Hindustan Unilever Ltd (HUL) Chairman Nitin Paranjpe recently announced that the decision to increase royalty to 3.45% to parent company Unilever was taken after a thorough evaluation and due diligence. This increase in royalty payments was implemented in phases over the next three years and will be affecting the total turnover. The decision to increase royalty was made after considering the royalty payments made by other FMCG companies to their parent global firms.
The contract terms were studied, and the senior team from within the company evaluated the situation and provided recommendations, which were evaluated thoroughly by the audit committee. The committee took into account the findings of an external assessment done by Deloitte, which looked at the benchmarks of other FMCG companies. After evaluating all the recommendations and suggestions, the board agreed to a fair and sensible increase in royalty from levels of about 2.65% to 3.45%.
HUL had a royalty and Central Services arrangement with Unilever, allowing HUL to use Unilever-owned trademarks, technology and corporate logo, and central services provided by Unilever. Unilever requested a review of the 10-year arrangement, which was signed in January 2013, after it expired. Based on this review, the royalty payment was increased, with both companies finding a balance between the benefit HUL was getting and the value it was paying as a royalty.
Mr. Paranjpe addressed the shareholders and answered queries about the rationale behind the royalty increase. He affirmed that the decision was made after ample due diligence, and the company was convinced that it was getting ample value for the royalty payment made.
HUL’s decision to increase royalty payments seems like a well-thought-out move after due consideration of all the factors involved. The decision-making process was transparent and thorough, with audits and assessments done by external parties as well as internal teams.
