SWOT ANALYSIS for UNILEVER

Unilever is one of the world's leading FCMG companies. The groups key focus on innovation is helping it in rolling out more new products each year, much ahead of its competitors. However, its principal operations being highly exposed to the Eurozone crisis could place Unilever at a liquidity risk in future.

Strengths Focus on innovation and new product launches Strong brand portfolio sustains Unilevers market leadership Strong leadership and employee motivation is delivering desired performance Weaknesses Stagnating revenue growth Increasing finance costs and tax charges Opportunities Focus on developing and emerging economies Acquisitions to bolster product portfolio Opportunities in the health and wellness Space Threats Exposure to the impact of Euro zone crisis Impact of rising prices

Strengths
Focus on innovation and new product launches Unilever, which has a wide portfolio of products across several consumer markets, has a strong orientation towards innovation that leads to new product development activities. The group runs an open innovation approach that allows it to source the best i deas from across the world and contribute towards more than half the value of its innovation pipeline. This is also underlined by the groups Genesis program, an R&D process that was set up in 2009 to fuel its longer-term pipeline of products by applying breakthrough technology across categories. Some of the breakthrough technologies that came from the Genesis program and were converted to successful product launches in the recent past are PG Tips pyramid-shaped tea bags and Lipton Yellow Label ranges that are capable of preserving the essence of freshly picked tea leaves and Rexona for Women deodorant that is enhanced with the Motionsense technology. In FY2011, the group spent more than E1 billion (approximately $1.4 billion) on various R&D activities. Additionally, Unilevers six strategic R&D laboratories, which employ over 6,000 professionals, primarily focus on delivering ground-breaking technologies. The groups R&D effectiveness is demonstrated in its 20,000 registered patents and patent applications worldwide. On an average, the group files 250350 new patent applications each year. As a result of its robust R&D activities, the group launched 10 new brands in its home care segment in FY2011. Some of these include the Domestos Toilet System in the UK and Sunlight hand dishwash in Indonesia and Vietnam. For the hair care segment, the group launched Dove Damage Therapy, Suave Pro-Styling range, TRESemme for the Brazilian market and also re-launched Clear range of hair care products during the year. Earlier, in FY2010, the group launched Dove Men+Care in the mens personal grooming category in over 30 countries. During FY2010, the group also initiated 100 new brand country launches, twice as many as in FY2009.

Strong orientation towards innovation and R&D activities is enabling the group to launch new products more frequently and also introduce variants of existing products. This, in turn, will help the group stay ahead of its competitors in the various dynamic consumer goods markets. Strong brand portfolio sustains Unilevers market leadership Unilever has an extensive portfolio of strong brands spanning across the categories of home care, personal care, foods and refreshments, being sold in over 190 countries worldwide. 12 of its brands have sales of more than E1 billion (approximately $1.4 billion), and a further eight brands have sales of more than E500 million (approximately $696 million). In total, top 20 brands of the group represent around 70% of sales. Most of these 20 brands are global leaders in their respective segments. In the food segment, Knorr is its biggest brand with a strong presence in over 80 countries. Unilever is the global leader in ice cream industry, and owns brands like Heartbrand and Ben & Jerry's. In addition, the group is the leading player in tea category with Lipton and Brooke Bond brands. Also, the group enjoys global leadership in deodorants through Axe and Lynx brands. It is one of the significant players in personal care products and markets well-known brands like Dove, Sunsilk, Rexona, Lux, Signal, Ponds Lifebuoy, Vaseline, and Close Up. Furthermore, the group is the worlds number two player in laundry household cleaning with brands like Omo, Persil, Surf, Comfort, Cif and Pureit. The brand strength of the group is vindicated from the fact that more than 2 billion consumers worldwide use the group's products on any day. Strong portfolio of well-established brands positioned at variety of price points allows Unilever to compete effectively in its key categories and countries. Strong leadership and employee motivation is delivering desired performance With the aim of doubling its business size and reducing its impact on environment, Unilever fosters leadership and employee engagement by constantly auditing the skills and leadership that will be needed across every cluster and in all its key global functions.To ensure that all its employees have the experience and skill set, irrespective of where they work, the group introduced global standards for graduate recruitment. In 2009, Unilever launched the talent and organization readiness program that focused on various aspects of talent development, including changing organizational structures, revising the recruitment strategy and approach, reviewing employee retention schemes, improving core processes such as decision-making, focusing on culture and employee engagement, and using development and training programs to build capability levels. The group is also concentrating on expanding its Unilever Leadership Development Program to deliver high quality training to more managers and senior leaders. Unilevers training and leadership development facility in the UK, called Four Acres, is designed to provide high quality training opportunities to its senior leadership. In 2011, the group began building a similar leadership facility in Singaporecalled Four Acres Singaporeto reinforce its presence and support its talent development efforts in the emerging markets. Over the recent past, the group also started focusing mainly on universities, particularly in emerging markets, with its campus recruitment program. In 2011, the group was recognized as the most preferred graduate FMCG employer in 14 countries, which further testified the groups commitment towards its global standards for graduate recruitment. Furthermore, the groups 2011 Global People Pulse Survey also revealed that 86% of its managers are proud to say they worked for Unilever and the overall performance culture index of the group rose by 4%.This further confirms that Unilever is making progress in developing a performance culture.

Weaknesses
Increasing finance costs and tax charges In FY2011, the groups financing costs increased; during the year, the cost of net borrowings was E448 million (approximately $623.8 million), which was E34 million (approximately $47.3 million) higher than the past year. This was due to an increase in the average level of net debt, partly for financing the acquisition of Alberto Culver. During the year, the groups net debt rose to E8,781 million (approximately $12,226.7 million) compared to E6,668 million (approximately $9,284.5 million) in FY2010.

While the cost of financing its debts is on the rise, the groups cash flows have been on the decline, doubling the impact of financing costs. Unilevers net cash flow from operating activities totalled E5,452 million (approximately $7,591.4 million) in FY2011, E5,490 million (approximately $7,644.3 million) in FY2010 and E5,774 million (approximately $8039.7 milli on) in FY2009. Since the groups main source of liquidity continues to be cash generated from operations, this decline in net cash flows could impact its future funding and investing activities, thus facing a potential liquidity risk in future. Furthermore, any further material and sustained shortfall in its cash flow could undermine Unilevers credit rating, impair investor confidence and also restrict the groups ability to raise funds. Stagnating revenue growth Unilever recorded stagnant revenue growth during the previous five years. Except for double-digit revenue growth during FY2010, its revenue growth for most of the years during the period hovered around less than 12%. Subsequently, the groups compounded annual growth rate (CAGR) of revenues, for the FY200611 period, stood at 3.2%. While for the same period, one of the groups key competitors, Colgate-Palmolive, recorded a CAGR of 6.4% for revenues. The lower CAGR reflects poorly on the groups performance as more than half of its revenues are from developing and emerging nations which witnessed robust growth in the same period. With intensifying competition from players like P&G and Colgate-Palmolive in the emerging nations, Unilever faces daunting task of maintaining market share as well as sales and revenue growth comparable to the scale of peers like P&G.

Opportunities
Focus on developing and emerging economies Unilever has been active in the developing and emerging (D&E) economies through its subsidiaries in Asia-Pacific, Africa, the Middle East, and Latin America region. Driven by double-digit growth in markets like India, China, Turkey and South Africa in the D&E geographies, Unilevers business in emerging markets grew by 11.5% in FY2011 and accounted for 54% of the groups turnover during the year. D&E economies have become increasingly predominant for consumer goods companies like Unilever. Several positive factors have contributed to this shift in focus towards developing countries. For instance, growth in population and share of incremental expenditure in D&E economies bodes well for consumer goods companies. According to Unilever, Asia will be the largest market by 2020 with highest consumer expenditure at purchasing power parity rates. The group estimates market development as a major growth driver in these regions. For instance, BRIC region (Brazil, Russia, India, and China) will witness approximately 230% growth in washing machines, 190% in refrigerators, and 130% in ovens by 2020. Correspondingly, washing powders and packaged food products, amongst others, will witness similar robust growth. Unilever is ideally positioned to capture D&E growth with nearly 10% value share in China, 35% in India, 40% in Indonesia, 35% in Brazil, and 40%in Philippines. With over 50 years of presence in countries like Brazil, China, India and Indonesia, Unilever is well positioned to exploit the growing market conditions. Also, the group has been increasingly focusing on Africa since the past few years as the market is characterized with faster population growth and is in early stages of development. In South Africa and Kenya, Unilever enjoys a market share of nearly 50% in most of its products. In several other countries, including Nigeria, the group has a market share of about 2530%.Unilever's revenue from African operations increased by more than half in the previous five years. Therefore, the group, through its strong focus on strengthening its operations in markets with huge growth potential will considerably size up its operations in the coming future. Acquisitions to bolster product portfolio Unilever has made significant acquisitions in the recent past. Recently, in 2011, the group acquired Ingman Ice Cream, a leading European ice cream manufacturer, with which it added several leading brands such as Ingman, Kingis, Jattis, Totally, SuperViva, Ahus Glass and TofuLine to its existing portfolio.The acquisition also added Ingmans production facilities in Sibbo (Finland), Ahus (Sweden),

Mazeikiai (Lithuania) and Gomel (Belarus) to Unilevers ice cream manufacturing business. In the same year, the group strengthened its market position in the Russian personal care market by acquiring an 82% stake in Concern Kalina, a Russia-based leading beauty company. Previously, in 2010, the group acquired Sara Lees personal care and European laundry business and US-based Alberto Culver Company. Sara Lees Radox , Duschdas and Brylcreem brands complemented Unilevers Dove, Axe and Rexona at slightly lower price points. Besides, these brands strengthened Unilevers European business in key markets such as UK, Netherlands, Germany, France, Spain, Italy and Denmark; where Unilever lagged behind competitors. In addition, there is significant potential to build these brands in developing and emerging markets, which already generate approximately 15% of their annual sales. The acquisition of Alberto Culver added brands like TRESemme, Nexxus, Motions, St. Ives and Simple to Unilevers existing portfolio of brands. The acquisition also enhanced the groups position as the worlds leading group in hair conditioning, the second largest i n shampoo and the third largest in styling. Besides, it enhanced its hair care presence in the US, Canada, the UK, Mexico and Australasia, all of which will be significant hair care markets in next few years. In the past, Unilever acquired ice cream business of EVGA in 2010 and premium hair-care company TIGI in 2009. These acquisitions improved the groups product m ix towards higher growth areas. Acquisitions such as these will strengthen Unilevers presence across various categories and, in turn, enhance its top line and bottom line growth. Opportunities in the health and wellness space Growing concerns over lifestyle-related health issues like obesity, diabetes, hypertension and chronic heart disease are encouraging consumers to make a shift in their food preferences. In the recent past, consumers have consciously made a preference shift towards healthy, fat-free and no-sugar options in processed foods. The latest Datamonitor consumer survey (conducted in 2011) revealed that nearly 47% of consumers globally, highly prefer food and beverage products with low or reduced salt/ sodium. The survey also showed that a significant 52.6% of the consumers prefer food and drinks that have reduced fats; while about 53.6% consumers highly prefer foods with low or no-added sugar. These statistics indicate the growing preference for foods with reduced amounts of harmful ingredients. Several food and beverage companies across the world are responding to this trend through new product launches that have the same taste but reduced levels of salts/ sugars. Unilever, for instance, sells a range of healthy and nutritious food and beverage products such as Lipton Linea tea, Rama Classic margarine spreads with reduced fats and Hellmans Light m ayonnaise with only 3% fat. The group also states that developing a growing range of low fat, low sugar, low calorie alternatives, plus more 'active health' products such as pro activ is one of its key focuses for the future. As part of the same, Unilevers range of more than 30,000 products has been assessed against stringent nutritional criteria, which led to forming the groups Nutrition Enhancement Program. Between 2005 and 2008, Unilevers Nutrition Enhancement Program resulted in the removal of more than 37,000 tonnes of sugars, 30,000 tonnes of trans-fat, 18,000 tonnes of saturated fat and 3,500 tonnes of sodium from across its global portfolio. Furthermore, the group has reduced up to 25% salt content across its food products portfolio, while retaining the desired taste preferences of consumers. In future, Unilever has plans to continue to target further 1520% in gradual salt reductions between 2015 and 2020 depending on the country. By responding to the dynamically changing preferences of its consumers, Unilever is well positioned to capitalize on the various opportunities created by the health and nutrition foods market in future.

Threats
Exposure to the impact of Euro zone crisis The on-going sovereign debt crisis in Europe is impacting the financial health of several industries not just in the region but also across the world. The situation has created a sudden credit crunch, hampering the funding of business activities and is also leading to a rise in the value of Euro.

Uncertainty, lack of confidence and any further deterioration in the situation could lead to lower growth and even recession in Europe and elsewhere. Unilever, which has its principal operations concentrated in Europe, is highly prone to risks arising out of the situation. The groups European supply chain coul d face economic and operational challenges and its customers and suppliers may be adversely affected, leading to heightened counterparty credit risk. Furthermore, the groups several investments in the European Union countries could be impaired and may be subject to exchange controls and translation risks going forward. During FY2011, the groups cash flows have shown a decline, whil e its financing costs have been increasing considerably over the past three years. Therefore, any further contraction in the availability of credit from financial institutions could deeply impact Unilevers liquidity risk. Impact of rising prices Global food commodity prices have risen sharply in 2011, causing prices of processed foods to rise accordingly during the year. According to the Food and Agriculture Organisation (FAO) of the United Nations, prices of staples like cereals have increased by 35% over 2010, while the overall food price index of FAO increased by 23% over 201011. Furthermore, the UN expects these price rises to continue into the next decade till 2020 as factors such as higher energy and fertilizer costs are likely to affect farmers and thus food prices. A direct impact of staple food prices increase was felt by the processed food industry in several countries during the past year, leading to either an increase in prices of processed foods or declining profit margins of food manufacturers. Any increase in the food prices will affect Unilevers cost of raw materials and needs to be offset by either price increases or by driving volume sales. Since increasing volume sales is difficult to achieve in mature markets like the North America or Western Europe, any impact of global food prices will have to be offset through additional investments by the group on advertising or promotions to drive more volume sales.