HINDUSTAN UNILEVEF liMiTED

(Formerly known as Hindustan Lever Umitedl

Additionallnfofrnation
What is EVA?

: Economic

Value Added {EVA}

'Traditional approaches to measuring "Shareholder's Value Creation" have used parameters such as earnings capitalisation. market capitalisation and present value 0; estimated future cash flows. Extensive equity research has now established that it is not earnings per se, but VALUE that is Important. A new measure called "Economic Value Added" (EVA) is increasingly being applied to understand and evaluate financial performance. " EVA = Net Operating Profit after Taxes (NOPATj - Cost of Capital Employed (COCEI. where, NOPAT Profi,s after depreciation and taxes but before interest costs NOPAT thus represents the total pool of profits availabie on an ungeared baSIS 10 provide a return to lenders and shareholders, and COCE Weighted .:;verage Cost of Capital (WACC) x Average Capital Employed Cost of debt is taker. at the effective rate of interest applicable to an "AM' rated company like HUL with an appropriate mix of short. medium and long term debt, net of taxes. We have considered a pre tax rate of 9.45% for 2007 (8.90% for 2006) after taking into account the trends over the years and market situations. , Cost of Equity is the return eXDected by the investors to compensate them for the variability in returns caused by fluctuating earnings and share prices. Cost of Equity = Risk free return equivalent tc yield on long term Government Bonds (taken at 7.95% for 2007) {7} Market risk premium (taken at 11%) (x) Beta variant for the Company. (taken at 0.876\ where Beta is a relative r-r:easure of 'isk associated with the Company's shares as against the market as a whole. Thus HLLs cost of equity = 795% -'- 11% (x) 0.876 = 17.59% What does EVA show? EVA is residual income after charoino the Company for the cost of capital provided by lenders and shareholders. It represents the value added to the shareholCers by generating 'cpe'rating profits in excess of the cost of capital employed in the business. When will EVA increase? EVA wili increase if a. Ope'ating profits can be maae Ie grow without en,pioying more capital, i.e. greater efficiency. b. Additonal capita! is invested in projects that return more than the cost of obtaining new capital, i.e. profitable growth. c. Capital is curtaiied in activities that do not cover the cost of capital. I.e. liquidate unproductive capital. EVA in practice at Hindustan Unilever Ltd. In Hindustan Unilever the goal of sustainable long term value creation for our shareholders is well understood by all the business groups. Measures to evaluate business performance and to set targets take into account this concept of value creation. iR$. Cf{)fes) "tooe 162 2116 2899 18.83 17 881 1o...~ 43 2 5 131 8 Debt 4.88 450 38Z 421 2389 2U70 2677 19.27 16.03 15.74 16.54 11.07 14.30 6 Equity 5.90 3.38 5.19 12 1318 881 8.46 1588 390 8.61 1786 466 6.45 1547 45 50 1361 1847 1722 7.72 48~ 163 395 93 460 300 446 485 418 858 1014 694 1125 1236 1070 2296 1310 1769 1908 1804 2515 1199 2766 17.59 12.95 14.40 16.70 16.38 2000 2007 2001 2006 2003 2002 2005 2004 2785 2816 3780 3395 3704 2560 6.24 13.80 10.66 1546 353 1282 165 1080 1340 1429 2402 1540 1541 3351 1355 1716 2200 8371487 19.70 % 1970 15.50 1552 9.10 8:10 3081998 1864 19 308 COCE 7 tax, :14.77 Costof 360x (6j beforeexceptionalitems 19.70 548 Profitafter posttax %

1&00

EVA 1,429 Trends : 1998~2007 {Unaudited} 1. B AverageDebt

(Rs: croresl

..

92