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Sources: Bloomberg, Company 10K and Earnings Call, Trefis.com, JP Morgan
ReplyDelete5 operating segments:
Reference items all in Euro $ ( Rev 2013 59 B, OCF 5.8 B, FCF 3.7 B)
% of total rev and % of total OI
Personal care 36%/41%, principal brands in personal care include Dove, Lux, Vaseline, Ax, and Pond's.
Food, savory products, dressing and spreads, 27%/41%, and key brands include Knorr, Hellmann's, Amora
Home care 18%/7%, includes laundry products, its brands include Omo, Surf, Comfort etc,.
Refreshment 19%/11%, popular brands include Magnum, Breyer's, Klondike, Ben&Jerry's and Popsicle.
Operating margins: Foods 22.8%, Personal care 17%, Refreshment 9.1%, Home care 5.9%.
Unilever's rev grew at a CAGR of 4.2%, and its NI declined at a CAGR of -.7% for the past 5 years.
UN's gross margin is 15.1%, slightly higher than the industry average 14.9%, Profit margin is 9.7%, .1% higher than industry average.
UN is trading at a P/E multiple of 16.5x, comparing with industry average 18.9x, P/FCF and P/Sales also suggested that UN is trading at a discount relative to its industry.
Compare with Procter& Gamble, Unilever is more reliant on emerging markets. P&G generates 37% of its total revenues from emerging markets, Unilever gets 56%, and it expects to generate 70% in those markets.
FCF conversion: 6% of Rev and 64% of OCF
Uses of FCF
- Maintenance CapEx, 35% use of FCF,
- Dividend paymanet, 52% use of FCF,
- Acquisition and disposals, 25% source of FCF
Guidance
- Competition is intense especially in the US, Nigeria and India, short term growth rate will decline to 5%-6%.
- Innovation drove the volume and net income, 75% of all innovated products are margin accretive.
- Negative commentary in retails in the UK and the US, further price decline is possible.
Upside
- Higher GDP and population growth in emerging markets will boost aggregate household product demands. Unilever can increase the volume and improve its margins as a result.
-
Downside
- Foreign exchange risks: Emerging markets experienced lower consumer demand and years of high inflation, potential FX-driven price increases will likely hurt sales.
- Unilever's increase prices above CPI from 2011-2013, therefore, the gross margins were higher than before. However, price increases may come at the expense of volume growth.
- Increasing cost to compete: UN needs to raise its promotional efforts to match up with other competitors such as P&G and private label products.
- Market share trends in WE and the US remain challenging: a potential macro recovery might not necessarily boost volumes in developed countries, given the "late-cycle: nature of staples industry.
Sources:
ReplyDelete- 2012 10K
- 2013 full year earnings press release
- Unilever official website
- Seeking alpha
- morningstar.com
Business Overview:
Unilever is a leading manufacturer and marketer of consumer products in the world with significant presence across developed, developing and emerging markets. It is among the world's largest consumer goods companies after Procter & Gamble and Nestle.
It has four business segments: (% of total revenue in FY 2013; % of operating income in FY 2013)
- Personal care segment: 36%;41%
- Foods Segment:27%;41%
- Refreshment segment: 19%; 11%
- Home care segment: 18%; 7%
Revenue by geography: 55% from emerging market and 45% from developed.
Core Businesses:
- Largest segment and profit driver Personal care:
• Strong performance in hair care, skin cleansing and deodorants
• Major brands in this segment are Dove, Lux, Rexona, Sunsilk, Axe and Pond’s
- Second largest segment Foods:
• Categories include savory, dressings & spreads
• Major brands: Knorr, Hellmann’s, Flora, Rama, CalvĂ©, Amora, RagĂș and Bertolli
Customers:
- Multinational retailers, wholesalers, distributors and small independent shops
- Walmart is Unilever’s largest retail customer
Financial Overview:
- FCF: 3.9 b in 2013, slightly lower than 2012 due to a lower inflow of working capital
• FCF as % of Rev: 7.5% in 2013; 9% in 2012;7.2% in 2011; 8.2% in 2010
• FCF as % of OCF: 65% in 2013; 70% in 2012; 64% in 2011; 69% in 2010
• Use of FCF:
o Dividends paid was 80% of FCF in 2013
o Net capital expenditure was 54% of FCF in 2013
o Debt repayment: 32% of FCF in 2013
o No shares repurchase in 2013
o No use in acquisition, instead cash inflow: sale of its Wish-Bone and Western dressings brands to Pinnacle Foods Inc. and completed the sale of its Skippy business in China to Hormel Foods
- Margins: EBITDA Margin 17% VS. P&G 21% Nestle 19%; Operating Margin 15% VS. P&G 18%, Nestle 16%.; Profit Margin 10% VS. P&G 13%, Nestle 11%. All of these around industry avg.
- ROE: 33% VS. P&G 16% ,improving & leading in the industry; ROA: 11%, flat in the past 5 yrs
- D/E: 0.51, remain stable around 50% from 2010 till now
Competitive strength:
- Strong brand recognition and new product innovation which will bring up its gross margin
- Divesting non-core businesses and focusing more on core businesses in emerging markets
What can go wrong?
- Revenue:
• Pricing power low: Although have increases in both volume and price last year. Lots of alternatives in the mkt, if price continues rising, customers may switch to competitors
• Negative returns in spread business, may continue hurt sales in the near future
• Customer spending slowdown in developed markets
• Slowdown in emerging markets due to weak currencies and macroeconomics
- Expenses:
• Fluctuations on the cost of the underlying commodities and materials which cannot be passed through price increasing
• Currency related expenses
- FCF:
• Continuous acquisition for expansion may put pressure on FCF
Unilever Q4 and Full Year Results 2013
ReplyDeleteSeeking Alpha
S&P Capital
Morning Star
CORPORATE OVERVIEW
2 Business Segments (Revenue % Operating Income %) Fiscal year 2013
Home & Personal Care Segment 54.%, 48%
Personal Care 36%, 41%
Home Care 18%, 7%
Foods & Refreshment Segment 46%, 52%
Foods 27%, 41%
Refreshment 19%, 11%
CORE BUSINESS - Personal Care
- The business in emerging markets grew 8.4% driven by underlying volume growth of 5.3%. In developed markets we declined (1.7)%.
- Personal Care segment underlying sales growth 7.3%, price growth 1.2% and Volume growth 6.1%
CUSTOMERS
- Multinational retailers, wholesalers and distributors to small independent shops
- International retailers such as Walmart, Tesco, Carrefour and Metro
- Wholesalers and millions of small independent outlets and kiosks,
FINANCIAL DATA
Free Cash Flow:
- FCF in FY 2013 €3.9 billion decrease 11% from 2012
- FCF/OCF 48% in 2013 there are 3% decrease from 2012
- FCF/Revenue 8% in 2013 there are 1% increase from 2012 Use- of FCF:
- Use of FCF:
1. Pay dividend: FY 2013, €2.9 billion dividend paid.
2. M&A: The company spent €2.9 billion on acquisitions
Profitability
Profit Margin:
- Operating Margin: 15%,
- Net profit Margin: 9.7%,
ROE: 33%; increased 3% from 2012
ROA: 10%. Increased 1% from 2012
USG/UVG & Pricing Power
- Unilever's underlying sales growth was 4.4%, with emerging markets up 8.8%.
- Underlying volume growth was 2.4% and pricing was up by 1.9%.
PRO (What is going right)
- Strong Brand Recognition:
- Divesting Businesses; Increasing Exposure in Emerging Markets:
- Expansion through Acquisitions:
- Innovation product
CON (What may go wrong)
Revenue (Revenue growth is slowing down)
- Sluggish Spreads Business:
- Revenue slowdown in European
- Increasing competition in emerging markets
Expense (Margins are higher than its major competitors)
- The operating expenses are higher its major peers (P&G, Nestle)
- The high volatility in commodity prices affect its COGS
-
Free Cash Flow
- Currency risk remains an issue as Unilever pays out its dividends in Euros.