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Investment Overview for Unilever Group (NYSE:UL)
Unilever's Share of Global Skin & Hair Care Market: More than 80% of Unilever's sales in the emerging markets come from its personal care and home care businesses. We estimate that Unilever's Skin Care & Hair Care Market Share gradually increased from 10% in 2008 to 12.6% in 2013, before declining to 10.5% in 2014. We expect Unilever's Skin Care & Hair Care Market Share to continue to increase reaching 13.9% by the end of our forecast period. There could be a 13% downside to the Trefis price estimate if the market share declined to 7%.
Unilever's Market Share of Grocery: Unilever's share of the grocery market(that includes savory, dressing and spread products) declined from 69% in 2008 to 51% by 2014 due to poor performance in the highly competitive European market. The decline in market share was also heavily impacted by the gradual sale of food brands owned by Unilever between 2008 and 2014. We expect Unilever's market share to decline slightly in the medium term while it continues divesting its foods business. Thereafter, we expect its market share to stabilize by the end of our forecast period as Unilever's stronghold in the emerging markets partially offsets the increasing competition. There could be a 11% downside to our price estimate if Unilever decreases its market share to 25% by continuing divestment of its food brands.
Unilever N.V. (NYSE: UN) is a public limited company registered in the Netherlands, which has listings of its shares and depositary receipts for shares on the Euronext Amsterdam and of New York Registry Shares on the New York Stock Exchange.
Unilever PLC (NYSE: UL) is a public limited company registered in the UK and Wales which has shares listed on the London Stock Exchange and, as American Depositary Receipts, on the New York Stock Exchange. The two parent companies, NV and PLC, together with their group companies, operate as a single economic entity, the Unilever Group.
Unilever is a market leader in mass skin care products and deodorants, and comes at a second position in daily hair care. Principal brands in personal care include Dove, Lux, and Rexona (including Sure and Degree), Sunsilk (including Seda / Sedal), Axe and Pond’s. Other important brands include Suave, Clear, Lifebuoy and Vaseline, together with Signal and Close Up in oral care. Personal care accounts for 37% of Unilever's revenues and 41% of its operating profit.
Unilever is a global major in savory products, dressings and spreads. Unilever manufactures soups, bouillons, sauces, snacks, mayonnaise, salad dressings, olive oil, margarine, spreads and cooking products such as liquid margarine, and some frozen foods. It markets them under key brands such as Knorr, Hellmann’s, Becel/Flora (Healthy Heart), Rama/Blue Band (Family Goodness), Calvé, WishBone, Amora, Ragú and Bertolli. Savory products, dressings and spreads account for 26% of Unilever's revenues and 45% of its operating profit.
Unilever is a leading manufacturer of ice cream sold under the international Heart brand, including Cornetto, Magnum, Carte d’Or, Solero, Wall’s, Kibon, Algida and Ola. Other popular brands include Ben & Jerry’s, Breyers, Klondike and Popsicle. Unilever is a leading manufacturer of tea beverages. Principal tea brands are Lipton, Brooke Bond and PG Tips. The ice cream and beverages business segment, as reported by the company, also includes weight management products, the principle one being Slim-Fast. It also includes nutritionally enhanced products that are sold in developing markets. Ice cream & beverages account for 19% of Unilever's revenues and 7% of its operating profit.
Unilever's home care business includes laundry products, such as tablets, traditional powders and liquids for washing clothes. Tailored products including soap bars are available for lower income consumers. Unilever's brands include Omo (‘Dirt is Good’ platform), Surf, Comfort, Radiant, Skip and Snuggle. Unilever's household care products include surface cleaners and bleach, which are sold under the Cif, Domestos and Sun / Sunlight brands. Home care accounts for 19% of Unilever's revenues and 7% of its operating profits.
Unilever's strategies for growth have been to strengthen its existing popular brands through innovation and by improving its products rapidly to suit the latest consumer preferences. Unilever has also accelerated changes in its production & distribution systems to make its supply chain more cost-competitive and to deliver its products faster across multiple markets. "One Unilever" program is one such example. Unilever's business is highly diversified and it makes conscious efforts to have a workforce that is equally diverse so that it can cater to its consumers in international markets more efficiently.
Trefis believes the savory products, dressing and spreads food division which comprises the popular brands Beccel, Knorr and Blueband, is the most value accretive division of the company for the following reasons:
The foods division accounts for over 38% of Unilever's operating profits even though its revenue contribution is less than 30%. The company's presence and leadership across food segments provides it significant leverage in brand loyalty, market place visibility and popularity. Unilever is a leading manufacturer of soups, bouillons, sauces, snacks, mayonnaise, salad dressings, olive oil, margarine's, liquid margarine's, spreads, ice creams and tea beverages. The top position in the global grocery market provides Unilever significant brand visibility in supermarkets and small stores. This helps Unilever in maintaining its market share as shoppers tend to buy more of the easily available brands.
Unilever products have high popularity and loyalty in the international markets, as some of its brands are being sold for over two decades. Consumers perceive Unilever to be trustworthy as most of them have grown up consuming its brands.
The company constantly focuses its R&D efforts for product enhancement and innovations in marketing in order to support new product launch. Unilever is trying to upgrade products that match growing demand for low calorie foods from increasingly health conscious consumers. This has not only aided sales growth through brand expansion but has also added significantly to Unilever's top-selling savory, dressings and spreads brand image. Aggressive marketing efforts along with a wide supply chain, which is increasingly being integrated under the "One Unilever" plan, has made Unilever's reach to its consumers faster.
Aggressive expansion across emerging markets
While P&G has set a target to add 1 billion new customers this decade, Unilever has set an ambitious target of doubling its sales by 2020. Both consumer giants have therefore been pursing aggressive expansion across emerging markets of Asia, Africa and Latin America by entering new country-product categories with huge investments in distribution and marketing.
Even though Unilever trails P&G in terms of global sales with a much larger share in the developed markets, Unilever relies more on emerging markets. While P&G generates 37% of its total revenues from emerging markets, Unilever gets 56% sales from those markets. By 2020, Unilever expects developing markets to account for 70% of total sales, with about two-thirds of that coming from growth in the overall size of those markets and the other third from an increase in Unilever’s share of those expanding markets. It is also likely to benefit from P&G's recent decision to put its expansion in these markets on hold to divert focus on reclaiming market share in its core country-product categories.
Unilever has stronger distribution networks in these markets compared to P&G (whose emerging markets expansion has turned out to be hugely expensive) and also gets strength from a strong "shakti women" network for sales in rural and remote markets of Asia and Africa. Unilever also succeeded in keeping its prices more competitive than its rivals and introduced smaller pack sizes, which has helped it grow volume market share in these markets.
Overhaul of supply chain and business operations ensure improved efficiency and operating margins
Unilever has gradually integrating its supply chain and business operations to reach a large number of consumers across multiple markets in a more cost-effective way. Although restructuring charges related to streamlining of existing production and distribution infrastructure may negatively impact Unilever's operating margins in the short term, cost savings from a boost in efficiency are expected to drive margins higher in the long term.
Trefis Forecast Rationale for Unilever's Market Share of Ice Creams
This refers to Unilever's share of the dollar value of sales of ice-creams globally, as measured at the manufacturer's selling price (i.e. the price at which a manufacturer like Unilever sells to the distributor).
We estimate that Unilever's share of the global ice-creams market increased from 16.1% in 2009 to 16.9% in 2011 with innovation and new product launches and improved volume growth in several markets like Western Europe, Latin America, SE Asia, Mexico and Australia. The market share then declined to 16.1% by 2013 on account of weaker performance in Southern Europe, particularly Italy which is Unilever's biggest European ice cream business. In 2014, high level of pricing competition and withdrawal of some low margin products from North America also impacted ice cream sales and brought the market share down to 13.6%. Going forward, we expect the market share to increase marginally to 14.4% by the end of our forecast period.
Trefis considered the following factors for its forecast
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- Strong market share position as compared to competitors
- Unilever's ice cream sales are 16% of the global ice cream market, next only to Nestle's 17%. The rest of the industry is highly fragmented with the third largest player having less than half of Unilever's annual turnover. This provides the Heartbrand ice creams substantial scale, higher brand equity, and access to a large customer base across multiple geographies through a large integrated supply chain network. Trefis expects these factors to continue bolster Unilever's ice cream sales particularly in the high growth markets of Asia, Africa and Latin America.
- Focus on product innovation to cater to an increasingly health conscious population
- Unilever has undertaken sustained R&D efforts and continuously evolve its ice-creams brands so as to suit changing consumer preferences. As consumers are shifting to low calorie and healthy foods, Unilever has launched several new products and initiatives to match these trends. For example following few initiatives along with others have been increasing ice-cream sales driven by higher acceptance and popularity among consumers.
- Besides, offering low calorie ice creams such as Carte d'Or Light and Solero Exotic, Unilever has taken the initiative to label its ice cream products with information on fiber, saturated fat, sodium, sugars values and other diet components.
- Popular ice-cream brands such as Cornetto and Magnum, have been offered in snack size to facilitate consumption of smaller portions helping consumers in diet control. Unilever has increased its presence in premium ice cream segment such as through acquisition of Ben & Jerry's and addition of super premium ice cream products like Chunkey Monkey. This has led to a higher overall value of Unilever's ice cream portfolio as well as keeping at bay its lower cost competitors.
- Aggressive geographic expansion of Magnum
- Magnum was launched in Indonesia in 2010 and has enjoyed phenomenal success in the country. In spite of having premium pricing, it established itself as one of the most popular ice cream brands in the country.
- Following the successful launch of Magnum in Indonesia, Unilever has expanded the brand further, with launches in the US and Philippines in 2011 and 2012 respectively. The brand is now sold in over 50 countries worldwide, and Unilever is betting on it to help the company catch up with market leader Nestle.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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