Financial analysis has always been a strength of mine throughout my studies, with business analysis being my weakness. With this in mind, I chose topic number 8, "The business and financial performance of an organization over a three year period" for my research and analysis project. The reason for this is to build on my strength of financial analysis and to improve my understanding and application skills on business models.
When it came to choosing an organization, there was no other choice other than Unilever because this is the organization which has always fascinated me. This interest of mine was born by my curious nature. Whenever I use a product, I always want to know the details, such as what ingredients it has, which company manufactures it, what other varieties are available, etc. After a while, I noticed that every product from soap to tea which I used had one thing in common. This is a very unique logo which forms a 'U' and the name of Unilever.
I started wondering, how large is this company? What types of different products it produces? What industry sector does it belong to? After some research, I found out that Unilever Pakistan limited (UPL) produces a range of products and is a part of the Fast moving consumer goods (FMCG) sector. When this opportunity arose, to choose a company of my liking, UPL was my only choice simply because I yearned to learn about it, as it has always fascinated me.
Objectives and Research Questions
The main objective of my report is to analyze the performance of UPL. Both business and financial performance will be assessed over a three year period, and the results compared with a comparator. This analysis will help answer the following research questions.
Does the significant advertising expenditure carried out by UPL impact its financial performance positively and is it really necessary?
Do any unlawful activities affect the performance of UPL? If so, which activities?
Overall Research Approach
The research approach used in this report is first to gather information from as many sources as possible and then analyze both business and financial aspects. For financial performance, I have analyzed financial statements of UPL as well as of its competitor. To analyze the business performance, I have conducted external and internal appraisal of UPL's environment.
Information Gathering
To meet the information requirements necessary for the RAP, only secondary sources of information have been used. The reason for using only secondary data is because primary data from internal management of UPL is not accessible. This non-availability of primary sources of information has not compromised the quality and research findings of this report as only secondary sources of information were deemed sufficient.
Due to the limitation of primary information sources, the research carried out was extensive. Best efforts were made into gathering as much relevant information as possible in order to ensure the analysis is satisfactorily completed.
Information sources include:
ACCA textbooks - Used to polish my skills on financial and business analysis and the BPP "Success in your research and analysis project" textbook was used to familiarize myself with the RAP requirements.
Student Accountant magazines - Used to learn of what type of possible models can be applied, and the features of an A grade RAP.
Financial statements of companies - Analyzed in depth to ensure understanding of the business. UPL's latest financial statements were collected from the stock exchange, whereas previous year financial statements were downloaded from the internet. A limitation was faced here with UPL's competitor, Procter & Gamble, whose financial statements of its Pakistan operations were unavailable. Due to this, Nestle Pakistan (NPL) was selected as an adequate competitor, even though its product lines are somewhat different from that of UPL.
Websites - In this day and age, massive amounts of information is available on the internet, hence this was a major source of information. The internet was not only used to access and obtain information from Unilever's website, but other websites such as newspaper websites, Government report websites, Research firm websites, Google, etc. were all used to gather data for this RAP.
Newspapers - A range of newspapers were used in obtaining relevant information.
Exact details of sources of information are given in the bibliography.
The limitations of using these sources of information include:
Relevance - Secondary data is mainly produced for other some other purpose rather than specifically for this project.
Authenticity / Reliability - The reliability of all information needs to be assessed and contradicting issues dealt with. This was easier for some items such as financial statements, but difficult for other items such as certain websites and agency reports.
Cost of information - Although most secondary data is cheap and easily obtainable, unfortunately some sources, such as Euro Monitor and Financial Times, were not accessible without paying large sums of money.
Details - It is not always possible to get each and every detail of information deemed necessary through secondary sources, hence the use of assumptions.
Analytical Tools
To analyze the financial statements, a popular tool, Ratio analysis, has been used. Its focus is on the following four main areas.
Profitability ratios
Liquidity ratios
Efficiency ratios
Investor ratios
Debt management ratios
Limitations of these ratios include:
Comparator - past performance, industry, or competitor? Comparisons with past, results in distortion as amounts differ due to inflation over time. It is also better to use a competitor for comparison as industry averages are not true representative of actual competitors. It is not always possible to compare performance with a competitor which has very similar operations because of non-availability of information, as witnessed with Proctor & Gamble.
Ratios are calculated from the financial data presented in financial statements which are themselves subject to many limitations such as the accounting polices used in preparation of these statements vary company to company and also financial statements are historical documents based on the past. Accounting estimates are also a similar factor.
(BPP Learning Media, 2010)(Pyke C, 2007) (McBride C., 2010)
The ratios of UPL have been calculated and analyzed and compared it with the ratios of NPL. Due to changes in accounting policies/estimates restated amounts (given in financial statements) were used to make comparison on like with like basis. As financial statements contain only quantitative data, in order to obtain the complete picture, business analysis was also conducted.
For business analysis, external and internal appraisal was conducted. In external appraisal, emphasis was on UPL's environment to identify macro-economic factors and threats and opportunities that these impact on UPL's operations. Internal analysis focus was on strengths and weaknesses. For this purpose the following models have been used.
PESTEL
Political
Economic
Social-cultural
Technological
Environmental
Legal
SWOT
Strengths
Weaknesses
Opportunities
Threats
UPL's external macro environment was scanned through PESTEL analysis, but it is over optimistic to rely blindly on its results without giving proper consideration to its limitations. These are:
Scanning immense sources and finding relevant information is very time consuming.
It is usually not possible to consider each and every factor which makes the analysis complex.
To carry out this analysis successfully, updated latest data/ information from a wide variety of sources has to be used which is difficult to obtain.
The factors affecting PESTEL are dynamic and they change at a very fast pace.
PESTEL should not be used in isolation because it only considers the external factors however company's performance is also affected by internal factors in addition to external factors. Therefore, it has been used it in conjunction with SWOT analysis to obtain a complete picture.
It is worth to note that even the SWOT framework is not free from limitations. Its emphasis is mainly on categorizing the different factors in strengths, weaknesses, opportunities and threats but it does not prescribe how to categorize them fully, rather it focuses on the user's judgment.
It provides no guidance on how to identify these four elements. Therefore it involves a great degree of subjective judgment, which is a limitation in itself.
(BPP Learning Media, 2010)(Hall S,n.d.)(McBride C,n.d.)
Analysis
Industry
The Fast moving consumer goods (FMCG) industry involves the production and distribution of packaged consumer goods. These goods are non-durable products which include items such as food & beverages, personal care, household products, plastic items, pharmaceuticals, etc.
The FMCG sector in Pakistan has been expanding rapidly. This amounts to a number of reasons.
With a growing population and rising disposable incomes, demand for FMCG products has increased massively. With people whose life style, food habits, and other consumer tastes are shifting, due to higher income and western trends, the market for FMCG is growing. Consumers have also shifted towards using branded products for their needs, instead of the traditional generic options. This move in consumer tastes is what the FMCG sector is capitalizing on. FMCG's have been successful in creating awareness and adapting to consumer tastes which has ensured growth.
With rural populations making up the majority of the populations, strong distribution networks play a key role for FMCG's. FMCG's have been able to effectively increasing their distribution and market penetration to every corner of Pakistan ensuring maximum growth.
Due to the nature of the industry, there are a wide range of products to be made for consumers. This has encouraged many different companies to invest in this sector. International players include companies such as Unilever, NPL, Procter & Gamble, and Colgate etc. There are also a range of domestic players. Competition in the FMCG sector is intense with most top players spending very hefty sums on advertising to promote their products.
(Articlesbase,2009)(Shine,n.d.)(NaukriHub,n.d.)
Company
Unilever Pakistan Limited (UPL) "formerly known as Lever Brothers Pakistan Limited (LBPL)" was founded in Pakistan in 1948 .It "is a subsidiary of Unilever Overseas Holdings Limited, UK, whereas its ultimate parent company is Unilever PLC, UK" (annual report, 2010). It "is the largest FMCG Company in Pakistan, as well as one of the largest multinationals operating in the country" (Unilever Pakistan, 2011)
It has four main broad categories of products which are as follows.
Home and Personal care products(HPC)
Beverages
Ice creams
Spreads
On the basis of financial year ended 2010 revenue, the size of each of its segment is shown by the chart given below.
Key brands in all four above mentioned categories are Surf Excel, Sun silk, Lifebuoy shampoo, Lux, Fair & Lovely, Ponds, Lipton, Brooke Bond Supreme, Wall's and Blue Band Margarine.
(Unilever Pakistan, 2010)
Financial Analysis
Profitability
The Gross Profit (GP) margin of UPL has remained above 30% in the latest years. This is after direct manufacturing costs such as raw material and labour costs. Normally management doesn't have much control over raw material costs, because external factors cause costs to rise and fall. This was also the case with UPL.
In 2008, GP margin decreased to 34.69% from 38.93% in 2007. Sales have increased by 32.68% whereas Cost of Sales (CoS) has increased by 41.90%. CoS has increased by a greater amount than sales. UPL imports its major raw materials from International sources and the immense devaluation of the Pakistani rupee in 2008 caused Imports to become expensive. Also, due to the global surge in commodity prices, UPL suffered from purchases of higher costing raw materials such as Palm oil and raw tea.
Palm oil prices were very high in first and second quarter of 2008.; similarly, tea prices increased by 40% in first 9 months of 2008. (IndexMundi, 2011)
In 2009, GP margin grew slowly, with only a small difference between 34.69% and 34.92%. However the GP amount has increased by 24.19% over the last year. This year, both sales and CoS, have risen by approx. 23% each. UPL also passed on the effect of higher prices to consumers (Unilever Pakistan, 2009), leading to sales and CoS to increase in proportion to each other.
In 2010, GP margin declined to 32.63%. A vast majority of products were re-launched under different advertising campaigns leading to increased sales. Again in this year, sales have increased by 16.98% whereas CoS has increased by 21.09%. During this year, Pakistan saw a major flood which damaged sales volume and disrupted distribution of products. There was also an increase in CoS caused by rises in raw material prices of tea which was not fully passed on to consumers.
Compared with NPL, UPL's GP margin is much healthier. FMCG sector is showing tremendous growth however, it is still affected by rising commodity prices which took their turn on the profits of both companies. UPL is able to maintain a higher GP margin due to its variety of products and the higher margins it is able obtain.
The Operating profit (OP) margin of UPL has remained above 10% for the period 2008-2010. This is from continuing cost effectiveness and a higher GP margin. NPL's OP margin remained below UPL's, until 2010, when it was able to minimize its exchange losses and didn't suffer large impairment on its assets, leading to an increased OP.
UPL incurred costs of approx. PKR.489 million in 2008, with the remainder (PKR.90 million) incurred in 2010 in its restructuring program to optimize its costs. These contributions have resulted in decreased OP margins. The restructuring process has begun producing positive results as indirect costs have risen by only 12% in 2009-10 as compared to 21% in 2008-09.
Other operating income forms an insignificant amount, only 0.50% of total revenue on average.
On average, OP margin of UPL has been 11.68% and GP margin has been 34.08%, leading to a difference of approx. 22%. Indirect costs form a major portion of its cost structure. An analysis these costs is shown below.
These costs have been rising in line with business growth. Over the three years from 2008 to 2010, more than 80% of expenses related to distribution and advertisement. Constant advertising forms an integral part of UPL's policy to enhance value of its brands and remain competitive. UPL is in the list of top ten advertisers on both TV and print media (Gallup & Gillani, 2010).
NPL also incurs a hefty amount of advertising expenditure, but it doesn't compare to that of UPL. NPL's advertising expenditure makes up 5% of its sales on average.
Like advertising Unilever also invests heavily in distribution because "retailing consumer products is Unilever's bread and butter" (TheNews, 2008, cited in Brandsynario, 2008). In 2010, UPL had a lower OP margin because of higher distribution costs of 19% due to difficultly in distribution caused by floods.
Net Profit (NP) margin of UPL has decreased from 7.23% in 2007 to 6.41% in 2008. Apart from the reasons mentioned in GP margin and OP margin, the main reason for decline is due to an increase in finance costs by approx. PKR356 million. This was due to an increase in short term borrowings which resulted in high markup cost and by exchange losses caused by devaluation of currency.
The PKR fell to PKR 78/1 USD from PKR 61/1 USD in 2008 (OANDA, 2011).This led to exchange losses adversely affecting UPL's profits.
NP has increased from 6.41% in 2008 to 8% in 2009. In 2009, NP was higher due to improved profit margins from sales and the optimization of costs as restructuring played an important role in minimizing costs. In 2010, NP has decreased to 7.33% because of decreases in GP margin and OP margin. This was offset by lower finance costs as there were significant decreases in short term borrowings and exchange losses.
NPL has been showing substantial growth from 2008-2010. Rising GP margins and continued decreasing operating expense, helped it almost double its NP margin from 2008-2009. UPL's significant distribution and advertising costs contributed to its NP margin to fall below NPLs.
In 2008, total assets of UPL increased by approx. PKR 3 billion. This was due to purchases of non-current assets to increase its production capacity and an increase in inventory to support demand. In 2009, ROCE has increased due to a higher OP of approx. 46%, as compared to previous year. In 2010, ROCE has decreased by 24.25% because of assets increasing at a greater rate than OP.
The main reason for ROCE being significantly high and above 100% is due to how UPL finances itself. UPL does not obtain long term loans such as loan notes, debentures, etc. The only source of finance in its long term liabilities are finance leases arising from vehicles. A major aspect is its current liabilities which make up more than 85% of its total equity and liabilities.
In the graph above, average net capital employed has been used. By changing the formula and not deducting current liabilities from total assets, results would be very different. According to the altered formula, results for the three years are 2008 34.83%, 2009 43.34% and 2010 39.88%. These amounts are more transparent than the above calculated ROCE because they show the real return on assets earned by the company. It is clear that UPL returns are still extraordinary but not as high as shown by ROCE's traditional formula.
NPL's funding strategy is not the same as UPL, it funds its operations through both long term and short term financing sources. NPL's long term finances are 24% and its current liabilities make up 42% of its total assets in 2010, as compared to UPL's current liabilities which are 66% of total assets. The ROCE earned by NPL is lower than that earned by UPL but it is still healthier when compared with other companies.
Liquidity
The current ratio norms in the FMCG sector are normally below those of these general guidelines of 2:1. UPL's current ratio is also below this norm due to its vast amount of short term borrowings. UPL has a very nominal amount of receivables. Cash balances are also insignificant with the exception of 2010 (see below). The major portion of current assets is inventory.
The current ratio of UPL increased from 2008-2009 due to repayments of short term borrowing, and it further increased in 2010 due to a increase in cash and bank balances. NPL's current ratio has been higher than that of UPL. NPL's current assets have risen in the same proportion of its current liabilities. However, the current ratios of both companies remain below 1:1 which means that these companies may face difficulties in meeting their short term obligations.
UPL began 2008 with a quick ratio of below 0.20:1. This improved slightly in 2009, due to lower current liabilities and in 2010 because of a surge in cash balances. NPL's quick ratio has deteriorated because its inventory has been increasing in line with current liabilities, with almost no change in its liquid current assets.
From these calculations it seems that UPL may have liquidity concerns, as both current and quick ratios are below the norms. UPL outsources much of its production, saving it the need to invest in non-current assets. This has led to an increase reliance on short term liabilities to meet its working capital and operating needs.
Although current ratio and quick ratio are the main indicators of the liquidity of a company, they cannot be viewed in isolation. Comparing them with the cash operating cycle (COC) shows the true liquidity of the company because
"You can't pay bills with working capital; you pay bill with cash!" (Investopedia, 2007)
It is important for a UPL to maintain an optimum COC to ensure working capital requirements are met. UPL's COC days have varied from 39 in 2008, 42 in 2009, and 23 in 2010 which displays an improvement on management's part to manage its working capital in order to meet short-term obligations in timely manner.
Efficiency
Ratio
Unilever
Nestle
2008
2009
2010
2008
2009
2010
Inventory turnover
63 days
58 days
46 days
35 days
40 days
41 days
Receivables collection period
3 days
4 days
4 days
4 days
3 days
1 day
Payables payment period
27 days
20 days
27 days
19 days
20 days
16 days
Cash operating cycle
39 days
42 days
23 days
20 days
23 days
26 days
Over the period, inventory days of UPL are decreasing whereas NPLs inventory days are increasing. Heavy investment in advertisement increases awareness and demand for UPL's products and investment in distribution supports increased demand by making products more easily and widely available. Currently, UPL takes longer than NPL to sell its products but the trend shows NPLs days will soon surpass those of UPL.
Both UPL and NPL collect cash from receivables within 1 to 4 days. UPL and NPL manufacture consumer goods which are ready to use. These products do not need to be modified; hence there is no need to wait for months on end for UPL's customers to process products. Other industries such as car part manufacturers usually need to offer credit which results in more receivable days.
UPL purchases raw material to manufacture products and its payables days range from 20 to 27. It seems it takes advantage of this free source of finance by paying payables late and using the cash in its working capital, unlike NPL, whose payable days show that it pays its trade payables quick. In 2010, UPL's payables were not paid as soon as in 2009, because in 2010 short term borrowings were repaid by substantially increasing payable balances.
UPL has been able to manage its working capital efficiently over the period leading to a decreased operating cycle. In 2009, operating cycle increased due to early payment to payables whereas in 2010, UPL delayed payment to its payables, causing their balance to almost double as compared to the previous year. Combined with decreasing inventory days, UPL's operating cycle has improved over the period while NPL's has degraded.
Investor Ratios
The EPS of UPL and NPL has been increasing year on year. There has been no change in the number of ordinary shares issued by both companies; EPS has been on the rise due to higher profits. Apart from other reasons shown in profitability analysis, the growth of the industry has played an important role in increasing profitability and EPS.
It is seen from the graph that EPS and DPS are almost the same for UPL. UPL does not retain its profit as its dividend payout ratio is 82.38% in 2008, 99.65% in 2009 and 99.92% in 2010. UPL believes that by paying such healthy returns, shareholders will invest further, which ultimately will result in UPL's growth. This may be true and may attract investors and satisfy shareholders but there are other implications of this policy. For example, retained earnings prove to be a cheaper finance source than short term borrowings. NPL doesn't payout all its earnings in the form of dividends. It has an incremental dividend payment policy. Investors, based on their preferences will choose the company that suits their expectations, whether it be some capital growth and some revenue income (NPL), or total revenue income (UPL).
In 2010, earnings yield of UPL is low compared to the previous two years. Market price per share has increased tremendously from PKR 2,300 in 2009 to PKR 4,360 in 2010, whereas growth in earnings is not as proportionate. EPS has increased from PKR 229.8 in 2009 to PKR 246.2 in 2010.
UPL's stock seems underpriced in 2008 and 2009, as the yield percentages are high. The overall performance of UPL in 2009 was excellent and it pays almost all its earnings in the form of dividends. Due to this, the share price of UPL almost doubled to 4,360 in 2010. This was because the stock was seen to be underpriced considering its dividend payout.
NPL's earnings yield has varied from the years 2008-2010. It has shown incremental growth in earnings and dividends which are incorporated in its share price, therefore its earnings yield has not varied much.
Debt Management/Financial Leverage
Interest Cover (times)
2008
2009
2010
Unilever
22.4
20.3
34.5
Nestle
5.3
13.1
23.4
In 2009, interest cover of UPL has decreased because of higher interest costs from additional short term borrowings. The opposite occurred in 2010 leading to a higher interest cover. NPL's interest expense has been decreasing due to lower markup charges resulting from decreased variable interest rates. Along with higher profits year on year, this led to interest cover increasing exponentially.
UPL's assets were almost 80% financed by its liabilities in 2008, this dropped to approx. 70% in 2009 from repayment of short term obligations. In 2010, short term obligations were further reduced, but this was offset by a higher trade payables balances resulting in a higher debt ratio.
NPL continually relies on short and long term finances to finance its operations and assets. This is witnessed in its debt ratio which remains between 72% and 76%.
Both companies remain dependent on their liabilities to cover their assets and help finance operations, neither company has a strong equity base.
These charts further illustrate the financing of both entities. UPL has only finance lease obligations in non-current liabilities. It doesn't seek long term finance unlike NPL which uses long term finance sources. NPL doesn't outsource much of its production like UPL, due to which it has a significantly larger asset base. Both entities use a majority of liabilities for finance themselves.
Business Analysis
Political
Pakistan is very volatile in terms of political stability. One of the major political factors is the war on terror. "As a front line state in the global "War on Terror", it is officially estimated that Pakistan has been impacted to the extent of over US$ 43 billion between 2001 and 2010."(Economic survey of Pakistan, 2010) This has caused negative publicity of Pakistan to the global world and has affected Pakistan in many ways which include:
Loss of lives of people
Damage to infrastructure
Loss of Foreign investments
Diversion of budgets to fund this war on terror
UPL and other companies have to deal with these risks of operating in such a hostile environment.
Another issue is smuggling of black tea under The ATTA (Afghan Transit Trade Agreement). This malpractice is not only causing damage to the government, through lost income, but also to the legal importers of tea, which includes UPL. In recent years, legal tea imports are decreasing whereas smuggled tea is increasing, as in 2009-2010 the level of smuggled tea has surpassed legal imports. The situation has worsened because the government, instead of taking any steps to stop abuse of this, it has further increased its taxes and duties on imports. Legal importers have to pay 33.7% tax while cost to smugglers is approx. 16.7% (Chaudhry S., 2010)
According to Unilever, this adversely impacted UPL's beverages segment and was the main reason for closing one of its tea factories in 2008 (Unilever, 2009).
Another important issue is the availability of counterfeit products which are causing problems for bona-fide players like UPL. The CEO of Unilever Global, Paul Polman had similar remarks.
"On the subject of counterfeit products found in the country he said he would like the government to do much more to curb this very dangerous practice. Unilever products like Supreme Tea, Rafhan custard, Fair and Lovely cream and Sunsilk shampoo are amongst the most to suffer from this practice."(South Asian News Agency, 2010)
The government of Pakistan is not taking any rigorous steps to discourage counterfeiting.
Other than this, the regulatory duty of 25%, imposed in 2008 on laundry detergent power (LDP) amongst many items, was removed in the budget of 2009-10 by the government. Doing so, importing is now the cheaper source for LDP, instead of local manufacturing. This negatively impacted the revenues of local manufactures including UPL. (Chaudhry S., 2009)
Economic
Pakistan's economy is steadily growing. Gross domestic Product (GDP) has seen growth, although in 2008-2009, it fell tremendously. Inflation has reached double digits in the last 3 fiscal years due to the global effect of commodity prices. The economy of Pakistan faces numerous challenges, from domestic issues such as political instability, extreme power shortages and foul security environment as well as international influences such as a decline in exports and high levels of inflation caused by surge in costs of food, oil prices and other commodities.
(Ministry of Finance, 2010)
Unilever uses Palm oil as a major input into most of its products. Below is a graph showing the fluctuations of Palm oil prices:
(The World Bank Databank, 2011)
The higher price in early 2008 was due to high consumption and demand, however, this fell abruptly in late 2008. The price of palm oil remained above the $600 mark in 2009 and surged once again in Q4 of 2010. UPL needs to consider alternate strategies to hedge this risk of volatile palm oil prices.
Pakistan's energy crisis has been in existence for decades. It has worsened in the latest years leading to massive power cuts to industries causing downtime. This has affected UPL's ice-cream segment adversely. Other industries have reverted to self-electrical generation to meet their energy needs; UPL may need to consider this option as well.
Socio-cultural
Pakistan is a developing country whose total population is 173.51 million, out of which 63.05 million represent urban populations and 110.46 million rural. (Ministry of Finance, 2010)
Population pyramids show that population is mainly increasing in the lower age groups of age 15-29 years old (U.S. Census Bureau, 2011).
Growing urbanization, higher number of youngsters, and rising income per person led to changing consumer lifestyles. People have higher disposable income to spend on products available in the market. UPL does not target only one class of consumers. Its product packaging and costs are designed in a way to appeal to all the people of society.
UPL faced negative publicity from not just the local public, but also from the International public and International Union of Food (IUF) due to its practice of hiring temporary labour, without employee benefits. UPL was acclaimed to have only 509 permanent employees out of some 8,000 total employees (Asian Food Worker, 2008). A campaign for employee rights lasted for a period of 2 years after which Unilever reached an agreement with the IUF awarding monetary cash payments and promises of providing additional permanent jobs to employees.
In 2009, UPL hosted a reality show in which a contestant drowned in a swimming challenge. This incident proved to be very damaging to the repute UPL for not having proper safety arrangements. UPL denied all liability for the incident, which further aggravated this issue (Nasir A., 2009)
UPL actively engages itself in its Corporate Social Responsibility (CSR) activities. Instead of using its own corporate name Unilever, it focuses on a process called "Brand Imprint" whereas it advertises its main brands through its CSR initiatives. It focuses on the following social factors:
Health - UPL helps bring awareness to parents about the importance of physical activity to promote mental and physical growth among children.
Well-being & Hygiene - UPL raises awareness among different districts across Pakistan about the importance of basic hygiene.
Nutrition Unilever helps promote nutrition by developing its product in such ways that they become healthy such as cutting trans-fat from its margarines or adding calcium to its ice cream.
Healthcare - Supporting eye care, kidney, and general hospitals and patients through grants.
Education - Supporting a range of Educational institutions such as arts, business, fashion, science, and engineering students through grants.
Empowerment - Supporting different organizations and institutions every year by offering grants after they satisfy the requirements.
(Unilever Pakistan, 2010)
UPL also contributes to natural disasters and other unforeseen events. The most recent contribution was of 1.1 million Euros (global parent) and PKR 4.86 million (UPL) in August 2010 after a floods destroyed homes of thousands of people. (Daily times, 2010) (Unilever Pakistan, 2010)
UPL also supports its employees in many ways. In 2009, It has introduced a program of 'flexi-hours' in which eligible employees choose their work shifts. The latest addition is the pilot programme of 'Agile working' in which employees choose to work from their homes. The main focus is to make 'work - an activity, not a place' (Nemat M., 2010)
Due to this and many other benefits, UPL is regarded as most preferred employer in Pakistan. "MBAs from nine leading business schools rated Unilever as "employer of choice" in survey conducted by the Pakistan Society of Human Resource Management" (TheNews, 2008, cited in Brandsynario, 2008).
Technological
Due to the nature of operations of the FMCG industry, it's not operating in a fast paced technological environment, such as mobile phones or laptops. Its main technological factors are in its manufacturing capability using state of the art manufacturing methods.
UPL is a subsidiary of Unilever Global. Unilever Global has over 6,000 Research and development staff employed worldwide, and just in 2009, it spent 891 million Euros on Research and Development expenditure (Unilever Pakistan, 2011)
UPL, with its ultimate global parent, can take advantage of the innovative potential of Unilever global and use its competences to gain a competitive advantage in its local market.
UPL uses the internet to access Unilever Global online E-learning module to train its employees and keep them up to date. This technological improvement has helped Unilever conduct trainings without having to incur costs for travelling and lodging.
Unilever's restructuring program "Path to growth" includes the addition of SAP ERP technology. By incorporating this technology into its operations, Unilever has been able to integrate and optimize its supply chain as well as enable the efficient sharing of management information across all Unilever subsidiaries globally (Srivni,2007).
Environmental
The environment of Pakistan faces many troubles ahead, some due to governmental lapses, and others including inability to plan its resources and develop at the pace needed in order to truly become sustainable and environmentally friendly.
One of the major concerns over the years is the rapid depletion of natural resources. Water availability has significantly decreased in recent times. Also, due to improper management of waste, water and soil/land are continually becoming more polluted.
Pakistan has been prone to many natural disasters including earthquakes and floods. It has also had to deal with droughts in recent times.
UPL believes that conducting business in a responsible way is the key to success. Following are some of its major initiatives to reduce its environmental footprint.
Reducing energy consumption / greenhouse gases
Behavioral transformation program under which employees are discouraged to waste energy.
Green offices
Improved logistic activities - cross docking
Re-engineered manufacturing process
Reduction of consumption of water by improved manufacturing process
Reducing wastage
Optimized design and packaging of its products
Waste recycling
(Unilever Pakistan, 2010)
Palm oil is major industrial input to many products so its demand remains constant. In many countries, mass production of palm oil is causing deforestation, which results in destruction of eco-systems.
Unilever is a major user of palm oil. It purchases most of its palm oil from sustainable suppliers. However, Greenpeace has produced a report aimed at certain Unilever suppliers which are not following sustainable practices. In response to this Unilever has decided to drop suppliers which would be considered unsustainable.
(Greenpeace, 2008)
Legal
UPL is affected by a number of legal factors such as:
Changing legislation, especially employment and health & safety laws directly affect UPL. For example, minimum wages of unskilled workers were increased from Rs.6,000 to Rs.7,000 in May 2010 (The News, 2010)
As per law, after employment of 9 months temporary workers should be made permanent. UPL didn't follow this practice which led to workers revolting. In the end, UPL agreed to make some employees permanent and offer monetary payments to others (IUF, 2007)
UPL signed a non-competition agreement with Dalda Foods Limited. However, the Monopoly Control Authority (MCA) considered this agreement a violation of Monopolies and restrictive trade practices ordinance 1970, and sent an order to terminate this agreement. UPL appealed to courts on and the case is still pending (Unilever Pakistan, 2010) (Farooq S., 2007 cited in Risk managers, 2007)
SWOT
STRENGTHS
Part of a well-known global parent which provides support (R&D, latest technology)
Largest FMCG company in Pakistan
Strong distribution network and brand image
Target range of consumers across economical pyramid
Diversified product range (width & depth)
WEAKNESSES
Majority of employees are temporary
Negative publicity (human rights issue, palm oil case, drowning case)
OPPORTUNITIES
Expansion opportunities in rural areas
Unexplored segments such as feminine care products
Increasing awareness among people about fast moving consumer goods.
THREATS
Intense competition e.g. P&G expansion, arrival of new ice-cream competitor
Continued smuggling of tea
Availability of counterfeit products
Devaluation of Rupee
Natural disasters (e.g. Earth quake in 2005, Floods in 2010)
Energy crisis
