Nitin Paranjapaye told CNBC-TV18 that HUL is relatively insulated from the big swings in economy. He continues to be optimistic on India and has long-term faith in the economy, even though the slowdown in growth was disappointing.
In the backdrop of discussing the report on Unilever's CSR initiatives, Hindustan Unilever Ltd , CEO and managing director, Nitin Paranjapaye, told CNBC-TV18 that consumer demand continued to be robust.
Unilever’s sustainable living plan has completed one year of operations. This program was rolled out by Unilever globally across every single country it operates in. The plan envisaged, 50 concrete targets by 2020, to help more than a billion people improve their health and wellbeing.
Meanwhile, he affrims that HUL is relatively insulated from the big swings in economy. Paranjape says that he continues to be optimistic on India and has long-term faith in the economy, even though the slowdown in growth was disappointing.
Below is an edited transcript of the interview in CNBC-TV18. Also watch the accompanying video.
Q: What the experience has been like over the past 12 months?
A: Its been a fascinating first year of a 10 year program that we have announced. The Unilever sustainable living plan is now embedded at the heart of our business and our business strategy, which we believe will help us both grow our business and do so in a manner which is sustainable. It will help us to find new models of doing business, which will decouple growth from adverse environmental effects and leave behind a positive impact.
At the end of a year, we are encouraged with the overall progress made. The progress has been significant across the three segments and in achieving our three broad goals. We found ways to develop business models to scale up. There have been challenges and we are working on solutions required to meet them.
Q: This is a conversation that I had with you 10 months ago, when you did roll out this program and where do things currently stand with shareholders and stake holders because at that point in time you were trying to get there buy in. Have they bought into the idea and in terms of economic returns what does the picture really look like because if you are going to convince stake holders and shareholders it needs to show sustainable economic returns?
A: The business case for sustainability is very strong. So, we are convinced that what we are trying to do is very sound. Increasingly although it’s a small number more and more consumers are demanding it. Customers across the world especially large customers are embracing this thought and we find it easier to work with customers in the context of the sustainability goals that we have got.
But most importantly the moment that we have embraced this sort of goal, we have found that it has been a catalyst for innovations. These innovations have helped us grow markets, reduce costs and as a result of which the overall business case that we have got is quite strong.
Last but not the least, we find this to be an incredibly inspiring purpose for the company to chase and it engages our employees and inspires them. Overall at the end of one year, we are even more convinced that the business case for sustainability and for the pursuit of growth, which embraces sustainability at its heart and leaves behind a positive social impact is stronger than ever before.
Q: I know you have targets till 2020 and you do have interim targets starting all the way from 2010 to 2015 as well, but juts in terms of cost savings, what is the kind of ballpark number that you are looking at and if you could give us a sense of an interim cost reduction target?
A: We have specific targets on reducing the packaging waste that we generate and reducing the load that we subject the environment on account of packaging. As a result of the work which we have been carrying out over the last one year, we have found that we have been able to grow our volumes, while reducing the overall packaging quantity that we use.
The overall packaging quantity used has come down by 4% even as the volume of our business has gone up. This translates into real economic benefit for the business.
Take the other examples of carbon footprint and green house gases etc. In our entire distribution system that we run and in our entire transportation system we found a way to become more efficient, thereby reducing the carbon load by 18%. A reduction of 18% of carbon load implies that we have become more efficient, we have improved our load ability, we have optimized our distribution routes, and we have designed trucks, which have a better balance between weight and volume such that they become more optimized. All of this saves cost.
Q: You were planning as an interim target to reduce the salt consumption or the salt component in your food products as well as reduce the green house gas emissions and water use in skin cleaning and hair washing products. This is at the center of your products strategy; you are going to have to rework pretty much your products if you were to achieve these targets. Where do things actually stand as far as these areas are concerned?
A: We feel pleased about the progress that we have made in terms of sustainable sourcing where across the world we have moved from levels of 14% a year ago to 24% of our agricultural produce coming from sustainable sources. The big gains being in palm oil which over 60% is already coming from sustainable sources. While that’s the positive story and we feel very good, the area where much more work needs to be done is in the consumer facing area, where innovations and technology improvements need to be made in order to drive changes.
So, specifically in some of the examples that you spoke about, which is salt, we have made good progress. We have made progress in terms of bringing down salt in our products between 5-25%. This has been a silent change which we have made through other forms of managing taste because consumers certainly would not want to compromise on the taste.
We have come down from levels of 9-12 grams of salt per day which is what people would have end up consuming to levels of about 6-7 grams across many of our products. Our soups have been reformulated, our ketchups have been reformulated.
However, the big challenge that we have got is that we need to come down to 5 grams and 5 grams is the recommended guideline and here I think is where a lot more work would need to be done. Here is really a situation where we will have to work with consumers and over a period of time have them alter some of their taste preferences and we know how challenging that is. It doesn’t happen overnight and will take a period of time.
Q: Was this the big challenge that you were talking about at the start of our conversation? The challenges that you are facing with trying to alter your consumer facing products is that the biggest challenge to achieving the target that you have set out in the sustainability plan?
A: That is absolutely right. We have got 60% of palm oil, 24% of everything, all our raw materials and we are well on the target to hitting 30% at the end of 2012 and getting to the 100% goal. As far as connecting with consumers and trying to shape their attitudes towards health and hygiene, I think we are making very good progress between Lifebuoy, between Pure It etc, but the biggest challenge which we face is in terms of shaping consumer behavior.
Wherein a considerable amount of water which gets used, green house gas impacts are there and while we have had some innovation work which can reduce the amount of water used by the consumers when they use our product, I think the challenge goes beyond that.
Its not just about technology solutions which we need to provide, its also about shaping consumer behaviors and that takes time. One of the things that we have been doing over the last year is to dig into our archives and look at the behavior change models that we have seen in the past.
HUL stock price
On July 24, 2014, Hindustan Unilever closed at Rs 642.30, up Rs 9.80, or 1.55 percent. The 52-week high of the share was Rs 725.00 and the 52-week low was Rs 536.00.
The company's trailing 12-month (TTM) EPS was at Rs 17.88 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 35.92. The latest book value of the company is Rs 15.15 per share. At current value, the price-to-book value of the company is 42.40.
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