval systems, transmitted, in any form or by any means – electronic, mechanical, photocopying, or otherwise without the prior permission in writing from the Author. Published by Jayaraman Rajah Iyer The information on Hindustan Unilever Ltd is from the public domain. HUL has not associated in any way for the CREAM™ Report IBCM© Research 2014
  3. 3. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table of Contents CREAM™ Report Locks in to Hindustan Unilever Ltd. Strategic Framework - The Compass..................................... 1 CREAM™ Report Structure:.................................................................................................................................. 5 Table 1: Profit & Loss Statement - 2007 - Q1-Q3 2013-14...................................................................................... 6 Table 2: Balance Sheet - 2007 - Q1-Q3 2013-14.................................................................................................... 7 Table 3: Profit and Loss Statement - Revenue - Rating - 2007 - Q1-Q3 2013-14......................................................8 Table 4: Profit and Loss Statement - Consumption - Rating - 2007 - Q1-Q3 2013-14...............................................9 Table 5: Profit and Loss Statement - employee Costs - Rating - 2007 - Q1-Q3 2013-14......................................... 10 Table 6: Profit and Loss Statement - Advertisement & Promotion - Rating - 2007 - Q1-Q3 2013-14......................11 Table 7: Profit and Loss Statement - Other Expenses - Rating - 2007 - Q1-Q3 2013-14.........................................12 Table 8: Profit and Loss Statement - Finance Costs - Rating - 2007 - Q1-Q3 2013-14............................................13 Table 9: Profit and Loss Statement - Net Profits - Rating - 2007 - Q1-Q3 2013-14.................................................14 Table 10: Profit and Loss Statement - Rating - 2007 - Q1-Q3 2013-14.................................................................. 15 Table 11: Balance Sheet - Trade Payables - Rating - 2007 - Q1-Q3 2013-14.......................................................... 16 Table 12: Balance Sheet - Net Assets - Rating - 2007 - Q1-Q3 2013-14................................................................. 17 Table 13: Balance Sheet - Inventories - Rating - 2007 - Q1-Q3 2013-14................................................................ 18 Table 14: Balance Sheet - Trade Receivables - Rating - 2007 - Q1-Q3 2013-14......................................................19 Table 15: Balance Sheet - Current Investments - Rating - 2007 - Q1-Q3 2013-14.................................................. 20 Table 16: Balance Sheet - Rating - 2007 - Q1-Q3 2013-14.................................................................................... 21 Table 17: P&L And Balance Sheet - Rating - 2007 - Q1-Q3 2013-14...................................................................... 22 Table 18: Business Segments - Soaps and Detergents- Revenue - Rating - 2007 - Q1-Q3 2013-14.........................23 Table 19: Business Segments - Soaps and Detergents- Operating Expenses- Rating - 2007 - Q1-Q3 2013-14.........24 Table 20: Business Segments - Personal Products - Revenue - Rating - 2007 - Q1-Q3 2013-14.............................. 25 Table 21: Business Segments - Personal Products - Operating expenses - Rating - 2007 - Q1-Q3 2013-14.............27 Table 22: Business Segments - Beverages - Revenue - Rating - 2007 - Q1-Q3 2013-14.......................................... 28 Table 23: Business Segments - Beverages - Operating Expenses - Rating - 2007 - Q1-Q3 2013-14.........................29 Table 24: Business Segments - Packaged Foods - Revenue - Rating - 2007 - Q1-Q3 2013-14.................................30 Table 25: Business Segments - Packaged Foods - Operating Expenses - Rating - 2007 - Q1-Q3 2013-14................31 Table 26: Business Segments - Others- Revenue - Rating - 2007 - Q1-Q3 2013-14................................................ 32 Table 27: Business Segments - Others- Operating expenses - Rating - 2007 - Q1-Q3 2013-14............................... 33 Table 28: Business Segments - Consolidated - Net Rating - 2007 - Q1-Q3 2013-14............................................... 35 Table 29: CREAM™ Report - Consolidated - 2007 - Q1-Q3 2013-14....................................................................... 36 IBCM© Research 2014
  4. 4. CREAM™ Report Locks in to HUL Strategic Framework - The Compass CREAM™ Report Structure: IBCM© Research 2014
  5. 5. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 1: Profit & Loss Statement - 2007 - Q1-Q3 2013-14 IBCM© Research 2014 2007 2008-09 2009-10 2010-11 2011-12 2012-13 Net Sales 13675.43 20239.33 17523.80 19735.51 22116.37 25,810.21 6687.49 6747.20 7037.78 20472.47 Other Op. Income 431.53 589.72 349.64 272.88 278.31 606.90 121.55 145.44 185.57 452.56 14106.96 20829.05 17873.44 20008.39 22394.68 26,417.11 6809.04 6,892.64 7,223.35 20,925.03 11,935.13 17,778.61 15,159.39 17,277.95 19,043.28 22,042.48 5789.88 5,871.25 6,060.97 17,722.10 5,290.39 8,386.54 6,608.87 7,550.49 8584.89 10,284.66 2625.23 2,923.03 2,701.51 8,249.77 2,122.56 2,845.07 2,291.74 2,818.13 3024.14 3,235.31 749.82 812.27 837.44 2,399.53 c) Changes in inventories -144.40 -421.56 -22.72 -290.53 128.73 -31.13 107.75 -265.38 121.12 -36.51 Sub-Total Consumption 7268.54 10810.05 8877.89 10078.09 11737.76 13488.84 3482.80 3469.92 3660.07 10612.79 d) Employee benefits 767.81 1,152.12 936.30 961.26 1107.28 1,318.34 341.68 368.30 347.72 1,057.70 e) Depreciation.. 138.36 195.30 184.03 220.83 218.25 236.02 66.44 63.92 64.42 194.78 g) Other expenses 731.41 2,130.92 2,391.43 2764.23 2634.79 3,231.88 889.78 954.02 929.46 2,773.26 g) Other expenses 3,029.01 3,490.22 2,769.74 3,253.54 3345.20 3,767.40 1009.18 1,015.09 1,059.30 3,083.57 3. Profit from ops(1-2) 2,171.83 3,050.44 2,714.05 2,730.44 3,351.40 4,374.63 1019.16 1,021.39 1,162.38 3,202.93 4. Other Income 176.75 150.99 142.66 470.40 2,171.83 3,050.44 2,714.05 2,730.44 3,351.40 4,374.63 1195.91 1,172.38 1,305.04 3,673.33 6. Finance costs 25.50 25.32 6.98 0.24 1.24 25.15 6.22 6.28 18.20 30.70 2,146.33 3,025.12 2,707.07 2,730.20 3,350.16 4,349.48 1189.69 1,166.10 1,286.84 3,642.63 182.35 -4.26 99.35 206.83 118.87 608.40 106.25 33.43 22.97 162.65 2,328.68 3,020.86 2,806.42 2,937.03 3,469.03 4,957.88 1295.94 1,199.53 1,309.81 3,805.28 10. Tax expense 403.21 524.41 604.39 631.04 777.63 1,161.21 276.69 285.73 247.50 809.92 11. NP af Tax[9-10] 1,925.47 2,496.45 2,202.03 2,305.99 2,691.40 3,796.67 1019.25 913.80 1,062.31 2,995.36 Particulars P&L A/c Rs. Cr. Q1- 2013'14 Q2- 2013'14 Q3- 2013'14 Q1-3: 2013-14 1. Total Income from operations (net) 2. Expenses [sum of (a) to (g)] a) Cost of materials consumed b) Purchases of stock-in- trade 5. Profit from ordinary activities (3+4) 7. Profit afer finance costs (5-6) 8. Exceptional Items - net credit/ (charge) 9. Profit from Ordinary Activities Before Tax (7+8)
  6. 6. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 2: Balance Sheet - 2007 - Q1-Q3 2013-14 IBCM© Research 2014 EQUITY AND LIABILITIES Rs. Cr Shareholders’ funds 2007 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Q2 (a) Share capital 217.75 217.99 218.17 215.95 216.15 216.26 216.25 (b) Reserves and surplus 1221.49 1843.52 2365.35 2443.57 3296.78 4406.53 2457.77 Sub-total - Shareholders' funds 1439.23 2061.51 2583.52 2659.52 3512.93 4622.79 2674.02 Non-current liabilities (a) Other long-term liabilities 25.52 144.65 219.20 329.69 481.41 476.25 (b) Long-term provisions 663.87 666.95 703.73 706.34 Sub-total 25.52 144.65 0.00 883.07 996.64 1185.14 1182.59 Current liabilities (a) Trade payables 3837.09 4255.82 5291.66 5009.05 4622.96 5748.82 5167.69 (b) Other current liabilities 63.01 277.30 554.59 546.77 836.62 616.15 (c) Short-term provisions 1273.90 1527.98 1441.55 1056.43 1278.97 501.10 1872.02 Sub-total - Current liabilities 5173.99 6061.10 6733.21 6620.07 6448.70 7086.54 7655.86 TOTAL - EQUITY AND LIABILITIES 6638.75 8267.26 9316.73 10162.66 10958.27 12894.47 11512.47 ASSETS Non-current assets (a) Fixed assets 1708.14 2078.85 2436.07 2457.86 2362.92 2548.43 2508.54 (b) Non-current investments 1440.81 332.62 1264.08 120.58 186.31 650.15 548.03 (c) Deferred tax assets (net) 212.39 254.83 248.82 209.66 214.24 189.30 204.78 (d) Long-term loans and advances 400.31 396.18 509.98 384.29 (e) Other non-current assets 297.02 296.84 Sub-total - Non-current assets 3361.34 2666.30 3948.97 3188.41 3159.65 4194.88 3942.48 Current assets (a) Current investments 1140.09 2251.90 2327.04 1782.63 (b) Inventories 1953.60 2528.86 2179.93 2810.77 2516.65 2623.13 2526.99 (c) Trade receivables 443.37 536.89 678.44 943.21 678.99 679.40 833.48 (d) Cash and bank balances 200.86 1777.35 1892.21 1628.47 1830.04 2445.95 1707.89 (e) Short-term loans and advances 667.18 742.12 600.56 416.35 485.79 535.80 648.26 (f) Other current assets 12.39 15.74 16.62 35.36 35.25 88.27 70.74 Sub-total - Current assets 3277.41 5600.96 5367.76 6974.25 7798.62 8699.59 7569.99 TOTAL - ASSETS 6638.75 8267.26 9316.73 10162.66 10958.27 12894.47 11512.47
  7. 7. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 3: Profit and Loss Statement - Revenue - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% DQ2013: Harish Manwani, Chairman commented: “Our growth has been competitive and profitable and the results are a reflection of how we dynamically managed the business despite the headwinds in the environment. Looking forward, we are conscious of the uncertain macro context but remain positive on the mid to long term opportunities in our sector. We are determined to stay the course on our strategy and will continue to invest in the business for the long term.” CREAM™ Report: 1. Revenue from ops./day optimised in the year 2008-09. Current year 2013-14 JQ13 to DQ13 cum. is at 3. 2. Optimised at 5 is in the bandwidth of >15%. For 9-months DQ13 results the rating is 3 i.e. between >7.5%< 11.25%. 3. At optimised level of 15% the Net Sales/day should have risen to Rs.79.42 crores. Such was possible in the year 2008-09 but subsequently it has maintained a reasonable achievement in the year 2010-11, -12, -13 but the year under scrutiny it is pretty low. 4. 'stay the course on our strategy' - staying the course may not be difficult but maintaining a growth rate of 15% will be challenging. The last quarter daily sale should be Rs.94.61 cr. i.e. Rs.8515 cr. as against Rs.7037 cr. of DQ13. Strategy needs a revisit on segmental growth beyond the current segments. It takes a minimum of 5 years for the new segments to turn out results >15% to compensate for the inadequacy of the current segments. 7. Consistency is lost, to regain it, Strategy is indeed called for. IBCM© Research 2014 Proft & Loss A/c: Revenue: Rs. Cr. Rating 2007 [365] 13675.43 37.47 2008-09 [457] 20239.33 44.29 18.20% 5 2009-10 [365] 17523.80 48.01 8.41% 3 2010-11 [365] 19735.51 54.07 12.62% 4 2011-12 [366] 22116.37 60.43 11.76% 4 2012-13 [365] 25206.38 69.06 14.28% 4 Q1-2013-14 [91] 6687.49 73.49 6.42% 2 Q2-2013-14 [92] 6747.20 73.34 -0.20% 0 Q3-2013-14 [92] 7037.78 76.50 4.31% 2 Q1-Q3 2013-14 [275] 20472.47 74.45 7.80% 3 Revenue from ops. Per day Rev. Inc./(dec) % p-to-p
  8. 8. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 4: Profit and Loss Statement - Consumption - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "DQ13: As you can see, there has clearly been a very sharp depreciation of the rupee that impacted the input cost on oils, on PFAD as well as in crude... DQ13: Operating margins grew by 13% driven by an expansion in operating margins of 50 basis points. This in turn was driven by a lower cost of goods sold, managed through a combination of judicious pricing, winning of some of the promotional activities that were in place in the previous quarter and also aggressively driving cost savings. R.Sridhar" CREAM™ Report: 1.Cost savings in SQ13 a trend set by JQ13 failed to catch up with in DQ13. However 9 months performance is better by 3.13%, over previous year. 2. From 75 years issue Our Journey: a. The crisis: The declining Market: But they [households] did downtrade from higher quality brands to lower priced substitutes. b. A shared vision: Local R&D operations commenced in late 1950s and had grown to a full blown research and development centre of a scale and size by the mid-1960s that came to be the envy of any private sector company in India. 3. HUL always highlighted the contribution of the import substitutes R&D had developed. Cost inflation on account of imports is a bit of a surprise, in 2013. 4. Net Sale with a Rating of 3 (9-months 2013-14) and reduced consumption cost at a Rating of 1 (i.e >0% <3.75%) results in a Net Rating of 2. Both need to achieve a Rating of 5. IBCM© Research 2014 Proft & Loss A/c: Consumption: Consumption Rs. Cr. Rating 2007 [365] 7268.54 19.91 53.15% 2008-09 [457] 10810.05 23.65 53.41% -0.49% 0 2009-10 [365] 8877.89 24.32 50.66% 5.15% 2 2010-11 [365] 10078.09 27.61 51.07% -0.80% 0 2011-12 [366] 11737.76 32.07 53.07% -3.93% 0 2012-13 [365] 13488.84 36.96 53.51% -0.83% 0 Q1-2013-14 [91] 3482.80 38.27 52.08% 2.68% 1 Q2-2013-14 [92] 3469.92 37.72 51.43% 1.25% 1 Q3-2013-14 [92] 3660.07 39.78 52.01% -1.12% 0 Q1-Q3 2013-14 [275] 10612.79 38.59 51.84% 3.13% 1 Consum- ption Per day Consmn % Net Revenue (Inc.)/dec % p-to-p
  9. 9. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 5: Profit and Loss Statement - employee Costs - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "We had called out at the beginning of the year that some of the teams that were housed within HUL and operating to global programmes which is what we called the Enterprise Support Operation based out of Bangalore - they from January 2013 moved into a separate entity. Therefore, you will see the other operational income going down and you see the staff cost also going down because these are now being incurred separately. So you see there was both in the revenue line as well as in the cost line, that will pan out in the next quarter or so and then, this will not be a reconciling item. R Sridhar" CREAM™ Report: 1. %Net Revenue refers to the Operating Revenue and does not include other operating income. This has resulted in a higher Rating for DQ13. Also to note 2009-10 & 2010-11 had recorded better Net Revenue turnover per employee-cost ratio. 2. There are 189 process blocks CREAM™ Report measures Employee capability that 2 out of 189 process blocks, Quarterly Report deals with. Those two process blocks are represented by P&L a/c and Balance Sheet. 3. These two process blocks are of Quantitative elements and the other 187 of Qualitative elements essential in figuring out why the ratings are at 1 for the period of 9-months in 2013-14. IBCM© Research 2014 Proft & Loss A/c: Employee Costs: Rs. Cr. Empl Cost per day Rating 2007 [365] 767.81 2.10 5.61% 2008-09 [457] 1152.12 2.52 5.69% -1.39% 0 2009-10 [365] 936.30 2.57 5.34% 6.14% 2 2010-11 [365] 961.26 2.63 4.87% 8.84% 3 2011-12 [366] 1107.28 3.03 5.01% -2.79% 0 2012-13 [365] 1318.34 3.61 5.23% -4.47% 0 Q1-2013-14 [91] 341.68 3.75 5.11% 2.31% 1 Q2-2013-14 [92] 368.30 4.00 5.46% -6.84% 0 Q3-2013-14 [92] 347.72 3.78 4.94% 9.49% 3 Q1-Q3 2013-14 [275] 1057.70 3.85 5.17% 1.22% 1 % Net Revenue (Inc.)/dec % p-to-p
  10. 10. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 6: Profit and Loss Statement - Advertisement & Promotion - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "We have said earlier also that the level of A&P investment that we make in any period is a function of two things. One, the level of competitive intensity in the market particularly the A&P intensity that we see. And number two, the innovation programmes that we bring to the market and the need to communicate what's new to the consumers. And therefore, all I can say is that including the December quarter, we have maintained competitiveness of our A&P spend. R Sridhar" CREAM™ Report: It reflects so in the year 2011-12 and Q3 current year. In both the cases reduction in A&P spend give a better Rating. IBCM© Research 2014 Proft & Loss A/c: Advt. & Promo: Advt. Rating 2007 [365] 731.41 2.00 5.35% 2008-09 [457] 2130.92 4.66 10.53% -96.86% 0 2009-10 [365] 2391.43 6.55 13.65% -29.62% 0 2010-11 [365] 2764.23 7.57 14.01% -2.64% 0 2011-12 [366] 2634.79 7.20 11.91% 14.94% 4 2012-13 [365] 3231.88 8.85 12.82% -7.62% 0 Q1-2013-14 [91] 889.78 9.78 13.31% -3.77% 0 Q2-2013-14 [92] 954.02 10.37 14.14% -6.27% 0 Q3-2013-14 [92] 929.46 10.10 13.21% 6.60% 2 Q1-Q3 2013-14 [275] 2773.26 10.08 13.55% -5.65% 0 Rs. Cr. Advt. & Promo. Per day Advt. % Net Revenue (Inc.)/dec % p-to-p
  11. 11. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 7: Profit and Loss Statement - Other Expenses - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "As far as other expenses are concerned, I think, there are two parts to it. Firstly, in terms of philosophy, we look to drive leverage from all elements of cost and that’s absolutely true with the items of cost sitting in other expenses. R.Sridhar" "And where it is more rural dominated, I will certainly bring in the experience of my working in countries like Egypt into play - Sanjiv Mehta" CREAM™ Report: 1. A&P is shown separately and does not form part of Other expenses. 2. Royalty is one major expense that would be escalating each year. Driving leverage out of Royalty should be made measurable. 3. Rating of this process block 'other expenses' brings down the ratings of other process blocks. What is needed is to measure strategies, while adopting Cairo Model or Middle-East Model to co- relate the efficacy of paying Royalty to a different outfit. 5. Other expenses excluding A&P are three times of employee costs. IBCM© Research 2014 Proft & Loss A/c: Other Expenses: Rating 2007 [365] 3029.01 8.30 22.15% 2008-09 [457] 3490.22 7.64 17.24% 22.14% 5 2009-10 [365] 2769.74 7.59 15.81% 8.35% 3 2010-11 [365] 3253.54 8.91 16.49% -4.30% 0 2011-12 [366] 3345.20 9.14 15.13% 8.25% 3 2012-13 [365] 3767.40 10.32 14.95% 1.18% 1 Q1-2013-14 [91] 1009.18 11.09 15.09% -0.97% 0 Q2-2013-14 [92] 1015.09 11.03 15.04% 0.30% 1 Q3-2013-14 [92] 1059.30 11.51 15.05% -0.05% 0 Q1-Q3 2013-14 [275] 3083.57 11.21 15.06% -0.77% 0 Rs. Cr. Other exps. Other Exps Per day Other Exps % Net Revenue (Inc.)/dec % p-to-p
  12. 12. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 8: Profit and Loss Statement - Finance Costs - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% CREAM™ Report: 1. Finance cost is a reflection on investment and growth in new business segments. 2. Rating collectively arrived at for the two process blocks of CREAM™ Report which is E representing P&L Rating and Balance Sheet Rating reflects the growth of HUL since 2007. 3. When demand for investment and growth is waning it reflects HUL's space in India's potential development. "Just to talk you through the movement between our operating profit growth of 13% and our net profit increase, you will see that the lines of other income and finance cost are more or less similar to the previous time except that in the finance cost, there is the impact of interest related to income tax that was charged during the quarter.. Our strategy which is outlined in the Compass remains unchanged and our focus remains to manage the business for long-term growth to deliver on our strategic objectives of Consistent, Competitive, Profitable and Responsible growth. We will do this by both investing to strengthen our core and at the same time investing to lead development of emerging categories. R.Sridhar" IBCM© Research 2014 Proft & Loss A/c: Finance Costs: Rs. Cr. Fin Costs Fin Costs Rating 2007 [365] 25.50 0.07 0.19% 2008-09 [457] 25.32 0.06 0.13% 32.90% 5 2009-10 [365] 6.98 0.02 0.04% 68.16% 5 2010-11 [365] 0.24 0.00 0.00% 96.95% 5 2011-12 [366] 1.24 0.00 0.01% -361.05% 0 2012-13 [365] 25.15 0.07 0.10% -1679.59% 0 Q1-2013-14 [91] 6.22 0.07 0.09% 6.78% 2 Q2-2013-14 [92] 6.28 0.07 0.09% -0.07% 1 Q3-2013-14 [92] 18.20 0.20 0.26% -177.84% 0 Q1-Q3 2013-14 [275] 30.70 0.11 0.15% -50.29% 0 Per day Fin Cost % Net Revenue (Inc.)/dec % p-to-p
  13. 13. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 9: Profit and Loss Statement - Net Profits - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "Net profit is more or less at the similar level as the nine months of the previous financial year albeit with a huge property sale from the Gulita property in the financial year ending March 2013. Underlying profit afer tax, which is PAT (bei) went up by 9% and net profit at 1062 crores was up 22% aided by exceptional items. R.Sridhar" CREAM™ Report: 1. Barring two periods DQ13 and 2012-13 when exceptional items came to the rescue the rest are in the expected pattern over the years, considering the limited area of business segments. 2. Freshly introduced business segments pertaining to 'others' failed to stimulate growth needed to higher CREAM™ Report ratings. 3. HUL CREAM™ Report P&L Rating, as follows, reflects HUL Growth related capability. Denominator for HUL CREAM™ Report Rating is Capability as measured by Return on Intangible. IBCM© Research 2014 Proft & Loss A/c: Net Profts: Rs. Cr. Net Profts Net Profts Rating 2007 [365] 1925.47 5.28 14.08% 2008-09 [457] 2496.45 5.46 12.33% -12.39% 0 2009-10 [365] 2202.03 6.03 12.57% 1.88% 1 2010-11 [365] 2305.99 6.32 11.68% -7.01% 0 2011-12 [366] 2691.40 7.35 12.17% 4.15% 2 2012-13 [365] 3796.67 10.40 15.06% 23.77% 5 Q1-2013-14 [91] 1019.25 11.20 15.24% 1.19% 1 Q2-2013-14 [92] 913.80 9.93 13.54% -11.14% 0 Q3-2013-14 [92] 1062.31 11.55 15.09% 11.45% 3 Q1-Q3 2013-14 [275] 2995.36 10.89 14.63% -2.86% 0 Per day NP % Net Revenue Inc./(dec) % p-to-p
  14. 14. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 10: Profit and Loss Statement - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% DQ 2013 Results Presentation – Jan 27, 2014: Safe Harbour Statement: "This Release / Communication, except for the historical information, may contain statements, including the words or phrases such as ‘expects, anticipates, intends, will, would, undertakes, aims, estimates, contemplates, seeks to, objective, goal, projects, should’ and similar expressions or variations of these expressions or negatives of these terms indicating future performance or results, financial or otherwise, which are forward looking statements. These forward looking statements are based on certain expectations, assumptions, anticipated developments and other factors which are not limited to, risk and uncertainties regarding fluctuations in earnings, market growth, intense competition and the pricing environment in the market, consumption level, ability to maintain and manage key customer relationship and supply chain sources and those factors which may affect our ability to implement business strategies successfully, namely changes in regulatory environments, political instability, change in international oil prices and input costs and new or changed priorities of the trade. The Company, therefore, cannot guarantee that the forward looking statements made herein shall be realised. "As far as fixed cost base and operating leverage in the context of low volume growth, I think, Jamshed, you are aware that we in Hindustan Unilever have a very well embedded process of what we call cost effectiveness programme that you are very well embedded over many, many years if not decades. R.Sridhar" CREAM™ Report: CREAM™ Report encourages companies to fix the target of P&L Rating, that HUL current year being at 0 as above, to an optimum level of 5 for any near or distant future date. IBCM© Research 2014 Proft & Loss A/c: Rating Rating P&L A & P N.P. 2007 [365] 2008-09 [457] 5 0 0 0 5 5 0 2 2009-10 [365] 3 2 2 0 3 5 1 2 2010-11 [365] 4 0 3 0 0 5 0 1 2011-12 [366] 4 0 0 4 3 0 2 1 2012-13 [365] 4 0 0 0 1 0 5 1 Q1-2013-14 [91] 2 1 1 0 0 2 1 1 Q2-2013-14 [92] 0 1 0 0 1 1 0 0 Q3-2013-14 [92] 2 0 3 2 1 0 3 1 3 1 1 0 0 0 0 0 Revenu e Consu m. Emp Cost Other exps. Fin Cost Rating P&L Q1-Q3 2013-14 [275]
  15. 15. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 11: Balance Sheet - Trade Payables - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% From Annual Report 2012-13: " 8) Dues To Micro And Small Enterprises There are no Micro and Small Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days as at March 31, 2013. This information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such par ties have been identified on the basis of information available with the Company. " CREAM™ Report: It is encouraging to see steady decline in number of days of consumption on account of Trade Payables. Year 2007 to 2009-10 were the watershed years when high Trade Payables gave an impression of surplus disposable cash used for market speculation, time even manufacturing companies indulged in a spot of croupier's delight. IBCM© Research 2014 Balance Sheet: Trade Payables Rs. Cr. Trade Payables Rating 2007 [365] 3837.09 19.91 193 2008-09 [457] 4255.82 23.65 180 6.63% 2 2009-10 [365] 5291.66 24.32 218 -20.92% 0 2010-11 [365] 5009.05 27.61 181 16.61% 5 2011-12 [366] 4622.96 32.07 144 20.54% 5 2012-13 [365] 5748.82 36.96 156 -7.91% 0 Q1-2013-14 [91] 38.27 Q2-2013-14 [92] 5167.69 37.72 137 11.92% 4 Q3-2013-14 [92] 39.78 38.59 trade Payables Per day Consumpti on No of days consumpti on (Inc.)/dec % p-to-p Q1-Q3 2013-14 [275]
  16. 16. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 12: Balance Sheet - Net Assets - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "As we look ahead, the first thing to say is that our strategy which is outlined in the Compass remains unchanged and our focus remains to manage the business for long- term growth to deliver on our strategic objectives of Consistent, Competitive, Profitable and Responsible growth. We will do this by both investing to strengthen our core and at the same time investing to lead development of emerging categories. R.Sridhar" CREAM™ Report: CREAM™ Report has locked in to HUL Compass. Requests segment assets published every quarter. IBCM© Research 2014 Balance Sheet: Net Assets Rs. Cr. Net Assets Rating 2007 [365] 1708.14 38.65 2.26% 2008-09 [457] 2078.85 45.58 2.19% -3.10% 0 2009-10 [365] 2436.07 48.97 2.01% -8.32% 0 2010-11 [365] 2457.86 54.82 2.23% 10.95% 3 2011-12 [366] 2362.92 61.19 2.59% 16.11% 5 2012-13 [365] 2548.43 70.71 2.77% 7.15% 2 Q1-2013-14 [91] 74.82 Q2-2013-14 [92] 2508.54 74.92 2.99% 7.63% 3 Q3-2013-14 [92] 78.51 76.09 Net Assets Per day Rev. from Ops. Net Rev./day as % of NA Inc./(dec) % p-to-p Q1-Q3 2013-14 [275]
  17. 17. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 13: Balance Sheet - Inventories - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "So I wouldn’t call it as inventory build-up; it’s more about preparing in advance of a season so that our products are there on the shelf before our competition is there and gives the opportunity for us with consumers. But this time around, obviously, winter being delayed, that took some time to work its way through. There is no issue as far as inventory levels are concerned. R.Sridhar" CREAM™ Report: There is a steady decline of number of days of inventory. IBCM© Research 2014 Balance Sheet: Inventories Rs. Cr. Inventories Rating 2007 [365] 1953.60 19.91 98 2008-09 [457] 2528.86 23.65 107 -8.98% 0 2009-10 [365] 2179.93 24.32 90 16.17% 5 2010-11 [365] 2810.77 27.61 102 -13.58% 0 2011-12 [366] 2516.65 32.07 78 22.91% 5 2012-13 [365] 2623.13 36.96 71 9.55% 3 Q1-2013-14 [91] 38.27 Q2-2013-14 [92] 2526.99 37.72 67 5.61% 2 Q3-2013-14 [92] 39.78 38.59 Inventorie s Per day Consumpti on No. of days/ Inventories (Inc.)/dec % p-to-p Q1-Q3 2013-14 [275]
  18. 18. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 14: Balance Sheet - Trade Receivables - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% CREAM™ Report: Will be a healthy competition between Inventories and Receivables towards JIT and Cash Sales, among companies. IBCM© Research 2014 Balance Sheet: Trade Receivables Rating 2007 [365] 443.37 38.65 11 2008-09 [457] 536.89 45.58 12 -2.68% 0 2009-10 [365] 678.44 48.97 14 -17.62% 0 2010-11 [365] 943.21 54.82 17 -24.19% 0 2011-12 [366] 678.99 61.19 11 35.51% 5 2012-13 [365] 679.40 70.71 10 13.42% 4 Q1-2013-14 [91] 74.82 Q2-2013-14 [92] 833.48 74.92 11 -15.79% 0 Q3-2013-14 [92] 78.51 76.09 Rs. Cr. Trade Receivables Trade Receivabl es Per day Rev. from Ops. No. of days/ TR (Inc.)/dec % p-to-p Q1-Q3 2013-14 [275]
  19. 19. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 15: Balance Sheet - Current Investments - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% CREAM™ Report: 2007 was indeed a watershed year. 189 process blocks that CREAM™ Report had analysed HUL for the period 2007 to 2012-13 measures conflicts of interests, conflicts of personal interests, conflicts of conscience vis-a-vis Share Dealing Code, Code Of Conduct, Code Of Business Principles, UNGC Global Compact etc. Quarterly Reports are quite limited in their disclosures. Only 2 process blocks (i.e.E) in CREAM™ Report are analysed with less information. CRAM does not appear at all in the Quarterly Reports. For the purpose of Rating for the year 2012-13 are added to Quarterly Results. Rs. cr. 2007 2008-09 2009-10 2010-11 2011-12 2012-13 per day purchases 38.77 27.33 16.79 7.01 38.16 43.44 per day sales 41.50 29.87 14.27 43.13 35.32 44.88 Total Investments Activity 80.27 57.20 31.06 50.14 73.48 88.32 per day Net Sales 38.65 45.58 48.97 54.82 61.19 70.71 % of Investments Activity/ Net Sales 207.68% 125.49% 63.43% 91.46% 120.08% 124.90% (Inc)/Dec. p-to-p 39.57% 49.46% -44.20% -31.29% -4.01% Rating 5 5 0 0 0 IBCM© Research 2014 Balance Sheet: Current Investments: Rating 2007 [365] 15148.67 41.50 38.65 107.38% 2008-09 [457] 13649.75 29.87 45.58 65.53% 38.97% 5 2009-10 [365] 5207.15 14.27 48.97 29.13% 55.54% 5 2010-11 [365] 15743.54 43.13 54.82 78.68% -170.08% 0 2011-12 [366] 12928.31 35.32 61.19 57.73% 26.63% 5 2012-13 [365] 16382.18 44.88 70.71 63.47% -9.95% 0 Q1-2013-14 [91] 0.00 74.82 Q2-2013-14 [92] 0.00 74.92 Q3-2013-14 [92] 0.00 78.51 0.00 76.09 Rs. Cr. Current Investments Sale of Investments Rs. per day/sale Rs. per day/ Net Rev. ops Rs.. Investment activity/Op s (Inc.)/dec % p-to-p Q1-Q3 2013-14 [275]
  20. 20. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 16: Balance Sheet - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% CREAM™ Report: The overall efficiency rate of selected Balance Sheet items is inversely proportional to the Investment Activity. DQ13 does not provide Investment Activity figures. Growth rate therefore is stunted. Is less than 3.75%. IBCM© Research 2014 Balance Sheet: Rating Rs. Cr.Balance Sheet 2007 [365] 2008-09 [457] 2 0 0 0 5 1 2009-10 [365] 0 0 5 0 5 2 2010-11 [365] 5 3 0 0 0 1 2011-12 [366] 5 5 5 5 0 4 2012-13 [365] 0 2 3 4 0 1 Q1-2013-14 [91] Q2-2013-14 [92] 4 3 2 0 2 Q3-2013-14 [92] Q1-Q3 2013-14 [275] trade Payables Net Assets Inven- tories Trade Receiv- ables Cur. Investm ents Rating B/S
  21. 21. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 17: P&L And Balance Sheet - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% CREAM™ Report: The overall efficiency rate of selected Balance Sheet and P&L result in the current rating of 1 which is below 3.75%. The rate of growth for all activities together including exceptional items is below 3.75%, i.e. Rating of 1. Rating of 1 in the scale of 1 to 5 means 80% remains to be targeted for optimising several areas in 4Gs compass. 80% by CREAM™ Report is known as Index of Inactivity shared by 5 member team in each process block consisting of Ethical Responsibility and Fiscal Responsibility. Since Fiscal responsibility is not yet aligned to Ethical Responsibility the Ratings as above on P&L and B/S will further deteriorate. Process block re-engineering by a common denominator is crucial. CREAM™ Report integrating Fiscal and Ethical Responsibility is a prerequisite to bridge the huge gap of 80%. Business Segment analysis follows. CREAM™ Report final Ratings follow subsequent to the Business Segment Ratings. IBCM© Research 2014 Summary: P&L And Balance Sheet: Rating P&L:Balance Sheet P&L Rating 2007 [365] 2008-09 [457] 0 1 0 2009-10 [365] 1 2 1 2010-11 [365] 0 1 0 2011-12 [366] 2 4 3 2012-13 [365] 5 1 3 Q1-2013-14 [91] 1 1 Q2-2013-14 [92] 0 2 1 Q3-2013-14 [92] 3 3 0 0 Balance Sheet Q1-Q3 2013-14 [275]
  22. 22. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 18: Business Segments - Soaps and Detergents- Revenue - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "soaps and detergent business .... was managed through judicious pricing ... It is true in soaps also that the volume growths have been coming down in the market... the mix in our very very large segments – soaps and detergents, the mix of price and volume growth in December quarter has been more price and less volume and that’s really the principal reason for the UVG being about a percent lower on a sequential basis in this quarter... We have grown ahead of the market in soaps as well. It is true in soaps also that the volume growths have been coming down in the market. R.Sridhar" CREAM™ Report: 1. Segment Total Assets not available. 2. 2011-12 and 2012-13 turned out to be good and pressure is seen in Q1-Q3 2013-14, the result of judicious pricing but less volume. 3. There is a substantial increase in Assets base during 2012-13 resulting in lesser Rating of 3. In the absence of information for Q1-Q3 2013-14 on Assets the results obtained for this process block reflect only Revenue not Turnover of Assets. 4. Two different process blocks, sales and turnover of assets, are combined to arrive at the Rating for this process block. 5. Optimum Rating of 5 in the year 2011-12 followed by 3 and then 2 in the current year is indeed a danger signal, for this process block Business Segments - HUL - Soaps and Detergents - Revenue. IBCM© Research 2014 Business Segments - HUL - Soaps and Detergents - Revenue 2007 [365] 6399.93 17.53 1877.93 0.93% 2008-09 [457] 9884.64 21.63 23.36% 5 2539.57 0.85% -8.78% 0 2 2009-10 [365] 8265.64 22.65 4.70% 2 2221.37 1.02% 19.70% 5 3 2010-11 [365] 8801.06 24.11 6.48% 2 2566.12 0.94% -7.83% 0 1 2011-12 [366] 10636.28 29.06 20.52% 5 2584.77 1.12% 19.65% 5 5 2012-13 [365] 12701.82 34.80 19.75% 5 2914.64 1.19% 6.19% 2 3 Q1-2013-14 [91] 3407.66 37.45 7.61% 3 ? 3 Q2-2013-14 [92] 3380.77 36.75 -1.87% 0 ? 0 Q3-2013-14 [92] 3397.86 36.93 0.51% 1 ? 1 Q1-Q3 2013-14 [275] 10186.29 37.04 6.44% 2 ? 2 Soaps & Detergents Rs. cr. Total Revenue Revenue /day Rs. (Dec.)/Inc. % p-to-p Rating (1) Segment Total Assets Rs. % Rev. day /Tot. Assets Inc./(dec.) % p-to-p Rating (2) Net Rating {(1)+(2)} /2
  23. 23. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 19: Business Segments - Soaps and Detergents- Operating Expenses- Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% CREAM™ Report: Despite unwinding of promotions DQ13 has been hit, with a 0 Rating. SInce 2010-11 there has been marginal cost saving each year till the trend broken in DQ13. This process block is a difficult area of cost control and the marginal contribution all these years is what the best one could anticipate. What is important is the previous process block Business Segments - HUL - Soaps and Detergents - Revenue, that need a consistent optimal level of 5 Rating. "We also had a significant challenge in our soaps and detergent business in terms of the cost inflation.. Also in this quarter, as we have seen the impact of cost inflation going up principally driven by the foreign exchange but also thereafer on the hardening of palm oil prices... We have unwound some of our promotional activities, which were volume-based promotions... When we talked about the unwinding of promotions that was specific to our soaps and detergents category and soaps in particular which has taken place as the cost inflation has started to come through. R.Sridhar" IBCM© Research 2014 Business Segments - HUL - Soaps and Detergents - Expenditure: Rating 2007 [365] 5427.80 14.87 84.81% 2008-09 [457] 8317.55 18.20 84.15% 0.78% 1 2009-10 [365] 6960.72 19.07 84.21% -0.08% 0 2010-11 [365] 7994.37 21.90 90.83% -7.86% 0 2011-12 [366] 9396.37 25.67 88.34% 2.74% 1 2012-13 [365] 11088.26 30.38 87.30% 1.18% 1 Q1-2013-14 [91] 2968.34 32.62 87.11% 0.22% 1 Q2-2013-14 [92] 2906.88 31.60 85.98% 1.29% 1 Q3-2013-14 [92] 2946.97 32.03 86.73% -0.87% 0 Q1-Q3 2013-14 [275] 8822.19 32.08 86.61% 0.79% 1 Soaps & Detergents Rs. cr. Op Exps. Rs. Op exps. /day Rs. Op. exps /Rev. % Dec./(Inc) % p-to-p
  24. 24. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 20: Business Segments - Personal Products - Revenue - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "All of the four segments have grown well in the quarter, ahead of market and in particular personal products and packaged food growth stepped up during the quarter.. Both the segments offered huge headroom for growth and very clear growth priorities for us... And clearly personal products today is much larger business in terms of the volume that goes through when you look at compared to five years back... If you look at our own performance and just take two categories to make the point, let’s just look at personal products category like hair care and look at beverages category like tea. In tea, all our brands whether it is the premium or the mid-market or the mass market, all the three have gone in double digits. Similarly, if you look at hair care, Dove as grown in double digits, as has Sunsilk, as has Clinic Plus. So if you look at just two categories to take an example whether it is premium or mid-market or mass, we’ve seen good performance in all parts of our portfolio. So I don’t think there’s any conclusion at this state to say there is a very, very clear trend of downtrading... And clearly personal products today is much larger business in terms of the volume that goes through when you look at compared to five years back.. And in some quarters it might be that we need additional investment in a particular category. In some other quarters, it might be some other category. As long as we are able to bring to bear the totality of the portfolio to work for us, I think we are pleased with how it progresses. R.Sridhar" IBCM© Research 2014 Business Segments - HUL - Personal Products - Revenue: Total RevenueRevenue/day Rs. Rating Rating 2007 [365] 3686.60 10.10 898.13 1.12% 2008-09 [457] 5387.83 11.79 16.73% 5 1117.04 1.06% -6.15% 0 2 2009-10 [365] 5055.07 13.85 17.47% 5 1317.98 1.05% -0.44% 0 2 2010-11 [365] 5850.39 16.03 15.73% 5 1482.98 1.08% 2.86% 1 3 2011-12 [366] 6585.36 17.99 12.26% 4 1396.44 1.29% 19.21% 5 4 2012-13 [365] 7471.66 20.47 13.77% 4 1404.51 1.46% 13.12% 4 4 Q1-2013-14 [91] 1883.38 20.70 1.10% 1 ? Q2-2013-14 [92] 1950.34 21.20 2.43% 1 ? Q3-2013-14 [92] 2303.90 25.04 18.13% 5 ? Q1-Q3 2013-14 [275] 6137.62 22.32 9.03% 3 ? Personal Products. Rs. cr. (Dec.)/Inc. % p-to-p Segment Total Assets Rs. %Rev.day /Tot. Assets Inc./(dec.) % p-to-p Net Rating
  25. 25. CREAM™ Report Locks in to HUL Strategic Framework - The Compass CREAM™ Report: 1.True for DQ13 but seems to be an exception as Revenue growth is consistently declining since 2011-12 despite a sterling performance for prior two years. 2. Clubbed with the Sales Turnover by assets the performance is a gradual increase. 3. The Ratings for the 3 Quarters of 2013-14 have been on the decline from 4 down to 3 but for the DQ13 prop-up, it could have been worse. 4. Segment Total Assets info not available and the ultimate Ratings for this process block could have been either way depending on the reduction or increase in asset base. IBCM© Research 2014
  26. 26. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 21: Business Segments - Personal Products - Operating expenses - Rating - 2007 - Q1-Q3 2013- 14 Rating Table for 15% "Coming to the segments, I am particularly pleased by the performance of personal products and packaged foods where growth has stepped up in the current quarter... All of these categories of course are core and strategic for us. So we will invest and we are investing what is necessary to ensure that are competitive position does not get undermined...R.Sridhar" CREAM™ Report: 1. DQ13 is exceptional and the rest of the period is below par. 2. The growth rate for 9 months is (3+0)/2 = 1 which is below 3.75%, as against previous year 2012-13 (4+0)/2 = 2 in the range of >3.75% <7.50%. 3. Investments in the current period of 9 months could result in a better or lower rating but incremental value addition for this process block Personal Products (Revenue, Assets and op. expenses) is absent. 4. DQ13 is an exception but the first 2 quarters have been bad, both in Revenue and Op. exps. 5. "As long as we are able to bring to bear the totality of the portfolio to work for us, I think we are pleased with how it progresses." Does it satisfy 4G compass principles? IBCM© Research 2014 Business Segments - HUL - Personal Products - Expenditure: Rating 2007 [365] 2675.00 7.33 72.56% 2008-09 [457] 3928.92 8.60 72.92% -0.50% 0 2009-10 [365] 3767.21 10.32 74.52% -2.20% 0 2010-11 [365] 4365.32 11.96 74.62% -0.12% 0 2011-12 [366] 4838.41 13.22 73.47% 1.53% 1 2012-13 [365] 5523.95 15.13 73.93% -0.63% 0 Q1-2013-14 [91] 1415.22 15.55 75.14% -1.64% 0 Q2-2013-14 [92] 1505.43 16.36 77.19% -2.72% 0 Q3-2013-14 [92] 1644.72 17.88 71.39% 7.51% 3 Q1-Q3 2013-14 [275] 4565.37 16.60 74.38% -0.61% 0 Operating Exps. Rs. cr. Op Exps. Rs. Op exps./da y Rs. Op. exps/Rev. % Dec./(Inc) % p-to-p
  27. 27. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 22: Business Segments - Beverages - Revenue - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "Beverages. Tea delivered double-digit growth in the quarter and the good news is that the growth was sustained across all the brands in the tea portfolio.. In tea, all our brands whether it is the premium or the mid-market or the mass market, all the three have gone in double digits. R.Sridhar" CREAM™ Report: 1. DQ13 is the least of the 3 quarters growth. 2. 9 months incremental efficiency is down from 4 to 3. 3. Addition in Segment Total Assets brought down the rating from 4 in 2011-12 to 2 in 2012-13. Segment Total Assets in 2013-14 is relevant for assessing movement in Beverages. IBCM© Research 2014 Business Segments - HUL - Beverages - Revenue: Beverages Rs. cr. Rating Rating 2007 [365] 1540.63 4.22 593.70 0.71% 2008-09 [457] 2299.51 5.03 19.21% 5 808.89 0.62% -12.50% 0 2 2009-10 [365] 2142.43 5.87 16.65% 5 783.74 0.75% 20.40% 5 5 2010-11 [365] 2346.50 6.43 9.53% 3 858.97 0.75% -0.07% 0 1 2011-12 [366] 2617.43 7.15 11.24% 3 755.38 0.95% 26.50% 5 4 2012-13 [365] 2974.66 8.15 13.96% 4 868.92 0.94% -0.93% 0 2 Q1-2013-14 [91] 757.37 8.32 2.12% 1 ? Q2-2013-14 [92] 835.42 9.08 9.11% 3 ? Q3-2013-14 [92] 850.03 9.24 1.75% 1 ? Q1-Q3 2013-14 [275] 2442.82 8.88 9.00% 3 ? Total Revenue Revenue /day Rs. (Dec.)/Inc. % p-to-p Segment Total Assets Rs. %Rev.day /Tot. Assets Inc./(dec.) % p-to-p Net Rating
  28. 28. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 23: Business Segments - Beverages - Operating Expenses - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "Overall, across tea and coffee, we are seeing value growth in the market coming off as commodity costs have been relatively benign.. That then brings me beverage where I am conscious that value growth which has received a fillip in the previous quarters driven by the commodity inflation has started to come off given the benign input cost in this season. R. Sridhar" CREAM™ Report: 1. Op. expenses include input cost, A&P spend and all other allocated segment expenditure. 2. JQ13 had shown improvement over the previous year but not SQ13 and DQ13. 3. There is an overall incremental efficiency for 9 months performance over the previous year. 4. The net Rating for Beverages, not taking into account Segment Assets performance, would remain 2 i.e (3+1)/2 = 2. 5. 2 is in the range of >3.75% <7.50% growth performance. IBCM© Research 2014 Business Segments - HUL - Beverages - Expenditure: Beverages Rs. cr. Rating 2007 [365] 1316.45 3.61 85.45% 2008-09 [457] 1958.58 4.29 85.17% 0.32% 1 2009-10 [365] 1821.53 4.99 85.02% 0.18% 1 2010-11 [365] 1991.51 5.46 84.87% 0.18% 1 2011-12 [366] 2239.97 6.12 85.58% -0.83% 0 2012-13 [365] 2498.25 6.84 83.98% 1.86% 1 Q1-2013-14 [91] 618.69 6.80 81.69% 2.73% 1 Q2-2013-14 [92] 693.75 7.54 83.04% -1.66% 0 Q3-2013-14 [92] 712.73 7.75 83.85% -0.97% 0 Q1-Q3 2013-14 [275] 2025.17 7.36 82.90% 1.29% 1 Op Exps. Rs. Op exps./da y Rs. Op. exps/Rev. % Dec./(Inc) % p-to-p
  29. 29. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 24: Business Segments - Packaged Foods - Revenue - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "In packaged foods, it has been a quarter where growth has stepped up with the three key brands Knorr, Kissan and Kwality Walls, all delivering double-digit growth during the quarter. All of them have grown in double digits, and I think it's just about continuing to invest in developing the market, building these categories with an appropriate mix of both innovation and activation that will give us the results. R.Sridhar Our focus is going to be in branded packaged goods and that’s where our efforts will be. Sanjiv Mehta: CREAM™ Report: 1. Packaged Foods were unpacked in JQ13 faster and in subsequent quarters part remained packed in storage. 2. 2012-13 overall performance, Revenue and Total Segment Assets turnover, was at 4 mainly due to reduction in latter. 3. 9 months performance by Revenue is down at 3 same as the previous year 2012-13, subject to usage of Total Segment Assets. IBCM© Research 2014 Business Segments - HUL - Packaged Foods - Revenue: Packaged Foods Rs. cr. Rating Rating 2007 [365] 701.60 1.92 275.30 0.70% 2008-09 [457] 808.30 1.77 -7.99% 0 365.65 0.48% -30.72% 0 0 2009-10 [365] 961.78 2.64 48.98% 5 362.99 0.73% 50.07% 5 5 2010-11 [365] 1178.43 3.23 22.53% 5 517.89 0.62% -14.12% 0 2 2011-12 [366] 1359.46 3.71 15.05% 5 559.20 0.66% 6.55% 2 3 2012-13 [365] 1505.74 4.13 11.06% 3 533.87 0.77% 16.33% 5 4 Q1-2013-14 [91] 457.88 5.03 21.97% 5 ? Q2-2013-14 [92] 397.98 4.33 -14.03% 0 ? Q3-2013-14 [92] 372.76 4.05 -6.34% 0 ? Q1-Q3 2013-14 [275] 1228.62 4.47 8.30% 3 ? Total Revenue Revenue /day Rs. (Dec.)/Inc. % p-to-p Segment Total Assets Rs. %Rev.day /Tot. Assets Inc./(dec.) % p-to-p Net Rating
  30. 30. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 25: Business Segments - Packaged Foods - Operating Expenses - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% "As far as packaged foods are concerned, you know, this is a very, very nascent category and multiple times we have called out as a fairly nascent category. And it's less to do about market share et cetera stuff. It is more about the opportunity to build the market to build habits of consumption. R.Sridhar" CREAM™ Report: 1. The overall Rating of P&L and Balance Sheet for the 9 months period 2013-14 resulted in 0. [Table 17] 2. The law of diminishing returns seem to engulf this process block for a few years now. 3. The strategic framework - the Compass - the 4Gs: Consistent, Competitive, Profitable and Responsible growth, warrants holistic approach towards Packaged Foods that is positioned at the cottage sector. IBCM© Research 2014 Business Segments - HUL - Packaged Foods - Expenditure: Rating 2007 [365] 676.35 1.85 96.40% 2008-09 [457] 793.53 1.74 98.17% -1.84% 0 2009-10 [365] 943.36 2.58 98.08% 0.09% 1 2010-11 [365] 1161.84 3.18 98.59% -0.52% 0 2011-12 [366] 1334.44 3.65 98.16% 0.44% 1 2012-13 [365] 1446.95 3.96 96.10% 2.10% 1 Q1-2013-14 [91] 419.49 4.61 91.62% 4.66% 2 Q2-2013-14 [92] 384.67 4.18 96.66% -5.50% 0 Q3-2013-14 [92] 386.16 4.20 103.59% -7.18% 0 Q1-Q3 2013-14 [275] 1190.32 4.33 96.88% -0.82% 0 Packaged Foods: Rs. cr. Op Exps. Rs. Op exps./day Rs. Op. exps/Rev. % Dec./(Inc) % p-to-p
  31. 31. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 26: Business Segments - Others- Revenue - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% Others (including Exports, Chemicals, Infant Care Products, Water, etc.) Export: When it comes to Basmati, as we have been exporting Basmati in different parts of the world for many years, so this is just a selective opportunity which is there in the trade which we have tried to play with. And certainly, our intent is not to look at commodities; our focus is going to be in branded packaged goods and that’s where our efforts will be. Sanjiv Mehta Our water purifier business, Pureit, has continued to perform well, strengthening its leadership in a challenging environment. R.Sridhar CREAM™ Report: 1. Our focus is going to be in branded packaged goods and that’s where our efforts will be. All of the four segments have grown well in the quarter. 2. Segment Total Assets are reducing. 3. No indicator in DQ13 as to Chemicals and Infant Care Products. 4. Overall 9 months Incremental Revenue gets a Rating of 2, as against 5 during 2012-13. With Total Segment Assets of marginal increase during the previous year, current year addition or reduction is unknown. This process block 'Others' is insipid. IBCM© Research 2014 Business Segments - HUL - Others - Revenue: Others Rs. cr. Rating Rating 2007 [365] 1527.13 4.18 618.52 0.68% 2008-09 [457] 2424.40 5.31 26.80% 5 650.57 0.82% 20.55% 5 5 2009-10 [365] 1600.65 4.39 -17.34% 0 551.78 0.79% -2.54% 0 0 2010-11 [365] 1539.31 4.22 -3.83% 0 624.23 0.68% -14.99% 0 0 2011-12 [366] 896.86 2.45 -41.90% 0 227.81 1.08% 59.21% 5 2 2012-13 [365] 1092.78 2.99 22.18% 5 278.09 1.08% 0.09% 1 3 Q1-2013-14 [91] 279.08 3.07 2.43% 1 ? Q2-2013-14 [92] 304.85 3.31 8.05% 3 ? Q3-2013-14 [92] 276.58 3.01 -9.27% 0 ? Q1-Q3 2013-14 [275] 860.51 3.13 4.52% 2 ? Total Revenue Revenue /day Rs. (Dec.)/Inc. % p-to-p Segment Total Assets Rs. %Rev.day /Tot. Assets Inc./(dec.) % p-to-p Net Rating
  32. 32. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 27: Business Segments - Others- Operating expenses - Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% CREAM™ Report: There is a steady decline in this process block, Revenue, Segment Assets as well as corresponding operating expenses. Four segments DQ13 highlights, excludes this process block 'Others'. 'Others' is an entry and exit point for trial & error management. Like Innovation. IPR created found useful join the Tangible Assets and the ones found useless leave unrecognised and unnoticed. 'Others' is an area management tries to play with. When turns out to be a failure management is lef to play with only the existing four segments, restricting the business for long-term growth to deliver on our strategic objectives. Rating 1 for this process block for the 9 months period is due to reduction of losses which too deserves good rating. Collectively 'Others is rated (2+1)/2 = 1. Other than the traditional four segments, 'Others' is an opportunity to show the managerial capability towards enhancing profitability by new ideas and skills development. Water purifier business Pureit, may be a success but significant find is needed to expand the business manifold, if profitability and growth are to be enhanced. The overall Rating of all five segments shall be seen next. IBCM© Research 2014 Business Segments - HUL - Others - Expenditure: Others Rs. cr. Rating 2007 [365] 1576.20 4.32 103.21% 2008-09 [457] 2400.30 5.25 99.01% 4.08% 2 2009-10 [365] 1557.86 4.27 97.33% 1.70% 1 2010-11 [365] 1535.93 4.21 99.78% -2.52% 0 2011-12 [366] 926.03 2.53 103.25% -3.48% 0 2012-13 [365] 1131.95 3.10 103.58% -0.32% 0 Q1-2013-14 [91] 282.16 3.10 101.10% 2.39% 1 Q2-2013-14 [92] 300.23 3.26 98.48% 2.59% 1 Q3-2013-14 [92] 290.07 3.15 104.88% -6.49% 0 Q1-Q3 2013-14 [275] 872.46 3.17 101.39% 2.12% 1 Op Exps. Rs. Op exps./ day Rs. Op. exps/ Rev. % Dec./(Inc) % p-to-p
  33. 33. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 28: Business Segments - Consolidated - Net Rating - 2007 - Q1-Q3 2013-14 Rating Table for 15% CREAM™ Report: 1. Revenue that includes Assets usage is at 2 Rating. Operating expenses 0 Rating. 2. Not profits but per day Revenue for expenses incurred on wages, Salaries, A&P spend etc. must be optimised, relatively as a direct variable volume growth. 3. 2011-12 and -13 turned out reasonably well, being rated at 3, but 9 months performance is down to Rating of 2. 4. Whereas operating expenses is 0. Not simply process re-engineering, many a product line that turns out losses need to be discarded and fresh ones be brought in. 5. Fresh Product lines, going by experimentation of 'Others' take a minimum of 5 years. 6. Any Object under any product line is moved linearly, governed by the law of physics. 7. Any idea that springs forth to counter the current situation is that of the Subject, governed by the concept of metaphysics. 8. CREAM™ Report establishes the managerial capability by its Rating, that we shall have a look at next. IBCM© Research 2014 Business Segments - HUL - Revenue & Expenditure: Rating 2007 [365] 2008-09 [457] 2 1 2 0 2 1 0 0 5 2 2 0 1 2009-10 [365] 3 0 2 0 5 1 5 1 0 1 3 0 1 2010-11 [365] 1 0 3 0 1 1 2 0 0 0 1 0 0 2011-12 [366] 5 1 4 1 4 0 3 1 2 0 3 0 1 2012-13 [365] 3 1 4 0 2 1 4 1 3 0 3 0 1 Q1-2013-14 [91] 3 1 1 0 1 1 5 2 1 1 2 1 1 Q2-2013-14 [92] 0 1 1 0 3 0 0 0 3 1 1 0 0 Q3-2013-14 [92] 1 0 5 3 1 0 0 0 0 0 1 0 0 Q1-Q3 2013-14 [275] 2 1 3 0 3 1 3 0 2 1 2 0 1 Business Segments Rating Soaps & Detergents Rev. Exp. Personal Products. Rev. Exp. Beverages Rev. Exp. Packaged Foods Rev. Exp. Others Rev. Exp. Business Segments Rev. Exp. Net Rating
  34. 34. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Table 29: CREAM™ Report - Consolidated - 2007 - Q1-Q3 2013-14 Rating Table for 15% CREAM™ Report: Consolidated: Quarterly Reports do not mention about 4/5th of CREAM™ Report. 187 of the 189 process blocks not reported in the Quarterly Reports are derived from the previous figures already published. [Refer http://www.slideshare.net/j ayaraman.18/hul-cream- report- whyratingsarefarlower] The Impact analysis of DQ13 HUL CREAM™ Report: 1. Overall Rating for the 9 months of 2013-14 is down from 2 to 1. 2. First, the responsibility is at the doorsteps of Earnings, central to CREAM, the rest were running at a better Rating of 2. 3. Strategic Framework - the Compass: 4Gs 3.1 Goal - Consistent Growth • 2011-12 and 2012-13 had steadied the boat but Q1-Q3 2013-14 is rocking it. • The maximum Growth Rating Earnings [i.e. P&L and B/S, E in CREAM] has reached is 3. • From 3 a linear advancement to 4 was called for but never reached. Consistent Growth is not seen in the period under review. • The business segments in the running have reached a point of diminishing returns. • Strategic Framework on Consistent Growth needs recalibration. • The ratings beg to be optimised. 3.2 Goal - Competitive Growth • CREAM™ Report in case of HUL is made up of 189 process blocks, each owned by 5 categories of people, common throughout - 4 of Fiscal Responsibility and 1 from Ethical Responsibility. • CREAM Ratings as above warrant optimising to 5. • Each process block is independent yet yoked together by the 5 categories of people. The 189 process blocks cover every activity of a Company, qualitative as well as quantitative. • Corporate tries to rule its conduct by means internal to itself that process block owners compete with each other to reach the optimum level of performance for each block. • Optimised CREAM™ Report Ratings are a veritable gallery of competitive advantage a IBCM© Research 2014 Ratings 1. Corporate Governance 2 2 2 2 2 2 2. Risk Management 3 3 3 3 3 3 4. Accounting Quality 0 1 0 2 1 1 5. Management Quality 2 2 2 2 2 2 Net Ratings 1 2 1 2 2 2 0 1 0 3 3 0 CREAM Rating 0 1 0 2 2 1 2008- 09 2009- 10 2010- 11 2011- 12 2012- 13 Q1-Q3 2013-14 Add: 3.Earnings: P&L And Balance Sheet: (As above)
  35. 35. CREAM™ Report Locks in to HUL Strategic Framework - The Compass Company can show case to outside market. • CREAM™ Report analysis of HUL identifies several lacunae detrimental to this process block - Strategic Framework - Competitive Growth. 3.3 Goal - Profitability Growth • CREAM™ Report looks at Sustainable profits as a factor of Sustainable Value System and Sustainable Efficiency. • Accounting Quality and Management Quality represent the value system whereas Corporate Governance and Risk Management efficiency, each reflected in a Balance Sheet and Profit & Loss Statement respectively. • The profits ratings are lower in Q1-Q3 2013-14 compared to previous year. • One of the main reasons is shifing of focus to investments in the year 2007 at the expense of Trade Payables assuming thereby that there is surplus cash. • Market Investment as an SBU is welcome but it was not done so that focus needed for the five business segments has been lacking. With the result five segments are shrunk to become four. 3.4 Goal - Responsible Growth • CREAM™ Report as above comprises of measuring 189 process blocks, qualitative and quantitative assessment of corporate management, under the principle of return on Intangible which is action or inaction as the numerator and human energy the denominator. • CREAM™ Report advances the measurement to a daily basis as Governance is a dynamic function. • Each process block is owned by 5 categories of people with one necessarily being of Ethical Responsibility. • Aligning Fiscal Responsibility to Ethical Responsibility ensures Responsible Growth, a prerequisite for this process block. For further information on CREAM™ Report please contact: Jayaraman Rajah Iyer jayar.ibcm@gmail.com 23 March 2014 “It is not necessary to change. Survival is not mandatory.” ~W. Edwards Deming IBCM© Research 2014

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