News: Unilever to HLL - Shape up & win respect

(DNA 05/12/2006) Mumbai - The management of Hindustan Lever Ltd (HLL), India’s largest fast-moving consumer goods (FMCG) company, has been given a simple brief by Unilever group chief executive Patrick Cescau: Bring back HLL “to the top table” in terms of the market’s respect and bottomline performance. “We want to be the best FMCG company in India.”

Openly acknowledging — perhaps for the first time in as many words — that the Indian subsidiary has been facing more critics than admirers in recent years, Cescau said he wanted HLL to not only generate outstanding growth and margins, but also become a net provider of talent, ideas and technology to the global Unilever. Cescau also reiterated the basic metric by which all success would be judged: marketshare.

Given the HLL is a market leader in eight of the 10 broad categories it operates in, the India-specific directive is essentially to “maintain marketshare” where it cannot grow further.

He lauded the Indian company’s high double-digit growth, but seemed to indicate that it could do better.

Talking about Unilever in general, he said it had lost a bit of its old aggression, but in the past two years the top management has tried to bring this back on the agenda. Cescau was appointed in April, 2005, as group chief executive of the combined Unilever plc & Unilever NV, the first incumbent to hold the position after the board decided to abolish the Anglo-Dutch multinational’s dual-headed structure - an anachronism in the modern corporation.

The changes at Unilever coincided with changes in HLL’s own board, with chairman Manvinder Singh Banga being elevated as president (foods) and Harish Manwani becoming president (Asia & Africa), apart from becoming non-executive chairman of HLL. Douglas Baillie was named CEO of HLL in India from March 1, 2006.

Cescau’s new brief to the HLL board is important in the overall context of Unilever’s own attempt to push up growth and margins. In the last quarter, Unilever grew by 5% with no improvement in margins. To list Unilever above anaemic growth levels, the big push has to come from developing and emerging markets, which comprise 40% of Unilever’s turnover. And India, as the top emerging market within this portfolio, has to deliver the goods. India contributes about €2 billion (€1 = Rs 59) to Unilever’s developing and emerging markets business of about €15-16 billion.

While declining to reveal any of the formal goals set for HLL, Cescau agreed with a questioner that topline needed to grow faster than the rate at which the economy was growing - which is about 14-15% in nominal terms. In the third quarter ended September 30, 2006, HLL’s sales were up 12.2% to Rs 3,163 crore, while adjusted net profits (after extraordinary items) were 17.5% higher at Rs 383 crore.

Cescau emphasised that HLL’s basic mistake in the past was to be in too many places while ignoring its core franchise. There was also an assumption that distribution strengths would provide competitive edge, when the marketplace was changing. HLL may also have made some bad acquisitions.

Does this mean HLL will not be looking at any new acquisitions? Cescau disabused newspersons of any such intention. “Asia is a priority for acquisitions,” he said. But he expected the HLL management to learn lessons from past mistakes. Most of HLL’s acquisitions have been in the foods business.

Cescau’s other advice to the HLL top brass was to get more innovative. Among other things, he said that while Unilever had a portfolio of strong brands, any decision to introduce them in India must be driven by a better understanding of the local consumer. “We don’t want a one-cap-fits-all approach to products,” he said.

Cescau was, however, very positive about the quality of HLL’s top leadership team and pointed out that two of his seven direct reports - Manwani and Banga - were Indian. Overall, about 30% of Unilever’s higher level managers came from developing and emerging markets.

So when will HLL change its name to Unilever India? Cescau’s reply: that will be decided by the local management.