A project report on “Review of Employee retiral funds, Benchmarking for Reckitt Benckiser in FMCG sector against competitors, Cash management system and physical collection report, Copy production and Media expense analysis.”

Submitted By:

Gaurang Purwar

Roll no. 093123

M. S. Ramaiah Management Institute

STUDENT’S DECLARATION

I hereby declare that the Project Report conducted at

Under the guidance of

Mr. Ajay Thukral (Financial controller)

Submitted in Partial fulfilment of the requirements for the

Degree of

MASTER OF BUSINESS ADMINISTRATION Collaborative program with PRIST University

TO

M.S.RAMAIAH MANAGEMENT INSTITUTE

It is my original work and the same has not been submitted for the award of any other Degree/Diploma/Fellowship or other similar titles or prizes

Place: Bangalore STUDENT NAME: Gaurang Purwar

Date: Reg. No: CM2091860017

Acknowledgement

I would like to extend my sincere appreciation to Reckitt Benckiser for giving me this opportunity to come and work for them as a summer intern. I would like thank Mr.Ajay Thukral (Financial Controller at Reckitt Benckiser) for providing me with the direction to work on this project and my guides Mr.Rakesh Sirohia (Finance Manager), Mr.Manoj Tewani (Assistant Manager-Treasury), Mr.Aditya Chamaria(Assistant Manager-Commercial) for their continuous guidance and motivation which helped in successfully completing this project. I would also like to mention Ms. Nitasha Mehta and Ms. Shalini Adhaar from the HR department for extending all the necessary support towards fulfilment of the project

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY ………………………………………………………...4

2. COMPANY OVERVIEW ……..……………………………………………….….5

3. HISTORY OF THE COMP ANY ……………………………………………….…6

4. BUSINESS PROFILE ...………………………………………………..…………..6

5. COMPANY’S BRAND ............................................................................................7

6. FINDINGS

a) Section I: Review of Employee retiral funds..........................................................9

b) Section II: Benchmarking for Reckitt Benckiser in FMCG sector…....................19

c) Section III: Cash management system and physical coll. Report………………

d) Section IV: Copy production and media expense analysis……………………...

7. CONCLUSIONS………………………………………………………...................25

8. REFERENCES………………………………………………………………….….

Executive Summary

The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. It has a strong MNC presence and is characterised by a well established distribution network, intense competition between the organised and unorganised segments and low operational cost. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products.

Therefore it becomes essential for FMCG company to continue evaluate itself with respect to the industry standards and maintain itself at a level well above those standards.

This report analyzes the position of Reckitt Benckiser in the FMCG industry under various financial ratios. The data for all the companies has been taken from the annual reports of each company from their websites.

The second part of the report is to view and understand the concept of employee retiral funds ie. Provident funds and gratuity. How accrued interest is calculated based on the ip dates. What are the sectors in which the company invests the money.

The third part of the report is to understand the cash management system of the company and how the collections are made, and after having relevant information, to negotiate with the bank for a faster collection of money.

The fourth part of the report is to analyze the expenses of all the brands in media. Be it a copy production or their edits or promo tags. Because, the company needs to understand the fact that which of their brands are spending how much on media marketing and most of all, if its cost effective for the company or not.

Company Overview

Reckitt Benckiser is a global force in household, health and personal care products, delivering ever better solution to consumers.

The company has the sales of over 6 billion pounds consistently going ahead of the industry due to its leading brands, its operation in over 60 countries and sales in 180, and its highly motivated multinational management.

Reckitt Benckiser Group Plc. (Reckitt Benckiser) is principally engaged in the manufacturing and marketing of household, cleaning, health and personal care products. The company manufactures products related to several categories which include dishwashing, fabric care, surface care, health care, home care, personal care products and food. The company operates through 60 operating companies across 180 countries. The company has 13 directly held subsidiaries which include Propack, Reckitt Benckiser (Australia) Pty Limited, Reckitt Benckiser (Brazil) Limited, Reckitt Benckiser (Canada) Inc. Reckitt Benckiser Deutschland GmbH, Reckitt Benckiser Health care (UK) Limited, Reckitt Benckiser Inc., Reckitt Benckiser (India) Limited, Reckitt Benckiser Italia and Reckitt Benckiser (UK) Limited. The company is headquartered in the UK.

The company reported revenues of (British Pounds) GBP 6,563.00 million during the fiscal year ended 2009, an increase of 24.56% over 2008. The operating profit of the company was GBP 1,505.00 million during the fiscal year 2009, an increase of 22.06% over 2008. The net profit of the company was GBP 1,120.00 million during the fiscal year 2009, an increase of 19.40% over 2008. The company held Platinum status in 2005, 2006, 2007, and 2008 in the Business.

Johann A. Benckiser founded a business in Germany in 1823. Its main products were industrial chemicals. Benckiser went public in 1997.

Merger and subsequent developments

The company was formed by a merger between Britain's Reckitt & Colman and the Dutch company Benckiser NV in December of 1999. Bart Becht became CEO of this new company

and has been credited for its transformation, focusing on core brands and improving efficiency in the supply chain. The new management team’s strategy of “innovation

marketing” – “A combination of increased marketing spend and product innovation, focusing on consumer needs – has been linked to the company’s ongoing success”. For example, in

2008, the company’s “rapid succession of well publicized new product variants” was credited for helping them “to capture shoppers' imagination” Business week has also noted that “40%

History of the company

Reckitt & Colman

Colman's was founded in 1814 when Jeremiah Colman began milling flour and mustard in Norwich, England. Reckitt & Sons started in 1840 when Isaac Reckitt rented a starch mill in Hull, England. He diversified into other household products and in due course passed on his business to his four sons. Reckitt & Sons was first listed on the London Stock Exchange in 1888. In 1938 Reckitt & Sons merged with J&J Colman to become Reckitt & Colman Ltd. Reckitt & Colman sold the Colman's food business in 1995 but still has some food brands.

Benckiser

of Reckitt Benckiser's $10.5 billion in 2007 revenues came from products launched within the previous three years.”

COMPANY’S BRAND

Reckitt Benckiser has four core categories:-

Surface Care - Disinfectant cleaners both clean and disinfect surfaces, killing 99.9% of germs. All purpose cleaners are ideal for many household surfaces, particularly in the bathroom and kitchen. Lavatory cleaners offer specialized cleaning and disinfecting for the toilet bowl and cistern. Specialty cleaners are designed for specific tasks – from cleaning ovens to removing lime scale. Finally, Polishes & Waxes clean and shine hard surfaces such as furniture and floors.

Key Brands

Lyzol Dettol Easy of Bang Harpic

Fabric Care - This category consists of five product groups used for cleaning and treating all fabrics. It covers products used before, during or after the main laundry wash cycle. Fabric Treatment products remove stains from clothes, carpets and upholstery. Garment Care products are specially formulated for washing delicate fabrics. Water Softeners protect the machine and laundry against the build-up of lime scale and other deposits. Fabric Softeners are used for softening and freshening fabrics and ironing aids help make ironing more convenient. Laundry Detergents clean fabrics in washing machines.

Key Brands

Calgon Vanish Robin blue

Health and Personal Care - Products that relieve common personal or health problems. Antiseptics protect against infection and deliver germ kill. Analgesics, Cold/Flu/Sore Throat and Gastro-Intestinal are generally over the counter medications for common ailments like pain, fever, cold, flu, sore throat or heartburn. Suboxone is the Company’s prescription drug against opioid dependence. Veet, their Depilatory product, removes hair leaving beautiful smooth skin. Their skin care range consists of products like Clearasil to fight spots and break-outs for visibly clearer skin and products like E45 for dry skin. Denture Care consists of both denture fixatives and cleaners.

Key Brands

Veet Dettol Clearasil Strepsils

Home Care - Consists of three categories. Air Care products remove odours and add fragrance to the air to create an ambience. Various formats include: auto sprays, electrical plug-ins, aerosols, gels and candles. Pest Control products offer solutions to domestic infestation. The category includes insecticide and rodenticide products – in formats such as coils, mats, baits, traps, vaporizers and sprays – to prevent infestation and to kill pests. Shoe Care cleans and protects shoes.

Key Brands

Airwick Mortein

Findings

Section I: Benchmarking for Reckitt in FMCG sector.

Objective: To find out the standing of Reckitt Benckiser in the FMCG sector against the competitors in terms of various financial and profitability ratios.

Key FMCG competitors

1. Dabur2. Glaxo SmithKline (GSK)3. Britannia4. Colgate Palmolive5. Hindustan Unilever Limited(HUL)6. Nestle7. Marico

The above competitors were chosen with respect to the various product categories in which these companies stand against Reckitt Benckiser.

The various factors on which the benchmarking for Reckitt Benckiser was done are:

1. Net sales growth

2. Profit Before Tax (PBT)

3. Return on Capital Employed

4. Earnings per share

5. Current Ratio

6. Tax as a % of PBT

7. Advertisement expenses as a % of sales

8. Net profit margin

9. Inventory Turnover Ratio

Net sales:

The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any discounts allowed is called as Net Sales. The sales number reported on a company's financial statements is a net sales number, reflecting these deductions.

Deductions from the gross sales are represented in the net sales figure. Therefore, Net Sales gives a more accurate picture of the actual sales generated by the company, or the money that it expects to receive. A company will book its revenue once the good or service is delivered or performed for the customer. However, in the case of returns, even after a good has been sold it can often be returned under a company's return policy. If the good is returned by the customer, it is not considered a sale, as the customer will receive a credit or money back, so it needs to be deducted from the gross sales. The allowances for damaged or missing goods reflect the situations in which the goods are damaged in transit or are not what the customer expected.

Profit Before Tax (PBT):

A profitability measure that looks at a company's profits before the company has to pay corporate income tax. This measure deducts all expenses from revenue including interest expenses and operating expenses, but it leaves out the payment of tax. It is also referred to as "Earnings before tax ".

This measure combines all of the company's profits before tax, including operating, non-operating, continuing operations and non-continuing operations. PBT exists because tax expense is constantly changing and taking it out helps to give an investor a good idea of changes in a company's profits or earnings from year to year.

Return on Capital Employed:

Return on Capital Employed (ROCE) indicates the efficiency and profitability of a company's capital investments.

ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings.A variation of this ratio is return on average capital employed (ROACE), which takes the average of opening and closing capital employed for the time period.

Earnings per share:

The portion of a company's profit allocated to each outstanding share of common stock. Earnings Per Share serves as an indicator of a company's profitability. When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However,

data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.

Earnings per share (EPS) is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures.

Current Ratio:

A liquidity ratio that measures a company's ability to pay short-term obligations is known as the Current ratio. It is calculated as the ratio of current assets and current liabilities. It is also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry.

The components of current ratio (current assets and current liabilities) can be used to derive working capital (difference between current assets and current liabilities). Working capital is frequently used to derive the working capital ratio, which is working capital as a ratio of sales.

Advertisement expenses as a % of sales:

High Selling General & Administrative expenses can be a serious problem for almost any business. Examining this figure as a percentage of sales or net income compared to other companies in the same industry can give some idea of whether management is spending efficiently or wasting valuable cash flow. For example, in the FMCG industry business that depends on a great deal of advertising must carefully monitor

their marketing expenses. A good management team will often attempt to keep these expenses under tight control and limited to a certain percentage of revenue.

Net profit margin:

A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every rupee of sales a company actually keeps in earnings.Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.

Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication that costs need to be under better control.

Inventory Turnover Ratio:

Inventory Turnover ratio is a ratio showing how many times a company's inventory is sold and replaced over a period. It is calculated as the ratio of sales over inventory or the ratio of Cost of Goods Sold (COGS) over average inventory.

COGS is generally used because sales are recorded at market value, while inventories are usually recorded at cost. Also, average inventory may be used instead of the ending inventory level to minimize seasonal factors.

This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble if prices begin to fall.

Net Sales Growth (%)

After 2002, the net sales of the company saw a huge growth of around 16%. But from 2003 onwards, the growth seems to be stagnant near the 17% mark, which indicates that company has seen a constant growth rate since 2003.

Profit before tax

The Profit before tax for Reckitt Benckiser lies above the industry average and falls behind Nestle, Dabur and Colgate palmolive

PBT as a % of sales

Since 2004, the company has seen a gradual and steady growth in profit and on comparing for the year 2008, company out performs all and at par with GSK and Colgate Palmolive.

Return on capital employed

Reckitt Benckiser has a ROCE of more than 300%, the highest in the FMCG category. The ROCE of HUL is 126% and Nestle on second position with 165%.

Reckitt has the maximum gains from its assets.

Earnings Per share

Reckitt has the maximum EPS among the category (111.1%), which has increased substantially over previous years. Britannia is following the same trend with a good growth rate after Reckitt.

Current ratio

Reckitt operates with a current ratio below 1, the reason being, the inventory turns over much more rapidly than the accounts payable become due. The other companies are still keeping a current ratio greater than 1.5.

Tax as a % of PBT

Tax as a % of PBT is more or less same constant in all the cases except Reckitt and Colgate Palmolive where the same has declined drastically. Reckitt Benckiser has shown substantial savings in terms of tax saving as tax as a % of PBT has reduced from 28.38% in 2004 to 13.75% in 2008.

Advertisement Expenses as a % of sales

Advertisement expense of Reckitt Benckiser hovers around the 16% mark for last 5 years.

Reckitt Benckiser and Colgate Palmolive are spending approximately 16% on media as a % of sales though HUL‘s media spend has also increased over the last five years from 6.8% in2004 to 9.8% in 2008.

Net Profit Margin

PAT as a % of sales for Reckitt Benckiser has increased substantially from 13.9% in 2006 to 18.9% in 2007. Colgate Palmolive has also shown a consistent growth over the past few years.

Inventory Turnover Ratio

It measures the number of times a company sells its inventory during the year. A high

turnover indicates that the product is selling well. For Reckitt, this ratio is around 10 from last

5 years and it is well above the industry average.

Section 2: employee retiral funds

Gratuity funds:

Gratuity in earlier days was rather arbitrary and completely hostage to the whims of the employer. A wealthy, well-established employer would reward his dedicated employees and the not so rich would refuse such generosities. This led to a lot of discord and finally the government stepped in, passing the Payment of Gratuity Act, 1972, making it mandatory for all employers with more than 10 employees to give them gratuity.

Employees, as defined here, are the ones hired on company payrolls. Trainees are not eligible and gratuity is paid on the basis of the employee's basic plus dearness allowance if any.

Provident funds:

Provident fund is the fund which is composed of the contributions made by the employee during the time he has worked along with an equal contribution by his employer. It is calculated as a percentage of the salary and is returned at the time of retirement.

The company invests the money used in these fund to generate interest and distribute it accordingly to its employees.

Following is an extract of “Staff provident fund”

These are some of the securities in which the company has invested the money and gets interest on it bi-annually.

There is a pattern followed in order to calculate the accrued interest on the investments that is calculated by counting the no. Of days and on the given rate of interest on a particular investment.

RCIL STAFF P.F. Purchase Price

Face value Opening Accrued Int.

      1-Apr-09Central Government Securities      

7.40% GOI LOAN-2035 456600 500000 2,261.00

7.40% GOI LOAN-2035 6818200 7000000 33,095.00

7.50% GOI LOAN-2034 505150 500000 5,313.00

7.50% GOI LOAN-2034 1001700 1000000 10,625.00

7.50% GOI LOAN-2034 2200650 2550000 27,094.0

0

Section 3:

Collection report :

The company has its account with Citibank for daily transactions.

At the first point of sale , when we submit the demand drafts ao cheques with the bank , then there is time limit given by the bank that within how much time our balances will be transferred. So in order to keep a track of the duration we make a report which indicates that how much time has the bank taken to converge our balances.

PICKUP DATE PROCESS DATE CREDIT DATE AMOUNT LOCATION

24/02/10 25-02-2010 02-03-2010 400000 CUTTACK

(ORI.)

24/02/10 25-02-2010 02-03-2010 400000 CUTTACK

(ORI.)30/03/10 31-03-2010 05-04-2010 1362132.02 CALCUTTA

The above table indicates that at some instances the bank has taken more than the negotiated time to transfer our balances, so the bank’s authorities are called up and renegotiated for the delay and further complications.

Section 4 :

Copy production and media expense analysis

Total spend by brands by year

BRAND YEAR TYPEDURATION(sec.) AMOUNT

AIRWICK 2009 RACOON EDIT NA 3474

EOB 2009COPY(HINDI,TAMIL) 30 4566429

2009 EDIT 10 22000

2010 EDIT 35 350000

VANISH 2009 COPY 35 3088400

2009 EDIT 30,20 450000

2010 COPY 40 4600000

2010 EDIT 25,10 600000

LYZOL 2009 COPY 30 3783290

2009 COPY 25 3082885

2009 EDIT 25,25 288986

STREPSILS 2009 EDIT 15 168540

MORTEIN AERO 2009 COPY(2 lang.) 35 2206000

2009 EDIT(6 lang.) 20 332900

MORTEIN VAPS 2009 EDIT 15,10 705920

VEET 2009 COPY 25,20 3297970

2010 COPY 30,20,10 6750000

2010 EDIT 35 150000

The above table describes the expense in producing television commercials incurred by brands.

The data provided is very important because is acts as a base on which we decide, if a particular production house is producing a good enough value for money commercial or not.

vendor

amount (rs.)

EURO RSCG ADVERTISING PRIVATE LIMITED 18400177

MAD ENTERTAINMENT LIMITED 18235000

MATRIX INDIA ENT. CONSULTANTS PVT LTD. 9247200

NIRVANA 15661649

WORKING I FILMS 13686958

Here, as described, are the top 5 producers on which the company has spent its money for copy production.

EXPENSE DISTRIBUTION OF BRANDS (in %)

• Total spend for the year 2009-10 was Rs.138, 420,029. The above is the distribution of this total spend with each brand’s share in it.

Key Conclusions:

• Cost per copy flat over years (base copy between 20-25 lakhs depending on board)

• Some copies more expensive due to format (Mortein animation, Airwick animation, Body wash outdoor shoots)

• Variations in costs/year depending on copy portfolio.

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