3.45% increase in royalty to parent Unilever after detailed evaluation: HUL

Hindustan Unilever Ltd Chairman Nitin Paranjpe on Monday said the decision to increase the royalty to 3.45 percent for parent Unilever was taken after detailed evaluation and due diligence.

Earlier this year Hindustan Unilever Ltd (HUL), a leading FMCG manufacturer, raised the royalty paid to Unilever PLC to 3.45 per cent of total sales, which will be phased in over the next three years. Earlier, this was 2.65 percent.

Addressing shareholders in response to a question about the rationale for the increase, Paranjpe said the change was made “after much due diligence and satisfying ourselves that we are getting enough value for this payment which is a royalty payment being made”.

Before that, the company also looked at the royalty other FMCG companies pay to their global parent companies, he said.

The contract clauses that we “obtained were subjected to detailed evaluation and due diligence first by a senior-level team from within the company. The company assessed the situation and they came up with recommendations and recommendations first to the audit committee.” He said.

The Audit Committee carefully evaluated the recommendations and made some suggestions.

“The audit committee by the way, before doing this, it took into account the results of the external evaluation… it looked at the benchmarks of other FMCG companies, which are multinationals, what kind of similar levels of royalty are being paid,” he said.

This was done by Deloitte, which carried out this exercise and submitted its feedback to the audit committee.

“This was then presented to the board of directors, who found that the recommendations were fair and reasonable and that there was a balance between the interest we were getting and the value we were paying through the royalty,” he said.

As a result, HUL has agreed to increase the royalty from levels of about 2.65 percent (with taxes) to 3.45 percent.

HUL had a central equity and services agreement with Unilever, signed in January 2013 for a period of 10 years.

This arrangement granted HUL the right to use Unilever’s proprietary trademarks, technology and corporate logo and provided access to centralized services provided by Unilever.

After this ended, Unilever requested a review of the current arrangement.

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