Contents Section 1 Introduction3 1. 1 Introduction to the topic3 1. 2 Introduction to UNILEVER4 1. 3 Project objectives5 1. 4 Research Questions5 1. 5 Research approach6 Section 2 Information Gathering7 2. 1 Sources used and reasons7 2. 2 Description of method used to collect information8 2. 3 Limitation of gathering information9 2. 4 Ethical Issues9 2. 5 Ratio Analysis10 2. 5(a) Limitation of ratio analysis11 2. 6 SWOT analysis13 2. 6(a) Limitations of SWOT analysis13 2. 7 PEST analysis13 2. 7(a) Limitations of PEST analysis13 Section 3 Business Performance Analysis15 Polyester15
Soda Ash16 3. 1 Major Developments19 3. 2 Competitive Position of UNILEVER. 20 3. 3 Future Outlook20 Section 4 Financial Performance Analysis22 4. 1 Sale Revenue Growth22 4. 2 Comparison of Sale to Cost of Sale23 4. 3 Profitability Ratios23 4. 3(a) Gross Profit Margin:24 4. 3(b) Net Profit margin24 4. 3(c) Operating Profit Margin:24 4. 3(d) Return on Capital Employed & Return on Equity25 4. 4 Efficiency Ratios:26 4. 4(a) Account Payables Days:26 4. 4(b) Account Receivable Days:26 4. 5 Liquidity Ratios28 4. 5(a) Current Ratio:28 4. 5(b) Quick Ratio:29 4. 6 Gearing Ratios:30 4. (a) Capital Gearing Ratio:30 4. 6(b) Dividend per share vs. Earning per share31 4. 6(c) Dividend Cover Ratio 🙁 In Times)32 4. 7 SWOT Analysis33 Strengths33 Weaknesses33 Opportunities33 Threats34 4. 8 PEST Analysis35 Political and legal analysis35 Economic analysis35 Societal Analysis36 Technological Analysis36 Section 5 – Conclusion and Recommendations37 5. 1 Recommended Strategies37 Backward Integration37 Acquisition37 5. 1(a) Implementation Plan38 Section 6 – Appendices39 Appendix 6. 1 – Ratios Findings39 Section 1- Introduction Phase 1. 1 Introduction to my research topic
After being eligible for BSC honours programme, my first step towards the research and analysis work was to decide upon which topic to choose. After intense analysis of various topics in the guide line, I decided to select my favourite topic 8 which is “The business and financial performance of an organization over the three years period”. Why I chose this topic? Business and financial performance analysis has always been my favourite area. Evaluation of business and financial performance requires an accounting background and skills to interpret the financial statements of an organisation.
Having completed the fundamental level of ACCA makes me believe that I have acquired the necessary basic skills to cope with the task. To me it is a great opportunity to apply my knowledge to a greater level of intellectuality which, I feel, is quite different to an ACCA examination. In my point of view this topic is more relevant to my accounting and auditing profession. I discussed the various topics with my mentor and finally we decided to go with the “Business and financial performance of Unilever over a period of three years”. I selected this topic because of the following reasons; This topic is very challenging for me as it will not only demand for a wider research and analysis but also gives me an opportunity to apply the knowledge I gained during my studies towards ACCA to a larger organisation like Unilever which already exists has strong presence. This would enhance my understanding of business and financial analysis thus improving my analytical skills and capabilities. * This project would provide me an opportunity to enhance my IT skills like Microsoft Office applications and use of diagrams, tables, calculations of key ratios, trend analysis, and graphs. Ease in the availability of financial and non financial information of the Unilever in corporate website and also from other sources such as internet, newspapers and magazines. 1. 2 Introduction to Unilever Unilever is a multinational group and it has its presence in various stock exchanges around the world like Unilever PLC is a public limited company registered in England and Wales and its shares are listed on London Stock Exchange and as American Depository Receipts on New York Stock Exchange. Secondly, Unilever N.
V is a public limited company it is registered in Neitherland and its securities are listed on Euronext Amsterdam and New York Stock Exchange. These two parent companies, together with their group companies, operate as a single economic entity referred as Unilever Group for reporting purposes and present their consolidated financial statements. Unilever is operating in 170 countries around the world and it has a big portfolio of more than 400 brands. 1Unilever Annual Report and Accounts 2009 1. 3 Project objectives
My research and analysis project aims at the following objectives; * Overview of Unilever Group, its business operations and environment as a whole. * Financial performance analysis of Unilever Group in terms of profitability and return on capital employed, long-term solvency and liquidity, management efficiency, short-term solvency and liquidity, return on investment/EPS and stability with of prospective of different group of users of financial information. * Most oblivious risks facing the Unilever, their impact on the performance and the strategies put in place to deal with them. SWOT analysis that involves analysing the strengths and weaknesses of the business and comparing them with opportunities and threats in the environment. * PESTLE analysis to view and analyse the influences of various external factors and forces on the overall business performance and strategies to cope with them. * Conclusion on the overall financial and non financial performance of the Group and satisfactory recommendations to bring improvements. 1. 4 Project Questions This research work will focus on the above mentioned objectives and intended to answer the following questions. . How Business Performance should be assessed and analysed in a wider and narrow context? 2. What Accounting techniques and analytical tools should be used, to assess the financial performance of Unilever over the last three years? 3. Comparison of Unilever with the overall competitive industry? 4. How reliable information should be retrieved and test its reliability? 5. How results from various analysis should be presented in a brief, concise conclusion and give some suggestions for improvement. CHECK THESE QUESTIONS WITH THE GUIDELINE 1. 5 Project strategy
Successful completion of any project needs right strategy and dimension. Project strategy leads towards the achievement of its objectives. After a good brain storming session with my mentor I decided to go with business and financial performance analysis of Unilever. I knew it would be very challenging to identify and devise aims and objectives of my research project in order to start work. As a first step I started to gather all kind of information which was relevant to my research. Most of the information was gathered from secondary sources.
However I tried to get some primary source information which was not an easy job. Getting the reliable and relevant information regarding the topic was my first priority as this was the vital requirement of the analysis. A small error in my information gathering or in information could detract me from the aims and objectives of research work. Nest phase after information gathering was filtering of information relevant to my research work. It was linked to different analysis and techniques used to assess performance. So I spent a good deal of time to pick only relevant information for assessment and analysis.
All these activities my research work objectives more clear coherent to my previous work. My discussion with my mentor colleagues and lecturers helped me a lot in this regard. I adopted mom SEE approach i. e. State, Elaborate and Explain, this approach provided me tool to express ideas, thoughts and research conclusions in the best possible way. SOURCE::::::::WEBLINK Section 2- Information Gathering Phase 2. 1 Sources used and reasons A great volume of information is available on the internet and in print media but real challenging job for me was to collect and filter the relevant information.
In order to gather all the relevant information about my project and especially Unilever group, various sources have been used including: I. The financial information about Unilever is quite easily available on the company website in the investors section. The ratio analysis of Unilever Group is based upon the financial information such as income statement, balance sheet, share price etc which I obtained from the annual published accounts of the company which were easily available. II. The World Wide Web provided the greatest access to specific industry information.
Searching for required and relevant material proved harder than expected, as a great deal of information is available on internet. It required me to spend plenty of time to go through all that information and then to sort out what is relevant for my research work. Internet provided me not only with the relevant information about Unilever but also with the information about the other aspects of research work. III. ACCA text books especially Advance Financial reporting (P2), Business Analysis (P3) and Advance Performance Management (P5) were also consulted so as to get maximum benefit from my ACCA studies and knowledge.
IV. Newspapers especially Financial Times, annual reports of other companies in the similar business are sources which were used for information gathering. I found it very useful as it gave me all latest updates about Unilever’s business and competitive environment. V. Technical articles in the ACCA Student Accountant magazine, which were written by experienced professionals and lecturers, proved to be very helpful and good source of information. VI. Books on project management?????? Update after getting books form library 2. 2 Description of method used to collect information
My major focus was on secondary information available through different sources. I tried to keep my information gathering process as simple and reliable as possible. My major sources were internet and library research. These two sources are more reliable and quick by nature; At the beginning I mainly relied upon the internet and used different search engine which helped me to get information in a much quicker way. Major search engines used were, www. unilever. com www. unilever. com/investorrelations www. unilever. nl/onsbedrijf/beleggers www. google. co. uk www. mywebsearch. com SOURCE::::::::WEBLINK SOURCE::::::::WEBLINK www. unilever. om and www. unilever. co. uk which are official websites of Unilever group, proved to be major source of secondary source of information for my research work. www. londonstockexchange. com which is official website of London stock exchange gave all the latest updates which I needed. Other websites which were very helpful for my research work include; * www. ft. com * uk. finance. yahoo. com * Library search The main method I used for information gathering was from public libraries. In this regard British Library London which is one of the leading British Libraries for research work and Southwark Libraries proved to be very helpful.
I got an opportunity to consult market reports, books, journals and articles to get my research work done in the best possible way. Well formalised structure of these public libraries boosted speed of my research work and brought quality to my work. SOURCE::::::::WEBLINK ONLINE LIBRARY 2. 3 Problems with gathering information The major problem which I faced many times during information gathering was abundance of irrelevant information on the internet. It proved to be hard to pick relevant and accurate information from a big pool of data. Especially information about the competitor organisations of Unilever was hardly well structured.
I encountered same problem with library research work. These problems put me under time pressures as I spent more time on relevant information gathering and sorting for my research work. 2. 4 Ethical Issues Being a student of a professional body (ACCA), I try my best to demonstrate professional attitude. Secondly, I was quite aware of ethical issues and regulations involved in this research work. So, while conducting this research report and consulting with various persons and books, always a question appeared that the person giving information is well informed of the purpose of my research work and ethical issues.
The issue was easily solved where the information was received in person as I informed them of my intention in the very beginning of the discussion. But real problem was acquiring that information from the books, journals and reports. I was worried not to copy the essential ideas because this could also lead to plagiarism. So I got guidance from Oxford Brookes Research and Project Information Pack and gave all the reference and bibliography of source of information. Objective Approach In order to avoid any personal likeness or bias objective approach proved to be best and honest way of analysing actual position and performance of Unilever.
I always asked myself, “Had I focused on the favourable position of Unilever and not considered the other side of the picture”? I tried my best to mitigate this risk and gathered information from different sources. 2. 5 Aims and Objectives of my Research Report My aim is to analyse the business and financial performance of the Unilever Group from the point of view of current and potential shareholders and investors and other users. Generally shareholders are interested in the growth of their wealth through persistent profitability and growing return on their investment.
Investors’ concern in Unilever may be of its strategy to face the challenges of the economic down turn and remaining profitable with a future risk aversive strategy. Through my research I will evaluate the financial performance of Unilever Group for last 3 years, compared to that of Proctor and Gamble (P&G), leading to the analysis of its formulated strategy to face the future challenges. 1. 1. 1 Future Prospects and Growth Strategy In my report I will include the future prospects and the growth strategy of Unilever.
I will focus on the strategy formulated by the group for their future growth in order to remain consistent with their current operations. Due to the volatility of the current economic environment it would be very interesting to look at where and how the group wants to see itself positioned against its competitors. Following is the layout of the plan which I intend to follow to serve my objectives. 1. 1. 2 Financial Analysis I will evaluate the past financial performance of Unilever through a ratio analysis from the point of view of the shareholders and investors.
I will also calculate the ratios for P&G and present them comparatively in the form of charts and tables. Key ratio analysis by comparing both competitors while focusing on the reasons behind the results found out for Unilever. The ratios are categorised as followed: I. Revenue Growth Comparative analysis of fluctuations in the revenues of both Unilever and P&G for the stated periods. II. Performance Ratios Performance or profitability ratios are a measure to find out the ability of a firm to generate the rate of return which is acceptable by investors and the shareholders.
It also shows how effectively the assets have been used and the costs are controlled by the organisation. In this context I will use the following ratios; * Pre-tax Profit Margin * Cost : Net Income Ratio * Return on Equity (ROE) * Return on Capital Employed (ROCE) * Return on Assets (ROA) * Asset Turnover Ratio III. Liquidity Ratios These ratios indicate the ability of the enterprise to pay its current obligation out of current asset. * Current Ratio * Acid Test Ratio IV. Risk Ratios Risk ratio determines the liquidity of the firm in order to meet its debt when they fall due.
In this category I am going to calculate following ratios. * Gearing Ratio * Interest Cover V. Market Ratios Market ratios for the report are as follows; * Earnings Per Share (EPS) * Dividend Per Share * Dividend Cover * Price Earnings Ratio Limitation of Ratio Analysis and Accounting Information Ratio analysis provides only quantified analysis, not qualified analysis. That mans trueness and correctness all depends on financial statements prepared by the management. Foreign currency amounts for results and cash flows are translated from underlying local currencies into euros using annual average exchange rates.
Balance sheet amounts are translated at year-end rates….. FinancialANALYSIS Limitations of Accounting Information * Different accounting policy LIMITATION WITH RESPECT PT P&G.. CURRENCY DIFFERENCE AS WELL The choice of accounting policies may distort intercompany comparisons. The business may opt not to revalue its assets because by doing so the depreciation will be high and thus the profit will be low. * Creative Accounting The businesses apply creative accounting in trying to show the better financial performance or position which can be misleading to the users of financial accounting. Comparison over Time Price changes Inflation renders comparisons of results over time misleading as financial figures will not be within the same level of purchasing power. Changes in results over time may show as if the enterprise has improved its performance and position when infect after adjusting for inflationary changes it will show a different picture. * Changes in accounting policies Changes in accounting policy may affect the comparisons of results between different accounting years as misleading. The problem with this situation is that the directors may be able to manipulate the results through the changes in accounting policies.
This would be done to avoid the effect of an old accounting policy or gain the effects of a new one. * Changes in accounting standard Accounting standards offer standard ways of recognizing, measuring and presenting financial transactions. Any change in standards will effect the reporting of an enterprise and its comparisons of results over a number of years. Inter Firm Comparison * Window dressing Window dressing is a method of carrying out transactions in order to distort the position shown by the financial statements and generally improve the position shown in the financial statements, which will result a better ratios. Different capital structures and size Companies may have different capital structures and to make comparison of performance when one is all equity finance and another is a geared company it may not be a good analysis. Other Limitations * There are no rules as to what is an ideal ratio Ratios need to be interrupted carefully, they are not definitive measures. They can provide clues to the company’s performance or financial situation. But on their own, they cannot show whether performance is good or bad. http://wiki. answers. com/Q/What_are_the_limitations_of_financial_accounting_data ttp://www. learnpremium. co. uk/cima/lesson4/page4. aspx SOURCE::::::::WEBLINK SOURCE::::::::WEBLINK SOURCE::::::::WEBLINK 2. 6 SWOT analysis I will also do a strategic analysis of Unilever’s business by applying SWOT framework a technique formulated by Albert Humphrey at Stanford University. It will identify the Strengths, Weaknesses, Opportunities and Threats faced by an organisation. This framework evaluates the strategy both internally and externally. Strategically, strengths and weaknesses are internal (organisational) factors of a company which are helpful and harmful, espectively, in achieving the business objectives. Opportunities and threats are the external (environmental) factors which are not in control of an organisation and prove helpful or harmful in pursuit of business objectives. SOURCE::::::::WEBLINK SWOT Analysis | Helpful| Harmful| INTERNAL| Strengths| Weaknesses| EXTERNAL| Opportunities| Threats| http://www. coursework4you. co. uk/swot. htm SOURCE::::::::WEBLINK SWOT Analysis SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis.
It is applicable to either the corporate strategic level or the strategic business unit level and frequently appears in marketing plans of organisations. The SWOT framework was described in the late 1960’s by Edmund P. Learned, C. Roland Christiansen, Kenneth Andrews, and William D. Guth in Business Policy, Text and Cases (Homewood, IL: Irwin, 1969).. Because it concentrates on the issues that potentially have the most impact, the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation. The following diagram shows how a SWOT analysis fits into a strategic situation analysis.
Situation Analysis | / | | Internal Analysis | External Analysis | / | / | Strengths Weaknesses | Opportunities Threats | | | SWOT Profile | SOURCE::::::::WEBLINK SOURCE::::::::WEBLINK SOURCE::::::::WEBLINK 2. 6(a) Limitations of SWOT analysis The SWOT analysis is based on information gained from an examination of external and internal environment. The analysis is normally made within the context of major assumptions about external environment. Any major change in the external environment is likely to influence the opportunities and threats in the SWOT analysis.
SOURCE::::::::WEBLINK 2. 7 PEST analysis A scan of the external macro environment in which the firm operates can be expressed in terms of following factors: * Political * Economical * Social * Technological * PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The headings of PEST are a framework for reviewing a situation, and can in addition to SWOT and Porter’s Five Forces models, be applied by companies to review a strategic directions, including marketing proposition.
The use of PEST analysis can be seen effective for business and strategic planning, marketing planning, business and product development and research reports. PEST also ensures that company’s performance is aligned positively with the powerful forces of change that are affecting business environment (Porter, 1985). PEST is useful when a company decides to enter its business operations into new markets and new countries. The use of PEST, in this case, helps to break free of unconscious assumptions, and help to effectively adapt to the realities of the new environment. * SOURCE::::::::WEBLINK . 7(a) Limitations of PEST analysis ((((write more)))) Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Economic factors affect the purchasing power of potential customers and the firm’s cost of capital. Social factors include the demographic and cultural aspects of the external macro environment. These factors affect customer’s needs and size of potential markets. Technological factors can lower barriers to entry reduce minimum efficient production levels and influencing outsourcing decisions. ttp://www. quickmba. com/strategy/pest/ It may be difficult to forecast future trends with an acceptable level of accuracy. In this regard, the firm may turn to scenario planning techniques to deal with high levels of uncertainty in important macro-environmental variables. Duncan Williamson, http://www. duncanwil. co. uk/pest. html Section 3 –Analysis- Business Performance SEE SEPARATE FILE ICI ANALYSIS FOR GUIDANCE CHECK WITH P5 PERFORMANCE MEASUREMENT CHECK WITH CORPORATE STRATEGY P3 FROM BOOKS Unilever is one of the world’s leading suppliers of fast-moving consumer goods.
It is a global business which by the end of the year was generating more than half of its turnover in developing and emerging markets in Asia, Africa, Central ; Eastern Europe and Latin America. For the simplicity of its operations, Unilever is operating as a single economic entity and two parent companies Unilever NV and Unilever PLC and their group companies constitute a single reporting entity for the purposes of presenting consolidated accounts. Unilever N. V is a public limited company registered in the Netherlands.
It has listings of shares and depositary receipts for shares on Euronext Amsterdam and of New York Registry Shares on the New York Stock Exchange. Unilever PLC (PLC) is a public limited company registered in England and Wales. It has shares listed on the London Stock Exchange and, as American Depositary Receipts, on the New York Stock Exchange. Unilever has divided its operations into three geographical regions including; 1. Asia, Africa, Central and Eastern Europe (AAC) 2. The Americas 3. Western Europe Asia, Africa, Central and Eastern Europe (AAC)
In a very challenging and volatile environment the Asia, Africa and Central ; Eastern Europe (AAC) region posted strong growth and margin improvement. Unilever continued to invest aggressively behind the fast-growing emerging markets including China and Russia. The 2009 was a year of strong volume led growth and significant improvement in operating margin. Underlying sales growth for the year was 7. 7%, with a strong volume component of 4. 1%. Volume growth accelerated through the year, reaching 9. 4% in the fourth quarter. In AAC region turnover has been 37. 41% of total turnover of Unilever, which is highest among the three regions.
It was also broad based with strong performances in particular from Indonesia, China, Turkey, Vietnam, Arabia and Australia. Market shares also progressed positively through the year in most parts of the region, with the exception of India where competition intensified significantly, especially from lower-cost local players. Underlying price growth was positive for the year as a whole but turned negative towards the end of the year in most markets. This downward trend reflects the passing back to consumers of the benefits from commodity cost reductions and selective price adjustments.
Other key developments in the year included a significant and broad-based improvement in customer service, the acquisition of the Baltimor sauce business in Russia and the establishment of the regional supply chain centre in Singapore. With this in place and related IT systems development progressing well the region is increasingly well-placed to exploit benefits of speed, scale and simplification in many aspects of its operations. The most popular brands in this region have been Knorr, Lipton, Hellmann’s, Magnum, Omo, Dove, Lux and Axe/Lynx. The Americas
The Americas region includes some of highly developed and competitive markets including UAS, Canada and Brazil. The Americas region recorded a competitive performance with continuing momentum across the business even it is very saturated market and customers enjoy a very strong bargaining power because of strong presence of other competitors. However, volume growth continued to accelerate with all major units contributing. In Americas region turnover has been 32. 27% of total turnover of Unilever and turnover at current rates of exchange fell by 2. 6%, after the impact of acquisitions, disposals and exchange rate changes.
Operating profit at current rates of exchange fell by 37. 4%, after including a small adverse currency movement of 0. 8%. This fall reflects the significant income received from business disposals in 2008. Consumer confidence in the region was fragile throughout 2009, particularly in the USA. Against this backdrop, underlying sales growth for the year of 4. 2% and volume growth of 2. 5% represent a highly competitive performance. All major units in the region contributed positive volume growth, with strong performances in particular from Brazil, Chile and the USA.
Partly this reflected the lapping of increases taken late in 2008, but it was also driven by a more intensive competitive pricing environment, especially in key home and personal care categories. This was driven by improvements in gross margin from mix, lower commodity costs and pricing, allowing an increase in advertising and promotional investment in addition to the improvement in underlying margin. Other key developments in the year has been establishment of ‘Customer Insight and Innovation Centre’ in New Jersey, and the acquisition of TIGI hair care business. Western Europe
In the Western Europe region there were encouraging performances in the year in a number of major markets, with an improving trend in quarterly volume growth. The challenging conditions in southern Europe continue. The operating margin before RDIs was down from 16. 8% to 14. 4% in the year, largely due to a substantial increase in marketing investment and the negative impact of a weaker sterling on our UK business. Turnover at current rates of exchange fell by 6. 0%, after the impact of acquisitions, disposals and exchange rate changes. In this region turnover has been 30. 2% of total turnover of Unilever, which is lowest among the three regions. Operating profit at current rates of exchange fell by 50. 4%, after including a small adverse currency movement of 0. 5%. This fall reflects in part the significant income received from business disposals in 2008. Consumer confidence in Western Europe remained low throughout 2009 with unemployment rising and varying degrees of economic difficulty in many countries. Against this background an underlying volume decline of 0. 1% was encouraging, and performance showed steadily improving momentum through the year.
Volume growth in the UK was particularly strong, and France and Belgium also achieved positive volume growth for the year overall. Conditions were most challenging in Southern Europe, with Spain and Greece in particular experiencing difficult years. Significant drivers of this were a substantial increase in marketing investment and the negative impact of sterling weakness on the UK business. Other key developments in 2009 included the region beginning to fully leverage the power of a single IT system to improve operational execution and drive efficiencies. We also announced the acquisition of the personal care business of Sara Lee.
Major activities in this region have been growth of global brands through the rapid roll-out of bigger and better innovations to an increasing number of countries. Unilever adopted the strategy of increased brand support levels at the same time as media rates were lower. Brand Management Unilever has a very strong portfolio of brands and it has adopted the strategy of focusing the core brands. It has reduced its brands from 1600 to 400 fast moving brands and with the top 25 brands now collectively contributing 73% of our global turnover, and top 13 brands together accounting for sales of €23. 5 billion.
Overall volume growth has been 2. 3% during the year and sales growth has been 3. 5%. Unilever manage its brands under four categories including savoury, dressings and spreads; ice cream and beverages; personal care; and home care. Power of Unilever brands is hidden in its system of R;D and understanding of local needs and customer’s taste. Its strategy of acquisition with local successful companies has made Unilever a true market leader even in the tough economic situation. Recognising the severity of the economic crisis early and responding quickly was key to strong performance, even if it meant some tough choices.
The focus on volume growth, combined with protecting margins and cash flow, proved to be the right drivers in the current environment. Section 4 – Analysis-Financial Performance In order to assess the financial performance of a company, analysis will be mainly focused on the Balance Sheet, Income Statement and cash flow figures. And then will compare with previous results in order to get a picture. Analysis of financial results over the last three years of Unilever and then comparison with P;G will give a realistic view of the financial performance of the company.
Accordingly, the accounts of the Unilever Group are presented by both NV and PLC as their respective consolidated accounts but our analysis is mainly focused on consolidated accounts. 4. 1 Sale Revenue Growth and Regional Analysis The overall sale during the year 2009 has been announced to be €39,823m while reported in the previous year was €40,523m; represent a decrease of 1. 73%. This shows a downward trend in the revenue of Unilever which is the result of economic crisis. Underlying sales growth, excluding the impact of acquisitions, disposals and currency impacts, was 3. %. Sales volume growth was 2. 3%. Underlying sales growth reflects the change in revenue at constant rates of exchange (average exchange rates for the preceding year), excluding the effects of acquisitions and disposals. The split of Unilever sales for 2009 into three geographical regions is as follows; Regional Sales Split -Source Unilever Financial Statement | Asia, Africa, Central and Eastern Europe(AAC)| The Americas| Western Europe| Total| | Sales| %share| Sales| %share| Sales| %share| Sales| 2009| 14,897| 37. 41%| 12,850| 32. 27%| 12,076| 30. 2%| 39,823| 2008| 14,471| 35. 71%| 13,199| 32. 57%| 12,853| 31. 72%| 40,523| 2007| 13,418| 33. 45%| 13,442| 33. 45%| 13,327| 33. 16%| 40,187| Regional Sales Split -Source Unilever Financial Statement Unilever continues to grow and upward trend can be observed from 2007 to 2009 in the AAC region from 33. 45% to 37. 41% in 2009. AAC is a growing market with lot of potential and it has developing markets like India, China and Russia with huge number of target customers. In the Americas Region sales have been quite static with a minor decline because of severe economic condition.
Buying power of ordinary consumer has been affected by the crisis and also big retail chain stores had given tough time with their own cheap brands. Western Europe region shows a declining trend with a total fall of 2. 84% over a period of 3 years. However, overall decline is 700m which is equal to 1. 73% from previous year. Western Europe market is very saturated and there is a stiff competition among the consumer goods companies. Also tough economic situation is one of the major reasons as well. 4. 2 Comparison of Sales to Cost of Sales
The costs of raw materials have been increased but Unilever performed well in this area as it has been able to reduce its cost of sales by better controls and efficient management as compared to previous year. Unilever has successfully driven out costs which do not add value for consumers and customers by restructuring projects, adopting global procurement and simplifying organisational structure. In this way Unilever made a savings of €1. 4 billion, which meant cash flow from operating activities increased by €1. 4 billion. Good cost discipline meant that underlying operating margin was up 0. 2% to 14. % and tight working capital control Even the overall cost of sales of P;G is lesser than Unilever but they show an increasing trend. P;G has a lesser cost of production because of higher volume of production as compared to Unilever and also P;G is spending as much as twice than the Unilever on R;D, which has helped it to design new methodologies to reduce per unit cost. | | | Cost of Sales as a percentage of sales Cost of Sales as a percentage of sales| | 2009| 2008| 2007| | Cost of Sales| %| Cost of Sales| %| Cost of Sales| %| Unilever(€millions)| 20,580| 51. 68%| 21,342| 52. 7%| 20,558| 51. 16%| P;G($millions)| 38,898| 49. 22%| 39,536| 48. 36%| 35,659| 47. 65%| 4. 3 Profitability Ratios | Unilever| | | P;G| | 2009| 2008| 2007| 2009| NP Ratio| 9. 19| 13. 04| 10. 09| 14. 29| OP Ratio| 12. 61| 17. 69| 13. 05| 20. 40| GP Ratio| 48. 32| 47. 33| 48. 84| 50. 78| 4. 3(a) Gross Profit Margin: Definition: Gross profit / Net Sales ? 100 The gross profit margin was decreased in the year 2008 by 1. 51% as compared to 2007. However, there was an improvement in the year 2009 of almost 1% even prices of some of the brands fell during the period.
P;G enjoyed 2. 46% higher GP margin as compared to Unilever during 2009. Also reduction in the prices of marketing and advertisement costs during 2009 is one of the reasons for the improvement of gross profit margin. P;G enjoys better GP margin because of its economies and scale and more globalised operations. 4. 3(c) Operating Profit Margin: Definition:Operating Profit / Net Sales ? 100 Operating margin was increased by 4. 64% in the year 2008 from 2007, which was a big push to operations of company. But it proved to be temporary as operating profit again went down to 12. 61% with a fall of 5. 01%.
However Unilever has reduced its administrative expenses by €2,050m which is 41% decrease. This is due to reduction in R;D cost, prices of raw and packing material and management restructuring. P;G enjoyed a much better operating profit margin of 20. 40% which is 7. 79% higher than Unilever. P;G has better economies of scale and more centralised management structure as compared to Unilever, so its operational costs are comparatively lesser than Unilever. 4. 3(b) Net Profit margin Definition: Profit after tax from continuing operations / Net Sales ? 100 Net Profit Margin| | |
Net profit margin increased from 10. 09% in 2007 to 13. 04% in the year 2008. However there was a decrease of 29. 52% in the year 2009 compared to 2008. Taxation figure for 2009 is reduced by 38% as compared to 2008. This fall in taxation is due to decrease in rate of taxation and deferred tax adjustments. P;G has a net profit margin of 14. 29% which is 5. 2% higher than Unilever because of higher volume of sales and better cost structure due to its globalised form of operations and more access to cheaper resources. 4. 3(d) Return on Capital Employed ; Return on Equity Return on capital employed (ROCE):
Definition:Operating Profit / Capital Employed ? 100 ROCE | 2009| 2008| 2007| Unilever| 20. 05| 32. 55| 22. 71| PG| 15. 51| | | | | | | | | | | | | | | Return on capital employed (ROCE) shows how efficient the resources are being utilized to generate profit. In the above graph a significant growth can be observed in 2008, which was due to exceptional gain on disposal of group companies. Excluding the impact of profits on sale of group companies, ROCE was at the same level as in 2008. However, Unilever performed much better than P;G in this area which is obvious from graph. 4. 4 Efficiency Ratios: Unilever| P;G| | 2009| 2008| 2009| AR Days| 33| 36| 30| AP Days| 194| 175| 80| Inventory Days| 66| 67| 72| 4. 4(a) Account Payables Days: Definition: Average Trade Payables / Average Purchases ? 365 This ratio represents the credit period taken by the company from its supplier. Unilever credit time is increased from 175 days in 2008 to 194 days in 2009. Taking more days to pay the suppliers would result in bad reputation as a slow payer and not able to take settlement discounts. On the other hand Unilever enjoys more interest free credit than P;G but at the cost of credit reputation.
The reason behind rise in this ratio is decrease in purchases and in contrast accounts payable figure has increased. P;G takes 80 days to pay off its suppliers, which is much better than Unilever. 4. 4(b) Account Receivable Days: Definition:Trade Receivables / Net Sales ? 365 This ratio represents how efficient the credit department of the organization. It shows the average number of days it takes to collect cash from customers. The receivable days has decreased from 36 days in 2008 to 33 days in 2009, which shows credit department has improved its efficiency.
This period is 30 days in case of P;G, shows more efficient credit management. 4. 4(c) Inventory Turnover Days: Definition:Inventory / Net Sales ? 365 This ratio shows how long inventory is held before it is sold. Inventory days are almost same both in 2008 and 2009 except there is slight improvement of one day. Unilever is better than P;G in managing inventory takes 6 days lesser than P;G. The reason for this better result is improved internal controls and restructuring in the management. 4. 5 Liquidity Ratios | Unilever| | | P;G| | 2009| 2008| 2007| 2009| Current Ratio| 0. 3| 0. 81| 0. 73| 0. 71| Quick Ratio| 0. 62| 0. 53| 0. 45| 0. 49| 4. 5(a) Current Ratio: Definition:Current asset / Current Liabilities Current ratio| | | Current ratio represents whether the company is able to pay off all its liability as they fall due. Unilever current ratios are 0. 73, 0. 81, and 0. 93 in the years 2007, 2008, and 2009 respectfully, which show a steady increase. What level of ratio is best depends upon industry to industry, however best current ratio for a business is considered to be 2:1. The increase is good sign for Unilever as they would feel confident about their liquidity position.
Unilever performed slight better than P;G in this area. 4. 5(b) Quick Ratio: Definition (Current Assets – Inventory) / Current Liabilities | | | This is also called Acid Test ratio. It shows whether company has sufficient liquid assets to meet its liabilities. Unilever’s Quick ratio has gradually increased from 0. 45 in 2006 to 0. 62 in 2009. This is a 37. 7% increase in the ratio which is a good sign for the company, which means company’s liquidity position is improving over time. Unilever is performing better than P;G in this area. P;G has ratio of 0. 9, which is indication that P;G is more interested to put as much resources in operation as possible. 1:1 liquidity ratio is considered standard. Unilever is pushing hard to improve its liquidity position in the economic crisis. Unilever generated most of its cash flow from operating activities which is a healthy sign as it reduces dependence on debt finance. Increase in number of accounts payable days and decrease in number of accounts receivable days is also one of reason of improvement in liquidity position of the company. 4. 6 Gearing Ratios: 4. 6(a) Capital Gearing Ratio:
Definition:Closing Net Debt / Shareholders Equity ? 100 | 2009| 2008| 2007| Unilever| 1. 07| 1. 20| 0. 88| P;G| 0. 65| | | | | | | Operating Gearing| | | Capital gearing shows what proportion of company’s finance is debt finance. It is concerned with the company’s long term capital structure. Unilever have been much reliant on equity finance during 2007 but during 2008 much reliance was placed on debt finance and ratio moved up by 36%. However During the year 2009 there was an improvement of 10. 8% as compared to 2008 as there was a total repayment financial liability of €4856 millions.
Capital structure of P;G is equity based as its operating gearing ratio is 0. 65 which is almost 40% less than Unilever. Unilever’s capital structure is highly variable which shows lack of strategic direction and long term planning opportunities. Unilever has a credit rating of A1 and A+ which gives Unilever a wide access to global credit market to maintain its liquidity. Source: Unilever Cash flow statement Unilever financial summary 4. 6 Interest Cover Ratio 🙁 In Times) | 2009| 2008| 2007| Unilever | 10. 11| 14. 37| 9. 68| P;G| 11. 87| | | Interest Cover
Definition Earnings before Interest and taxes / Interest Expense This ratio represents the times Interest Earned is the number of times our earnings (before interest and taxes) covers our interest expense. It represents our margin of safety in making fixed interest payments. A high ratio is desirable for both creditors and management. There has been an increase of 48. 45% in 2008 and again a decline of 29. 64%. This trend is because of one off gain on disposal of business and reduction in interest rates. The same trend can be seen in the operating gearing ratio graph.
P;G’s performance is slightly better than Unilever in 2009. 4. 6(b) Dividend per share vs. Earnings per share | 2009| 2008| 2007| 2009| | UNI – €| UNI – €| UNI – €| PG – $| EPS| 1. 21| 1. 79| 1. 32| 3. 76| DPS| 0. 76| 0. 73| 0. 72| 1. 64| Source: Unilever Financial statements/ Notes to the accounts EPS: Definition:Net Earnings / Total No of Ordinary Shares in Issue There was a sudden increase in EPS of 32. 8% during 2008 but from Unilever’s EPS has fallen greatly by 32. 4% in 2009 as compared to 2008, which makes Unilever’s shares less attractive to current and potential investors.
Sudden upward movement in 2008 is because of one off profits on disposal of business. Fall in net profit margin is 29. 52% which is quite closer to fall in EPS for 2009. P;G’s EPS is given in US dollar but if we convert it to Euros, @0. 6977 which was interbank rate of December 31, 2009, then it comes equal to €2. 62 which is more than double of EPS of Unilever. http://www. oanda. com/currency/historical-rates DPS: Definition:Net Dividend Paid / Total No of Ordinary shares in issue Unilever’s Dividend per share is quite static over 3 years except with minor improvement.
For 2009 DPS is 62. 8% of EPS as compare to 2008 where this proportion was 40. 8%. It is a source of encouragement for existing shareholder. P;G this proportion is 43. 6%. Source: Unilever financial statement 4. 6(c) Dividend Cover Ratio 🙁 In Times) | 2009| 2008| 2007| Unilever | 1. 59| 2. 45| 1. 83| P;G| 2. 29| 2. 6| 2. 45| Definition: Earning per share / Dividend per share This ratio represents, how many times dividends can be paid out of distributable profits available to pay them. Dividend cover has decreased in 2009 from 2. 45 to 1. 9 times which is 35% fall, which means that Unilever is retaining less profits within the company, for future expansion growth, which is an alarming sign for shareholders who want capital appreciation. 2008 was a good year from the prospective of dividend cover where there is an increase of 33. 8% compared to 2007. P;G is following the same trend of up in 2008 and decline in 2009. 4. 7 SWOT Analysis After studying the Unilever strategies, and its performance we have identified some strengths, weakness opportunities and threats. Unilever SWOT Analysis
REASON: strong marketing and investment in innovation and R;D Strengths * Recognise as a Global Company Unilever is a well known global company with presence almost in more than 170 countries and it is registered at various stock exchanges around the globe which makes it a really global company with all the privileges of a global company like economies of scale, access to global resource and above all synergy. Executive Director’s Report * Strong brand portfolio Unilever and its brands are famous among the ordinary consumers, which provide Unilever strong position in the highly competitive market.
Top 25 brands now collectively contribute to 73% of global turnover, and top 13 brands together accounting for sales of €23. 5 billion. Unilever Financial Summary * Strong relationship with retailers Unilever has established a very strong relationship with retailers by offering them good margins and incentives, which are very important for a company in the consumer brand market. This provides Unilever strength to reach the ultimate consumers. Executive Director’s Report * Economies of scale Economies of scale occur when increased output leads to lower long run average costs.
As a global company Unilever has reach to universal cheap resources. Because of its mass scale production it has ability to overcome the bargaining power of suppliers which results in lower cost of production. http://www. economicshelp. org/blog/concepts/economics-of-scale/ Kaplan study Text – P3 * Research and development Unilever is an innovative company and investing a huge sum on research and development of new products and brands (€891m in 2009 worldwide – Dir report). Because of this ability Unilever has created high entry barriers to the global consumer market.
It has more than 61 innovation centres and 4000 academic researches. Unilever Financial Statement – 2009 http://www. card. iastate. edu/food_safety/workshop3/presentations/16_minumum_requirements. htm * Excellent management and human element Unilever has a pool of very skilled managerial capabilities in the form of its human resource capital from around the world in each geographic region. Its top management belongs to 21 different countries. This also helps Unilever to understand and manage local needs of customers, employees and stakeholders http://www. unilever. com/images/ir_Unilever_factsheet_2010_tcm13-70889. df. * Merger and acquisitions Unilever has a long history of mergers and acquisitions. This has enabled Unilever to break entry barriers into some very competitive markets and knock out strong competitors. This ability of Unilever has made it a local multinational company. Unilever has more than 44 companies in the Unilever group, 2 joint ventures and one UK associate. Other than that Unilever has its operation and agency relations in a huge number of countries. At present Unilever has more than 350 production facilities. EXECUTIVE DIRECTOR’S REPORT http://www. unilever. om/investorrelations/understanding_unilever/factsheet/index. aspx No direct connecting with customers Because of nature of business, Unilever has no direct connection to its ultimate consumers. It has to rely on its wholesalers and retailers. In western counties retails giants i. e. Tesco, Asda and Sainsbury are very strong and has the ability to dictate big multinational retail companies. http://www. unilever. co. uk/sustainability/people/customers/ * Inefficient management of brands Unilever has almost 400 different brands which is very difficult to manage to reap ultimate benefit.
This huge portfolio of brands has created inefficiency on part of Unilever to differentiate between stars, cash cows and dog brands according to Mandelows’ matrix. Top 25 brands of Unilever account for 73% of global turnover, which means rest of 375 brands account for only 27%. http://www. unilever. com/images/ir_Unilever_factsheet_2010_tcm13-70889. pdf * Reduced spending for R ; D Unilever is trying to improve its cash flow by cutting expenditure on R;D. During 2008 R;D spending were €927m which were reduced to €891m in 2009.
This will lead to lack of innovations and introduction of new products. Unilever Financial Statements note 3 * Fall in revenues Decrease in revenue has revealed weak areas and put a psychological pressure on its management to make short term decisions to cope. This is oblivious from the strategy of maintaining short term cash flow by reducing spending on R;D and investment in long term assets and projects. Decrease in revenue has directly affected profit margins and market value of shares. Unilever Financial Statements Opportunities * Economic Crisis
Where current economic crisis have made small companies with liquidity problems to find way for exit, there it has created opportunities for Unilever to acquire these demising companies at a very cheap price and enter into new markets. By Kelly Jackson Higgins Dark Reading (http://www. darkreading. com/security/management/showArticle. jhtml? articleID=212002170) * Increasing need for healthy products Consumers are more aware today and prefer healthy products, so it is a good opportunity for Unilever to introduce healthy and safe products under its brand name to increase its market share and knock out its competitors. Developing markets More than 50% of Unilever’s market share is from developing and emerging countries where market is less saturated and less competitive. Growth rate is high in these markets, so Unilever can invest in these markets to increase its market share. http://www. unilever. com/mediacentre/pressreleases/2002/trade. aspx * Personal Care segment Unilever’s personal care segment is fastest growing business and a key to achieving sustainable profitable growth. In 2009 Unilever reported an increase in personal care sales by 4% to €11. 8bn.
The personal care segment should be a priority area for creation of future sales growth and sustaining profits from increasing raw material costs. Unilever Financial Statement http://business-strategy-case. blogspot. com/2008/04/unilever-business-strategy-2008. html Threats * Strong Competition Unilever is not only a big multinational company in the global market. It has very strong competitors like P;G, Nestle and Kraft. These competitors always try to give tough time to Unilever and try to create high entry barriers to new and emerging markets.
In developing markets like India and Spain, small low cost retailers have a big market share and competition for Unilever. http://finance. yahoo. com/q/co? s=UL EXECUTIVE DIRECTOR REPORT * Increasing store brands Big retail store like Tesco, ASDA, and Sainsbury has introduced a plenty of their own cheap brands which has led customers to switch for cheaper products. Personal Interviews * Tougher Business Climate Overall business climate is tougher today because of economic crisis, tough Government regulations and competitive environment.
It has led the companies to focus more their liquidity instead of profitability. Executive Director’s Report * Complex Organisational Structure Unilever has more than 42 group companies, Joint ventures and associates. It has hundreds of agency relationships. It has more than 300 production facilities are across the globe. All this has made Unilever structure very complex. A wrong corporate strategy can be a single point of failure of organisation. By : Elizabeth McMillan http://www. ifm. eng. cam. ac. uk/mcn/pdf_files/part5_5. pdf 4. 8 PEST Analysis Political and legal analysis
Unilever is subject to local, regional and global rules, laws and regulations. These rules and regulations cover diverse areas such as product safety, product claims, trademarks, copyright, patents, employee health and safety, the environment, corporate governance, listing and disclosure, employment and taxes. Important regulatory bodies in respect of business include the European Commission and the US Food and Drug Administration. Failure to comply with laws and regulations could leave Unilever open to civil and criminal legal challenge and may result in fines or imprisonment of personnel.
Further, reputation could be significantly damaged by adverse publicity relating to such a breach of laws or regulations. During 2009, 49% of Unilever revenue came from D;E markets including Brazil, India, Indonesia, Turkey, South Africa, China, Mexico and Russia. These markets typically proved more volatile than developed markets. Any government response to reduce the impact such as fiscal stimulus, changes to taxation and measures to minimise unemployment have also affected Unilever’s economic performance. In some regions Govt. as imposed heavy duties on imports and raw materials and it has a negative impact on production capacity. However, Unilever is quite good in managing relations with Governnments. http://www. hbs. edu/research/pdf/06-061. pdf Unilever Financial Statement Economic analysis Unilever market environment is becoming highly competitive especially in the Western Europe. Macro economic environment is highly uncertain whcih has affected micro economic environment as well by creating a fear among ordinary consumers. Consumers would not want to buy expensive product or brands due to current economic tide.
Competition in EU has grown so strong that Unilever is facing difficulties in places like France, Netherlands. Economic Decline in business during an economic downturn has resulted in customer and supplier default. Unilever’s business is dependent on continuing consumer demand for its brands. Reduced consumer wealth driven by adverse economic conditions has resulted in consumers becoming unwilling or unable to purchase Unilever products, which has adversely affected cash flow, turnover, profits and profit margins.
Adverse economic conditions have resulted in the impairment of some of intangible assets which are in the form of brand names. Adverse economic conditions have affected in two ways i. e. one or more countries within a region or extended globally. However, recession has increased the demand for some of the home care products. Unilever is operating in different market, which have reacted to recession in different ways. In D;E markets volume led growth has been improved upto 7% in the first quarter of 2010. http://video. foxbusiness. com/v/3883469/unilever-cfo-were-in-a-global-recession http://tutor2u. et/blog/index. php/business-studies/comments/unilever-in-the-recession-the-ceo-on-strategy/ www. unilever. com Executives Director’s Report Societal Analysis Unilever has developed a strong corporate reputation over many years for its focus on social and environmental issues, including promoting sustainable development and utilisation of renewable resources. It is very conscious about safety and health of its employees and accident rate decreased by 9% during 2009. Unilever’s vision is to help people feel good, look good and get more out of life with brands and services that are good for them and good for others.
It has successfully maintained high social and environmental standards by designing and producing products that are safe for consumers. Unilever is working on so many social welfare projects like World food programme and safe drinking water. Unilever is using environment friendly materials and packing stuff. The Unilever brand logo now displayed on all our products and advertising, increases its external exposure. Unilever has built its image as an environment friendly and socially responsible company. Unilever Financial Statements – Operational Highlights ttp://www. unilever. com/sustainability/? WT. GNAV=Sustainability http://www. unilever. com/sustainability/? WT. GNAV=Sustainability Technological Analysis Unilever has been spending on IT to improve its business especially in the area of e-business so as to improve brands image and quality of its products. Unilever know that failure to provide sufficient funding to develop new products, lack of technical capability in the R;D function and quickly roll out the products may adversely impact its cash flow, turnover, profit and profit margins and affect reputation.
High level of automation is one of the critical success factors of Unilever that differentiates then from their competitors and serves as a source of competitive advantage. Today, Unilever is trying to minimize cost through IT efficiencies at global level. In addition, Unilever Technology Venture works in collaboration with Unilever R;D group to help Unilever meet consumers’ needs. Area of concern is genomics, advanced bioscience, advanced materials science and nano technology. Source……………………………………………..
Section 5 – Conclusion and Recommendations Our definition of D;E markets includes all countries in Latin America, Central ; Eastern Europe, Africa and Asia, except Japan and Australia. In 2009, the turnover in D;E markets represented 49% of the turnover of the Group. Our D;E strategy aims to increase the penetration and consumption of our categories with D;E consumers at all income levels and to trade consumers up to higher added value products as needs change with rising incomes. We have an outstanding geographic footprint in D;E markets.
Our focus is to maintain and develop our leading category and brand positions in our D;E strongholds, such as Brazil, India, South Africa and Indonesia, whilst simultaneously investing aggressively for growth to build up new brand and category positions in countries that present important new growth opportunities, notably China and Russia. STRATEGIES FOR UNILEVER Financial Strategies Unilever The key elements of the financial strategy are: • appropriate access to equity and debt capital; • sufficient flexibility for acquisitions that we fund out of current cash flows; • A+/A1 long-term credit rating; A1/P1 short-term credit rating; • sufficient resilience against economic and financial turmoil; and • optimal weighted average cost of capital, given the constraints above. Today there is a serious competition between Unilever and producers of similar Products like P;G. Thus Unilever’s strategy is to sell some of its business line and focus on priority portfolio. Unilever has shifted concentration to developing and emerging markets, Africa and Asia where it has more competitive advantage. Besides, Unilever is back to Zambia in Africa after experiencing some set back in past years.
Unilever bought 79% share of Refined Oil Product (ROP) of Zambia for US $4. 5million in its v course of internationalization. 16 In this regard, Unilever will provide technical and managerial training to the staff of ROP in consonant with the company’s international standard. 17 Since in the 1990s, Unilever has been facing competitive problem in Europe. Unilever is investing more on R;D so as to provide goods that best satisfy customers and at reasonable price. Unilever is also connecting its business unites to promote cross-border synergies. In 1999, Unilever lunched “the Heart Brand” (slightly modified 2002). 8 This is a logo strategically designed to create international brand awareness and promote international synergies in manufacturing and marketing – centralization drive. This strategy is to provide recognition of Ice-cream brands and to show that other units are integral part of Unilever. Global brand can carry the same brand name and logo, but with dissimilar product standard (Mooij, 2005). Unilever has set a 5-year program since 2004 which focuses to cut 1200 underperforming brands, caused by lack of clear brand recognition in the market, so as to yield six percent of sales growth. 9 Further, Unilever opened a global procurement centre in Shangai China in 2002. 20 The reason is that this centre will serve as a source of raw material to Chinese companies so as to compete favorably internationally. It should be noted that since 1989 when Shangai Van Den Bergh; a joint venture between Unilever and Shangai Sugar, Cigarette and Wine Company, was established, Unilever has expanded tremendously in China through joint venture and acquisition. 21 FUTURE TREND OF UNILEVER Unilever operates in about 100 countries around the world with number of employees up to 206000 in 2005. 9 Unilever is aiming at penetrating more into the Big Emerging Economies (Africa/Asia) where its business is currently better as compared to European market. The reason is that more than one third of Unilever turnover in 2005 comes from the developing and emerging economies. Though these economies have a very turbulence environment, it is very challenging for Unilever to closely monitor it and respond quickly to changes in market performance so as to safeguard business. It is pertinent to say that today Unilever is facing competitive problem in the European market.
Unilever has since initiated the “Path to Growth” strategy, which is one of the headway toward actualizing the dream of the organization. This system is designed as a key control strategy through IT. The reason for this strategy is because of the underperformance of some of Unilever’s product line especially the frozen food (non ice-cream). The strategy is to increase effectiveness, reduce cost structure improve market competitiveness. The integration strategy – Path to Growth has challenges in the area of operation, management and structure,40 which are outlined below:
Global challenge – the operational of the strategy in the three regions where Unilever operates i. e. Americas (north and Latin America) Europe and AMET (Africa /Asia), which have been successful with their household names, since Unilever is adopting universal brand name. b) Varying view of region in finding solution to global challenges – how effective would they execute this strategy? The reason is that there are differences in the global environment, especially cultural background. c) What are the benefits and the effectiveness of this IT driven strategy? The time to actualize this transformation is challenging.
Global transformation of existing structure is not easy for such company like Unilever whose operation is within diverse political, socio-cultural and economic influences. Be that as it may, it is expected that many benefits are attached to this. Some of the benefits are to improve the lives of the workers, consumers and the communities in which Unilever operates. It will also make management easier. More so, it will help provide high standard of products that can be accepted globally. Irrespective of these challenges and benefi