INTRODUCTION
The rational for choosing this topic is because of my strength and interest in financial performance analysis. This topic is very demanding and challenging for me because it enhances my analyzing abilities and promotes me to make the best use of my professional qualification. By completing this project, I am able to highlight areas that offer the most promising future potential, set standard for performance and evaluate performance. As far as the selection of the organization for this project was concerned I searched out a lot of major multinational companies in Pakistan and I found Unilever Pakistan Ltd stood out. As this company has a major share in the economy of Pakistan and is the largest FMCG company in Pakistan so the information of its core activities is easily available.
1.1 History
Unilever was created by the merger of British Soap maker Lever Brothers and Dutch Margarine producer Margarine Unilever. Unilever Pakistan ltd previously lever brother Pakistan ltd established in 1958 at Rahim Yar Khan to form a vegetable oil factory. In the mid 60's the head office was relocated from Rahim Yar Khan to Karachi. The company is the subsidiary of Unilever Overseas holding ltd. Company grew historically through acquisitions, it merged with Lipton in 1989 and Brooke Bond in 1997. It became the largest ice-cream manufacturer in Pakistan through an amalgamation with Polka in May 1999. The company operates through 4 regional offices as well as 4 entirely owned and 6 third party manufacturing sites across Pakistan. It is listed on all three stock exchanges of Pakistan. (www.unilever.pk)
Company Profile
UPL being the pioneer in the industry conducts all of its business on ethical principles. Company has a vision to meet the needs of their consumers and as with the changing life style and taste profile, company maintains the quality of their products through innovations and technological developments. It conducts its business in ways that protects and preserves the environment. It fulfills its financial, environmental and social responsibilities with providing good health care worldwide such as the project of "The Citizen foundation" in education sector and economic development projects in rural areas of Pakistan.
Figure : (www.unilever.pk)Unilever Pakistan won "Win key Award" for quality competitive growth of 33% and "Grow Superior brand" for exceptional growth of 63% by Surf. Unilever Pakistan Limited has been awarded both "Overall best corporate report award" and "Best corporate report in category" by Joint Committee of Institute of Chartered Accountants of Pakistan (ICAP) and Institute of Cost and Management Accountants of Pakistan (ICMAP).
Unilever's mission is to add vitality to life. "We meet everyday needs for nutrition, hygiene, and personal cares with brands that help people feel good, look good and get more out of life." The core values of the company ensures about the company's integrity at the time of dealing with suppliers, customers and employees in order for the society to benefit.
Products and Brands
Figure : (www.unilever.pk)Its main business categories are namely Home & Personal Care products, Beverages Ice cream and Spreads.
1.3.1 Home & Personal Care:
HPC is the most important category of UPL because it contains the major profit share and continues to drive overall growth momentum. The HPC grew by 42% due to inflationary impact and healthy volume growth. Among the key brands of HPC business are Lux, Surf Excel, and Sunsilk, they continue to be the star performance with dominance position.
Figure : (www.unilever.pk)1.3.2 Beverages:
The beverages represent Tea. Sales growth of 22% is registered in 2008. There is a huge competition in this sector and because of small local brands in rural areas that are using cheap smuggled tea and interrupt supply as a result of political instability company may be under pressure to lose market share in future. The gross margin is decreasing due to fluctuating international tea price. Key brand are Lipton and Brook Bond Supreme.
1.3.3 Ice-cream:
Figure : (www.unilever.pk)UPL is the major manufacturer of ice cream in Pakistan. The growth of 24.5% is achieved due to innovations and strengthening distribution channel. The company is expecting to increase its production capacity and make a huge investment of capital expenditure on freezer penetration. The gross margin is eroded as the fixed costs are not absorbed fully due to electricity breakdown which have an adverse effect on sale of the ice cream. The key brand is Walls.
1.3.4 Spread:
The Blue Brand margarine represents 23% growth in sale and looks to penetrate the market through aggressive marketing strategy. There is a risk of decrease in gross profit margin due to increasing price of surging palm oil or high input cost.
Industry Outlook
Figure (www.igisecurities.com)Unilever mainly carries out its operation in spiraling sectors with the exception of mature tea and soap business. The soap business still continues to be shown as a healthy growth and high margin even in the mature phase. The HPC industry is spread over different category of products. The market share of the industry is distributed between giants FMCG and multinational companies like Unilever, P&G, Colgate Palmolive and others. The beverage industry is one of the most flourishing industries in this part of South Asia. The major demand of tea is fulfilled through import via Kenya. As the industry faces challenges of supply disruptions from Kenya which adversely affect the prices of tea and smuggling through Afghanistan make the tea cheaply available in the market which is the major concern for the organized player which include Tapal and Unilever. UPL is generally dominating the ice cream industry of Pakistan having regional competitors like IGLOO and HICO. The Engro will be a new entrant in the market which may affect the market share of industry.
Aims & Objectives
How a company of this size operates and is managed
The control environment of the company
What contribution it is making to the economy at large,
Contributions to society in social sector
Asses the financial performance of the company
What innovations are being carried out in the company
To more closely study the brands of the company
To see the internal controls of the company
INFORMATION GATHERING
As Unilever Pakistan limited is a listed and multinational company, numerous source of information were available. The following sources of information have been referred for this project.
Internet- websites
Newspaper reports on the company
Business magazines
Reports of financial institution
News channel
Karachi stock exchange
Audited financial report by UPL
Text books
Government report
Publications
Discussion with management & Board of Directors members
INTERNET
Internet proved to be the central point for information gathering. Easy accessibility of information via Internet really accelerated the information gathering process. Internet was used extensively especially to find out more about the multinational sector in Pakistan and about the competitive environment of the consumer industry and how it has evolved. The major chunk of the information has been provided by the Unilever website as it includes all the relevant information needed. It contains all the company's information such as the financial information, media relations, and information about its business partners, investor centre and the way the company carries out its operations.
The website also contains detailed information of the products in which the company operates. It includes comprehensive information of its key brands such as the brands of food, health hygiene & beauty, personal care and home care. There is also a customer complaint service provided by the company which operates with the name of "Raabta Consumer Care line"
The website also includes detailed information about its Social Action Program, in other words its Corporate Social Responsibility (CSR). Unilever is associated with World Food Programme (WFP) which shows its dedication towards local community. Also included in the website is information regarding the Corporate Governance practiced in the company as well.
The site also contains all the information of research and development activities carried out in Unilever, information about its recent innovations generally in all sectors and particularly in ice cream sector.
The financial information present on the website has proved to be quite helpful as it contains the Annual Reports of the company. These reports in turn have helped in the ratio calculations and the financial performance analysis.
NEWSPAPER
Newspaper kept me abreast of any new information pertaining to Unilever. The Business Recorder website was used extensively for gathering published information by this largest business newspaper in the country. It contains all the briefs on Unilever for the past many years which helped in the analysis of financial performance of the company. Other two leading newspapers like Dawn, & The Nation and also covers reports on leading companies like Unilever, and their web sites were searched for Unilever related publication.
BUSINESS MAGAZINES
The Business Week website was also used to gather the information of Unilever. It contains detailed information of stock market and assesses the position of company through charts and graphs which helped in the analysis of financial performance of the company.
LOCAL NEWS CHANNEL
The AAJ TV website was also used to gauge the information of Unilever. This is the leading local news channel in Pakistan which gives news about the government policies which affect the operations of Companies. As there is latest news regarding tax policies of the Pakistan that "No change in tax regime for share business in 2009-10" to attract the foreign investors to invest in Pakistan, which creates the opportunity for Unilever to grow further in Pakistan as the market leader in consumer industry.
KARACHI STOCK EXCHANGE (KSE)
The web site of KSE has also been used. It is a member of South Asian Federation of Exchanges (SAFE); it holds the Vice Chairmanship of the South Asian Federation of Exchanges Member Federation of Euro-Asian Exchanges (FEAS). It is also an affiliate member of International Organization of Securities Commissions (IOSCO) and World Federation of Exchanges (WFE).
KSE plays a key role in Pakistan's economy as KSE is one of Pakistan's largest tax payer and in the fiscal year 2006-2007 contributed over Rs. 4 billion towards the national exchequer. Listed Companies contribute over 10% of total revenue collected by the Government of Pakistan. KSE brokers on average pay more than 50% of their profit before tax as presumptive tax and the investors pay 10% tax on dividends. Karachi Stock Exchange.
KSE holds 3 indexes namely KSE-100, KSE-30 and KMI-30. It was the best performing Asian stock exchange before the global financial crisis reaching a peak of 15000 points.
Thus relying on the data present on the KSE website was useful for the purpose of this research.(www.kse.com)
DISCUSSIONS WITH MANAGEMENT & MEMBERS BOARD OF DIRECTORS
The most interesting and useful part of resource were meeting with senior management staff of Unilever and few of its directors. It provided insight on Unilever's working, its past history, its current standing and strength and what are the future prospects. It also gave the opportunity of seeing actual working, the atmosphere, high quality man power, and management of electronic book of account. The information received from this source is used in financial analysis, the current status and Unilever's future.
ANNUAL REPORTS
Annual reports have predominantly been the most significant of all the sources. All the financial information about the company has largely been drawn from the Annual Reports. I referred to last four financial statement of the company from Financial Year 2005 to Financial Year 2008
TEXT BOOK
ACCA Text Books really came in handy especially Corporate Reporting (P2), Business Analysis (P3) and Advance performance Management (P5). I referred to them extensively throughout my project for gathering company's business tactics, strategies and for computation of financial ratios and their interpretations.
THE WORLD BANK
Is a vital source of financial and technical assistance to developing countries around the world. They are made up of two unique development institutions owned by 185 member countries-the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).
Each institution plays a different but collaborative role to advance the vision of an inclusive and sustainable globalization. The IBRD focuses on middle income and creditworthy poor countries, while IDA focuses on the poorest countries in the world. They provide low-interest loans, interest-free credits and grants to developing countries for a wide array of purposes that include investments in education, health, public administration, infrastructure, financial and civil society sector development, agriculture, and environmental and natural resource management. It was with the help and support of World Bank that Unilever was initiated in Pakistan. World Bank provided the project guarantee which made it easier for Unilever Pakistan to raise funds. Reports by World Bank were therefore helpful for the research. (www.worldbank.org)
REPORTS BY FINANCIAL INSTITUTION
Reports produced by financial institutions such as IGI securities, "Unilever Pakistan Initiating Coverage published in 2008 made detailed analysis of Consumer sector in Pakistan in general and Unilever in particular, was helpful as they analyze company's performances for investors.
Latest publication by WE Financial Services Pakistan on Pakistan consumer Sector specifically analyzing Unilever company update was found useful as it analyzed the financial statements, ratio analysis, valuation risks and investment perspectives of Unilever Pakistan in the current year.
FINANCIAL EVALUATION OF UNILEVER PAKISTAN
I will analyze the performance of the company by calculating and interpreting 4 basic type of financial ratios.
Profitability ratio
Capital efficiency ratio
Liquidity ratio
Long term solvency ratio
3.1 Profitability Ratio:
A class of financial metrics that help investors assess a business's ability to generate earnings compared with its expenses and other relevant costs incurred during a specific period. (www.financial-dictionary.thefreedictionary.com)
3.1.1 Gross Profit
Figure
This ratio measures the margin available on sales. It reflects the efficiency with which a firm produces its products. The higher the gross profit ratio, the better it is. The gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide for depreciation, interest and dividend.
Gross profit margin of the company has increased by 2% in 2007 as compared to 2006 because there was a growth in HPC and Ice cream Sector of 25% and 8% respectively. The gross margin was in tremendous pressure because the prices of crude and edible oil were continuously rising.
The gross profit margin in 2008 has decreased by 4% as compared to previous year. As the growth in sales is achieved by 32%, the cost of goods increased by 40% which eroded the gross profit margin of the company. The cost of goods may be increased due to the rising cost of raw material in international market. The sales volume is also affected through massive competition in local market in beverage sector. The consumers are reluctant to buy the products because of high prices and switch to the cheaper products which also affect the sales volume of the company.
Gross profit margin improved by 20% in 2008 on the basis of growth in HPC segment which contributed 66% of gross profit. In soap industry the palm oil is used as a major raw material for manufacturing the soap. The palm oil prices have significantly increased to 71% in December 2007 which directly affected the gross profit margin. The sales growth in tea sector is achieved by 22% but devaluation of rupees make tea more expensive and hence adversely affect the gross profit margin. The smuggling of tea through Afghanistan and India, low cost brand of tea of Indonesia and other regional countries hurt the volume and margin of tea sector badly.
In ice cream Sector, Company has achieved growth of 24.5% in 2008. The cost of sale is increased because production capacity is increased during the year but due to power failure crisis in the country, the company is unable to extract the further profit and adversely affect the margin and volume of the company.
3.1.2 Net Profit Margin
Figure Net profit margin ratio is used to measure the overall profitability. The ratio is very useful as if the net profit is not enough, the firm shall not be able to achieve a satisfactory return on its investment. This ratio also indicates the firm's ability to face adverse economic conditions such as price war, low demand, etc. Obviously, higher the ratio the better is the profitability.
The net profit margin of the company is constantly decreased every year and this trend of decline was continuing in 2007 and as well as in 2008, which was 7% and 6% of the net sales respectively. The sales growth of the company was increased by 11% in 2007 and 32% in 2008 but the profitability in relation to sales was not increased as much as expected. This might be due to increase in operating expense of the company.
The operating expense of the company has increased by 12% in 2008 as compared to 2007, this was due to aggressive advertising cost incurred in ice cream sector, the huge amount of expenditure was spend on innovations in the HPC sector. The major restructuring cost occurred due to close down of tea factory in Karachi, further damaged the figure of net profit margin during 2008.
The finance costs have increased significantly in 2008 mainly due to markup on short term borrowing, the exchange loss was also occurred due to fluctuations in currency and the finance charge on finance lease, has caused the Net Profit to fall sharply as compared to 2007 resulting in a decreased Net Profit margin. Administration expenses have increased by 18% due to depreciation, rent rates and taxes but the profit was covered by cut down the cost of travelling and entertainment in 2007 and 2008
3.1.3 Return on Equity ROE
Figure The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
This ratio has a greater importance to the shareholders and investors and also to the management. It indicates to the shareholders that how much profit is made available to pay dividend to them. The investors favor the company with high ROE. (www.accountingformanagement.com)
The Return on Equity has increased by 5% in 2008 as compare with 2007 mainly due to increase in profit after tax. This show a constructive growth in company because in 2007 ROE was declined by 4% as compare to 2006, mainly due to ice cream sales were constrained by delay in factory expansion and declining volume in tea business. The growth in ROE is largely increased due to exceptional growth of 38% in HPC sector during the year.
3.1.4 Earning Per Share (EPS) Ratio
Figure
This ratio measures the profit available to the equity share holder on a per share basis. Higher the ratio indicates that the company may pay dividend at a higher rate. All profit left after payment of tax and preference dividends are available to equity share holders.
The Earning per share of the company was steadily increased in 2007 by Rs 4 from 2006. This was mainly due to increase in profit after tax by just 3% as compared to 2006. In 2008 EPS was highly increased by Rs 22, largely due to the growth in profit after tax, as its number of shares has constant. It indicates that company have maximizes the shareholder's wealth and achieving a better return without issuing any new shares.
Capital Efficiency Ratios
These ratios are calculated on the basis of cost of sales and sales, therefore these ratios are also called turnover ratio these are also called efficiency ratio as they measure the efficiency of the firm in managing assets.
Debtors Turn Over Period
Figure This ratio indicates the time with in which the amount is collected from debtors. A higher debt collection period is an indication of the inefficiency on the part of management. A decrease in debt collection period indicates prompt payment by debtors which reduces the chances of bad debts.
The debtor's turnover period was increased to 3.7 in 2007 as compared to 2006, because the debtors were increased by 36% in relation to sales growth of 11% which shows that the company wanted to attract a large number of creditors through easy credit terms and conditions. In 2008 debtors turn over period fall from 3.7 to 2.7 in line with the decreased in debtors by 4%. The sales growth was registered by 32% so it means that the sales were not affected by the stiff credit policy of the company.
3.2.2 Inventory Turnover Days
Figure The number of day's inventory is held measures the average numbers of days it takes to sell the average inventory held. A low number of days inventory is held are a sign of efficient management. The faster that inventory sells the less cash that is tied up in inventory. However, it is important that inventory is not too low because this could indicate under stocking of inventory, which could lead to loss of sales and revenue
The inventory turnover period was increased from 54 days in 2006 to 63 days in 2007. The average inventory was increased by 23% in 2007 in relation to the growth in sales of 11% which indicates that the operations were carried out ineffectively.
The inventory turnover period was increased to 64 days in 2008, and as the trend line indicates that it steadily increased since 2007. In 2008 the average inventory was increased by 43% with the growth in sales of 32% which indicate that at year end there might be an obsolete inventory or there might be a decline in operational efficiency of the company. This increased is further evident by the company when the provision for inventory obsolescence is increased from 2008. However this inventory turnover is acceptable because the UPL is able to efficiently turn its inventory in to sales.
Total Assets Turnover
This ratio reveals how efficiently total assets is utilized in making sales. This ratio is of particular importance in manufacturing as well as non manufacturing concerns where the investment in fixed assets or current assets is quite high. If there is an increase in this ratio, it will indicate that there is a better utilization of total assets. If there is a fall in this ratio, it will indicate that assets have not been used as efficiently as compare to previous year.
Figure The total Assets turnover ratio was decreased from 3.3 in 2006 to 2.9 in 2007, which was against the sales growth of 11%. This declined was mainly due to an expansion in ice cream sector through capitalization of factory which increases the base of assets
In 2008 total Assets turnover was steadily declined to 2.7 as compared to 2007. This was mainly due to low demand in tea sector the company closed down the factory at Karachi, which directly affected the turnover of the assets. The turnover growth of HPC sector is extraordinarily improved in 2008 due to high volume and inflation in prices. However the reasonable assets turnover shows that UPL has efficiently utilized its assets with respect to changes in sales.
Liquidity Ratio
The liquidity ratio measures the degree to which company or other entity can quickly liquidate assets and cover short term liabilities. These ratios are also called Short term solvency ratio. It is of concern for short term creditors.
Figure
Current Ratios
Current ratio measure and assess the ability of the company to pay its debts It is a sign of technical solvency and an indicator of strength of working capital.. Recommended current ratio is 2:1. Any ratio below indicate that the entity may face liquidity problem but also ratio over 2:1 indicate over trading, that is the entity is under utilizing its current assets.
The current ratio of the company was decreased from 1 in 2005 to 0.7 in 2007. This decline of current ratio was unchanged in 2008. The current liabilities were increased by 32% in 2007 as compared to 2006 because company was expanded its operations through debts in the form of short term borrowing of funds. The current assets were increased by 11% as compared to 2006 which indicates that the current liabilities were increased more than the increase in assets
In 2008 as well, the company was making further short term borrowing which increased its liabilities by 52% as compared to 2007. It seems that this loan was used to meet the working capital requirements of the company. The company followed the same trend in 2008 by increasing its current assets to 47%, which was not more than the increase in liabilities.
The major current asset which increased during the year was stock in trade mainly due to rising price of raw material and direct cost related to manufacturing the goods. There was a major exchange loss occurred in current liabilities which increased it further. However future cash flows are much more predictable so this low current ratio is acceptable.
3.3.2 Quick Ratio
The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. It measures the firm's ability to pay off current obligations immediately. A high liquid ratio indicates that the firm is liquid and has the ability to meet its current liabilities in time. In general a ratio of 1:1 is acceptable.
The quick ratio of the company is decreased from 0.5 in 2005 to 0.2 in 2007. This ratio was also same in 2008. It indicates that the liquidity problems might arise in future and company can have problems paying off its debts. The UPL have not as much cash resources available to repay its debts because there may be chances that the markup on short term borrowing is increased due to fluctuation in interest rate. A decreased of 4% in trade debts and inclined of 56% in inventory level in 2008, further deteriorate the liquidity position of the company.
The company was also paid restructuring and redundancy cost during 2008 and made further provision for future redundancy and if it utilize in future, the company will face liquidity problem.
Long Term Solvency Ratio
The proportion of long term debts in the capital structure must also be considered. Long term solvency ratios convey a firm's ability to meet the interest costs and payment schedules of its long term obligations.
3.4.1 Debt Ratio
This ratio is calculated to assess the ability of the firm to meet its long term liabilities. If the debt to equity ratio is high it shows a risky financial statement which indicates that more and more fund invested in the business are provided by long term lenders. Long term lenders feel secure when the debt to equity ratio is below 2:1.
Figure The financial structure of the UPL shows that it heavily rely on long term debts to, finance its expansions and day to operations. The debt to equity ratio was increased from 10% in 2007 to 60% in 2008. The company has made a major expansion in ice cream sector through debt
finance by increasing the capacity in 2007 and purchases a car on finance lease were the leading factors in rising of debt ratio of the company. Company had not any major debt since 2006 but after the utilization of loan in 2007, allowed the company to have a portfolio of different source of capital.
Short term borrowing cost of company is increased by 700%, as this is the cheap source of finance so company used that loan to meet its working capital requirement. Increased of 56% in finance lease during the year further increased the net debts of the company.
3.4.2 Interest Cover
The ratio indicates how many times the interest charges are covered by the profits available to pay interest charges. If the ratio is high, it satisfies the lenders in respect of interest payment regularly. If the profits are just equal to cover the interest, it is an unsafe position for the lenders as well as for the company, as nothing will be left for shareholders.
Figure The interest cover of the company has decreased to 24 and 7 times in 2007 and 2008 respectively, due to increase in short term borrowing and exchange loss. Interest on short term borrowing is increased by 600% in 2008 as compared to 2007 due to high interest rate and high debt level. The exchange loss of the company was increased by almost 400% during the year due to depreciation of Rupees currency. The decline in interest cover was depicted by a drastic changed in finance charge during the year which increased by almost 200%.
BUSINESS ANALYSIS
I have used SWOT Analysis for company's corporate appraisal. Corporate Appraisal is a critical assessment of the company's Strength, Weaknesses, Opportunities and Threats in relation to the internal and external factors affecting the entity in order to establish its condition prior to the preparation of the long term plans.
Strengths
STRONG COMPANY IMAGE
UPL is one of the largest multinational and FMCG Company of Pakistan. It has a very strong image which has enable it to gain customer loyalty. The company is acknowledging globally because of its brand image, healthy relations with public. The strong image of the company is evident by the fact that its products widely used 150 million times a day.
STRONG BRAND PORTFOLIO
UPL has expanded immensely by investing in those products which have strong brand image. It has strategy of investing in brands to maintain awareness and develop brand equity. Company has a large portfolio of brands in HPC sector, which led the ultimate growth of the company despite the instability at macro environment level.
CORPORATE BEHAVIOUR
UPL is a well reputed company and carries out its operations with highest standard of corporate behavior. Company has a good relation with its suppliers, consumers and pay greater attention towards the sustainable environment. The company has contributed Rs 8.4 billion towards the national exchequer on account of government taxes, levies and import duties
SUCCESS OF THE SLOGAN
UPL's slogan gives impression that maximizing the benefits to customer is the first priority of the company which is evident by the growth of the customer base in each sector of the company.
INNOVATIVE ASPECTS
UPL has a reputation of market leader in research and development through innovation and renovation. Company has developed new technologies to improve the creaminess of the ice cream. It spends a heavy cost for research and development in HPC products to get further share in the market.
HIGH QUALITY MAN POWER
The employees are the assets of the organization which contribute in the growth of the company. The employees of UPL are very competent and skillful as they have worked with various organizations such as TCF, Micro Drip, Acumen & Sehat First. Innovation in ice cream sector is mainly due to the hard work of employees, who work as a scientist in the company
Weaknesses
HIGH PRICES OF RAWMATERIAL
The prices of raw material is the major concern for the UPL because 80% of the raw material is imported, which significantly affect the purchasing power of consumer. The price of the raw material is high due to the inflation and depreciation of currency.
DECREASE IN REVENUE
The revenue of UPL is seriously affected in tea sector by the illegal import of tea through Afghanistan and India, and fluctuations in tea prices reduce the sales volume of the company. The restructuring cost occurred due to closed down of tea factory in Karachi, directly impact the revenue of the company.
HIGH OPERATING EXPENSES
The ice cream sector of the company is heavily affected by the supply disruptions which cause the company to incur distribution and additional factory cost and ultimately affect the profit of the UPL and sales are restricted due to delay in expansion.
SUBSTITUTE PRODUCTS
In soap and detergent industry, cheap laundry powder is easily available in the market due to absence of regulatory duty import, so the company has not expanded much in local laundry industry.
Opportunities
RURAL MARKET
The 60% population of Pakistan is related to rural areas and the recent growth in agriculture sector, and increase disposable income create a huge demand of FMCG products. So there is a huge opportunity for UPL to penetrate this emerging market through aggressive advertising and campaign of their products.
LOW INCOME CONSUMERS
UPL is flourishing in FMCG industry which directly relate to macroeconomic environment of the company. Pakistan is a developing country so Unilever have the opportunity to target the consumers who have low income level. The business should introduce product in the price range which is easily affordable to common man.
EMERGING INTERNATIONAL RETAILERS
There is an opportunity for Unilever to grow as a market leader in retail industry of Pakistan because this is one of the least concentrated retail market in the world. All the international entrants look to enter in this market due to rise in GDP growth and favorable government policy.
CHANGING LIFE STYLE OF PEOPLE
When the life style of people change in urban area they are always look for better and quality product which increases the demand of the product in the market. Unilever should attempt to access to those people through promotion, distribution and advertising their products and make substantial growth.
Threats
In HPC sector there is a major threat of rising prices of raw material, palm oil and tallow due to inflation which may decline the growth of HPC products in future.
In Tea sector low demand of tea has arisen due to major factors such as the rising price of tea in international market ,smuggling of tea from Afghanistan and India and un branded products available in the market at low cost.
the Unilever is highly depend on bank lending and if the interest rates rises in future it will affect the major operations of the company and it will consider as highly risky company.
Growth in ice cream sector is declined due to major power failure in the country which disrupted the expansion of factory during the year. It is evident that electricity crisis will continue which negatively affect the ice cream segment in future.
CONCLUSION
Unilever Pakistan is one of the largest FMCG Companies, operating in the consumer sector. With an emerging consumer sector, UPL is highly responsive to the demands of the consumers. It has a diversified product portfolio being engaged in number of brands dealing in several segments such as Home and Personal Care, Ice Cream and many more. It possesses a great distribution network which distinguishes Unilever Pakistan as the market leader in most of its brands gaining the highest market share amongst its competitors.
UPL operates in a very sensitive market where any change in the Macro Economic Conditions can have a great impact on the company's operation. Overall the company has incurred a growth this year but lower than what it could have achieved. Major factors contributing to this are: rise in inflation, major power failures, political turmoil, high fluctuations in oil prices, huge exchange losses due to devaluation in Pak Rupee, increasing smuggling of tea and restructuring cost incurred by UPL mainly for the closure of Tea Factory in Karachi.
As there were many factors which affected the company at large, still the company was able to maintain a strong position mainly due to stunning profits incurred by one of its main sector Home & Personal Care which includes products such as Lux soap, Surf Excel and many more. The major reason for the increase in this sector was due product innovations, new launches and market activations.
In 2008, capital structure of the company changed from equity based towards more liability and debt factors. This was because of the expansion made in Ice Cream sector which was financed by loans and short term borrowings which even increased the finance cost of the company dramatically which in turn affected the profit margins.
Company is highly inclined towards its corporate social responsibility by engaging in a number of programs like educating less privileged people, providing education in rural areas and different campaigns giving some social message to the general public for the betterment of the society.
Company has extensively looked at its future strengths and opportunities which can be favorable to the company and accordingly have made some plans for the future which would also help the company to overcome its weaknesses and threats. Making new product innovations, getting back the positive gross margin in Ice Cream sector and trying to stop the smuggled tea to capture its market are some of the decisions made by the company to maintain its strong position in near future.
