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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. 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 9% downside to the Trefis price estimate if the market share declined to 10%.
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 59% by 2009 due to a 12% decline in sales of savory, dressing and spread products amid the weak economic environment and Euro. The market share declined marginally to 58% by 2011 before dropping again to 51% by 2013. We expect the share to stabilize at the current levels by the end of our forecast period as Unilever increases market share, particularly in the emerging markets partially offset by the increasing competition. There could be a 12% upside to our price estimate if Unilever increases its market share to the 2008 levels of 69% by aggressive growth of its food businesses in the emerging markets.
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 36% of Unilever's revenues and 39% of its operating profit.
Unilever is a global market leader 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 27% of Unilever's revenues and 38% 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 14% 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 18% of Unilever's revenues and 9% 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.
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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