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Introduction
Unilever is one of the leading food, home care and personal care product manufacturing and
distributing FMCG (Fast moving consumer goods) companies in the world. Unilever’s
products are retailed in most parts of the world and it has manufacturing setup in 70
countries. The Unilever group operates in European, American, Asian and African continents
and employed 163,000 people. Unilever operates in four business segments namely, Savory,
Dressings and Spreads; Ice Cream and Beverages; Personal Care; and Home Care and Other.
Unilever recorded revenues of EUR 39.8 billion in December 2009 while operating profit
was EUR 5 billion. Both sales and profit showed significant decrease as compared to FY2008
(“Datamonitor” 2010).
A new innovation driver program called Genesis Program was developed in 2009. This
program spans the entire foods, home and personal care categories aiming to spark
breakthrough ideas that could drive the market share higher – some of the innovative
products from this program would launched in 2011. Unilever has 6 R&D laboratories spread
in Europe and now in India and China and it recently opened a new R&D center in China
(“Global Data” 2010)
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similarly year on year sales have improved by almost 11%, so negative ratios do not tell the
whole story.
Sales
Operating Income After D
NetIncome
PROFITABILITY RATIO
Ratios are by themselves not very useful unless benchmark is used to gauge efficiency. UL’s
Return On Assets
of concern, especially when industry is showing a 4.5 % growth while sector shows 7.2%
growth rate, even EPS growth is almost half that of S&P 500. Even profitability is well below
industry averages with operating margin TTM and 5 year average trailing behind industry,
Return On Invested Ca
one fourth that of S&P 500 and less than half of industry averages. These indicators show
that UL is due for drastic cost management and margin improvement exercise if it is to
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Net Cash Flow From Fina
Gross Profit Margin
maintain its stellar status. Although UL has decreased its employees from 174,000 to 163,000
the revenue per employee suggests a further impending cut in headcount.
Peer and Competitors’ Comparison
Valuation Ratios
P/E ratio, 5-Yr High
P/E ratio, 5-Yr Low
Beta, 5 Years
Dividends
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Dividend Yield
Peer set by ICB Subs
Key Financia
Company
Key Financ
QuoteSymbol
Current Sale USD
Current EBITDA USD
Company
Current EBIT USD
(“Thomson Research”, 2010)
QuoteSymbol
Looking at two selection of peer companies we see that Nestle leads in sales while Kraft
foods is placed at USD 40 billion while P&G also has revenues of almost USD 80 billion
If we look at distribution of revenues across business segments savory and dressings is the
most profitable segment followed by personal care while home care has been showing
negative growth over last two years. We see that 2009 performance led to improved market
standings as price movements of UL’s shares show. By July 2010 UL had recovered almost
all of the lost value compared to 2006 standards.
(“Factiva” 2010)
Business Segment
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(“Thomson One”, 2010)
Similarly sales wise Asia Pacific seems most promising with positive growth while Europe
was performing significantly below potential. Asia Pacific had outstanding 25% growth in
2008 and even in 2009 the growth, though comparatively very low still continued. The low
growth in 2009 may be due to overall economic depression however better performance
should be expected from 2010.
Geographic Segment
(“Thomson One”, 2010)
Looking at performance over 2010 second half we see the positive trend continuing with
Asian region outshining Americas and Europe; however the negative slide in Europe has
been arrested.
Asia Pacific
(“Thomson Research”, 2010)
Americas
Further the distribution of revenues has changed across the business segments with personal
care segment showing higher growth rate than Savory, Dressing and Spreads category, and
even Ice Cream category is showing a healthy 5% growth over mid year.
Europe
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(“Thomson Research”, 2010)
UL has diversified revenue streams with large scale of operations and a strong portfolio of
brands. In FY09 savory and dressings contributed one third of the total revenues; another
strong factor in UL’s favor is its presence in over 170 countries with US contributing 16 % of
the revenues and UK/Netherlands contributing 8.5% to the total revenues. UL has
manufacturing facilities spread over 6 continents and has 400 brand names distributed across
14 categories of home, personal care and food categories. Global scale of operations has
enabled UL to achieve leadership positions with top positions in savory and dressings and
laundry segments globally and its large scale operations allow cost advantages and economies
of scale. Its brand names Knorr, Lipton, Blue Band and many others are universally
recognized. Strong brands allow meeting customer requirements at several price levels thus
effectively catering to higher and lower tier customers. UL maintains dedicated focus on
environmental issues helping it to maintain sector’s leading position on Dow Jones
sustainability for last 11 years.
On the down side UL has shown decreased liquidity for last year with current asset ratio less
than 1 showing inability to meet all of its fiscal requirements in short term. UL’s cash and
equivalents stood at EUR 2.6 billion barely enough to cover short term borrowing of EUR 2.3
billion and non availability of cash for other working capital needs. Current assets are mostly
tied up in inventories and receivables showing lack of immediate liquidity so operational
efficiency might be affected forcing group to increase borrowings to maintain working capital
requirements or exercise financial discipline – in both cases the growth initiatives would be
affected. Europe continues to be a sore point over 6 percent decline in revenues in 2009 and
1.1 % in first half of 2010. Europe’s performance might affect or put pressure on group’s
performance in other regions.
In FY2008 UL launched steps to streamline its management structure with increased focus of
developing markets and reduction of 20,000 jobs across its segments to improve cost
efficiency. Further UL further developed its partnership with PepsiCo for marketing and
distribution of ready to drink products as non alcoholic ready to drink beverage market is
expected to grow faster than world’s GDP and reach USD 650 billion. Latest agreement with
PepsiCo aims to capture more of the growth opportunities from ready to drink tea market.
Developing markets pose biggest opportunity as 49% of revenues came from Asia Pacific,
Africa, Middle East, Turkey, and Latin America region in 2009. Also shifting a large portion
of R&D resources to China and India in 2008 is expected to decrease R&D costs and help
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expansion in developing economies. Both Chinese and Indian FMCG market are expected to
grow multifold as the respective population booms – so UL could be in a position to exploit
these regions opportunity in the coming years. Divesture of non core business in 2008 and
2009 allowed UL to generate cash for increasing focus on consumer business. Global food
industry is expected to reach USD 2.2 trillion by 2015 driven by outside home food market
and UL with Foodsolutions subsidiary is well positioned to tap this burgeoning market.
Economic downturn has affected customer demand forcing customers to focus on cheaper
brands plus supermarkets own brand initiatives is likely to hurt customer demand for UL
products, so UL is unlikely to sustain higher margins it enjoyed in the past because of
pressure from low cost competitors. Many consumer protection groups are voicing concerns
over carcinogenic composition ingredients of many of the cosmetic products.
Regulatory pressures are therefore likely to affect UL cost of sales as increasing public
pressure over composition of cosmetic products will force reformulation of many cosmetic
products without carcinogenic constituents increasing cosmetics’ production costs. Further
public pressures over hazardous wastes is also likely to increase cost of products as
companies like UL take measures to combat noxious wastes (“Datamonitor” 2010).
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like Wal-Mart derives bulk of its revenues from domestic sources UK firms, have
comparatively smaller home economy and must therefore look outside and thus for a British
company to be successful it has to be significant international player and international
revenues would deem success of such a company. Company success can be interpreted
differently by stakeholders. Also growth rates can be misleading for measuring growth over
different time periods may provide different metrics each of which might be quite different
from other especially if there has been a major change in company performances, be it
because of internal or environmental reasons. Companies spend significant portion of their
sales as advertising expenditure in order to rise above media clutter and achieve recognition
for respective brand. Media planner needs to consider all the information available on the
product and decide on that basis how best to reach audience through respective advertising
media. P&G spends more than 15% of its sales revenue on advertising while UL spends only
half as much.
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(Doyle 2008 p301)
Similarly we can see how much P&G spends, compared to UL, as a percentage of operating
profit on advertising (Doyle 2008). He further opines that companies like UL have now been
able to tailor its advertising on individual customers. This is done by taking a small sample of
consumers and interviewing them about their attitudes, buying processes and strategies and
the results filtered through demographic and lifestyle variables. Thus the consumers would be
clustered or factored into limited market segments following which products would be
targeted and communicated using identified market segments. Hence some consumers’ needs
would be met while some might be missed – depending on the size and true representation of
sample over target population the market segments would thus be a close or loose fit over the
possible target market (Doyle 2008 p337).
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(Doyle 2008 p302)
UL and P&G
This industry will require continually keeping up with changing wants and needs of the
consumer in order to remain competitive in this industry hence the need for investment in
research and development becomes even more important. Increasing M&A will make the
industry more consolidated while cost and raw material availability would favor smaller firms
over larger conglomerates. P&G reported revenues of USD 79 billion with much more
limited set of brands than UL’s portfolio. It has employees half that of UL and is world leader
in most of the categories in which it competes. P&G has very strong R&D which gives it
competitive advantages. P&G’s large scale operations give it first mover advantage and
economies of scale that are unmatched by many smaller operators. P&G is well known for its
brand management and brand leadership qualities. The above graph shows how liberally
P&G spends on getting its message heard. In contrast to UL which is focusing on shedding
brands P&G has led mergers and acquisitions remarkably well with successful acquisition of
Clairol, Wella and Gillette, so M&A seems to be well suited for P&G. Active portfolio
management, has been shown to increase stakeholder value. P&G’s R&D has enabled
addition of new lines as well as expansion in current portfolio especially to tailor products for
meting local needs. P&G is actively focusing on expansion in developing countries as well as
driving organic growth in developed countries. P&G's focuses on large-scale operations,
strong product branding, and product innovation to develop competitive advantage as part of
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its business strategy. P&G uses CRM and EDI technologies as well as RFID tracking to
provide self feedback and improvement and streamlining processes and reducing costs. P&G
has made substantial investments internationally, using joint ventures, acquisitions and
alliances to improve market understanding. P&G has substantial market knowledge and
leverages insights from local shopper, consumer and use it to generate cross unit business
plans. “Their flattened organizational structure and focus on relationship management with
relevant stakeholders provides for efficient and rapid communications throughout the value
chain”(Graul, Henricks, Olp and Strohecker 2006). P&G has a well developed knowledge
base and riding on innovation P&G has successfully created ability to implement distribution
systems. P&G has been recognized for its early adoption and substantial utilization of
information technology. CIO magazine has recognized P&G for its “Corporate Standards
System application” that allows quicker and efficient collaboration between employees and
partners reducing costs and allowing shorter time cycle for getting products to market place.
“P&G’s strategy and e-business focus is three-fold: “one-to-one communications, real-time
and predictive business intelligence, and ‘virtualization’ of business processes” (Graul,
Henricks, Olp and Strohecker 2006). UL can learn from P&G to pursue careful
acquisitions, cost reduction programs and utilization of IT technologies for streamlining its
processes (Graul, Henricks, Olp and Strohecker 2006).
Growth in UL stocks and turnaround in 2009 has helped change culture at UL “from a
restructuring based growth model to one centered on top-line/volume growth and in-turn
profitability” (Pannuti 2010). The enclosed table shows that in 2009 UL was able to maintain
its market share across the various regions in which it operates.
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(Pannuti 2010)
The new incoming CEO has also been the force behind board changes over past 18 months.
UL should now maintain its cost improvement program which has allowed it to achieve EUR
1.4 billion savings from its initiatives in 2009, similar cost savings in 2010 would allow UL
better margins and more competitiveness and close the gap with major FMCG’s
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(Pannuti 2010)
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and to generate loyalty amongst its customers as well as supporting company’s expansion
plans through its loyal customer base.
UL has strong opportunity in snacks market. Demand for healthy organic and mineral
fortified snacks is increasing rapidly. This increasing market is a strong opportunity for UL to
capitalize on. UL has been indulging into strategic acquisitions and strategic acquisitions
allow UL to not only capture the market quickly but to capitalize on acquired company’s
goodwill to expand operations and consolidate new products under its portfolio. At the same
time UL should divest non performing or non core businesses and use cash for streamlining
operations and investment in R&D for cost efficient solutions. As retailers have started
coming in with their own low cost brands, UL needs to constantly revisit its costs to optimize
margins. UL needs to optimize its E-business strategy learn from competitors like P&G so
that it is able to achieve global efficiencies through electronic transactions and ready
communications with retailers, suppliers and distribution networks.
Investment in consumer research to better differentiate segments and identify all possible
segments is essential. Also important is ensuring that each identified segment is mapped on to
an appropriate product or product is developed fine tuned to meet segment’s exclusive needs.
This will ensure that competitors do not get segment which do not have mapped UL brands.
Consumer research and data mining to identify trends is important for determining what
inherent characteristics differentiate one group from another. Data mining is very useful for
predicting what will happen but the tools fail to determine when the things will happen if they
do. Data mining is using the existing data to solve problems and discovering patterns in
data. Consumer shopping data might help in eliciting likely reason for customer loyalty and
churn. Also data analysis on same database may identify the reason why customer may be
attracted to other product or service thus allowing development of special targeted offers.
Data is only useful if it can be analyzed or mined, intelligence is about knowing the identity
and acting on signals that analyzed data portrays – it is also acting on information before
everyone else sees the same picture (Chakrabarti et al 2009).
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(“Datamonitor Financial Deals” 2010)
As per Mr. Paul Polman the CEO of UL “Looking ahead 2009 was a good year for Unilever
despite the tough conditions. 2010 won’t be any easier, but by embedding the changes we are
already making and by fostering a sharper performance culture, there is no reason why we
can’t go on growing in line with our ambitions” (“Global Data” 2010)
References
March 2010. Datamonitor Financial Deals. Unilever Plc – Mergers & Acquisitions
Apr 2010. Global Data. Unilever PLC (ULVR) SWOT Profile. P1 -37. 37 p
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Chakrabarti, S., Cox, E., Frank, E,, Güting, R, H,, Han, J,, Jiang, X,, Kamber, M,,
Lightstone, S, S., Nadeau, T, P., Neapolitan, R, E., Pyle, D. ,Refaat, M., Schneider, M.,
Teorey, T. J., Witten, I. H.. 2009. Data Mining Know It All. Morgan Kaufmann
Publishers: USA
Doyle, P. 2008. Value-based marketing : marketing strategies for corporate growth and
world’s largest food and beverage MNEs. European Management Journal. Volume 26,
Graul, L. A., Henricks, S., Olp, S. and Strohecker, C. 2006. Procter & Gamble, Unilever
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Appendix
Growth
Net Sales/ Revenues 10.70 16.51 1.37 -0.32 3.72 -7.67
5 Year Average 5.35 1.60 -2.00 -3.34 -1.31 0.18
Operating Income 12.45 17.21 2.90 -4.25 2.96 -8.92
5 Year Average 8.22 3.75 1.24 1.43 4.53 3.17
Net Income -24.44 49.33 -18.02 25.47 38.23 -33.35
5 Year Average 18.70 15.76 14.72 23.16 30.86 -6.96
Earnings Per Share -23.86 56.68 10.92 5.01 22.92 -33.28
5 Year Average 19.89 16.76 15.02 16.58 28.85 -5.58
Dividends Per Share -32.07 18.84 8.05 4.80 6.06 5.92
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Worldscope Balance Sheet Ratios Report
UNILEVER PLC Symbol: ULVR (C000017179)
100 Victoria Embankment Unilever House CUSIP:
London EC4Y 0DY EC4P 4BQ GBR SEDOL: B10RZP7
http://www.unilever.com Company Status: Active
Book Value per Share 3.82 3.49 3.19 2.61 4.43 2.20
Tangible Book Value per Share -1.58 -2.15 -1.12 -1.39 -5.14 -6.16
Long Term Liabilities per Share 3.90 3.87 2.63 2.45 7.34 6.77
Working Capital per Share -0.15 -0.83 -0.83 -0.92 -0.93 -0.91
Price/Book Value Ratio - Close 5.22 4.53 5.94 5.48 6.43 11.51
5 Year Average 5.42 5.97 7.00 8.27 9.87 10.89
Price/Book Value Ratio - High 5.30 5.59 6.04 5.48 6.75 13.10
5 Year Average 5.75 6.48 7.52 9.10 11.08 13.56
Price/Book Value Ratio - Low 3.21 3.58 4.14 4.28 5.40 9.85
5 Year Average 3.97 4.68 5.62 6.86 8.30 8.47
Price/Book Value Ratio-Avg Hi-Lo 4.26 4.58 5.09 4.88 6.08 11.48
5 Year Average 4.86 5.58 6.57 7.98 9.69 11.01
Market Capitalization % Equity 5.22 4.53 5.94 5.48 6.43 11.51
5 Year Average 5.52 6.78 8.02 9.53 10.54 11.07
Total Debt % Total Assets 26.86 31.30 25.87 23.66 32.78 37.28
5 Year Average 28.10 30.18 32.44 36.71 41.92 45.98
Common Equity % Total Assets 32.96 28.10 33.64 30.67 21.94 12.25
5 Year Average 29.46 25.32 22.07 17.36 13.44 11.43
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(“Thomson Research”, 2010)
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