DEPARTMENT OF BUSINESS STUDIES AND ECONOMICS
CORPORATE GOVERNANCE FOR SUSTAINABLE BUSINESS FEA003 21114 VT2022
TOPIC – ANALYSIS OF UNILEVER PLC AND ASSOCAITED BRITISH FOODS PLC
20TH FEBRUARY 2021
AUTHOR - JEFFERY KWABENA AGYAPONG
Associated British Foods plc (ABF) is a diverse worldwide food, ingredients, and retail firm with
£15.6 billion in revenues, 137,000 workers, and activities in 50 countries spanning Europe,
Southern Africa, the Americas, Asia, and Australia. It aspires to attain strong, long-term
leadership positions in markets with the potential for lucrative development, as well as to provide
high-quality goods and services that are essential to people's lives. Sugar, Agriculture, Retail,
Grocery, and Ingredients are the group's five business segments. On the other hand, Unilever
PLC is a global consumer products firm with operations in Asia, Africa, Europe, and the
Americas. Under the brand names Axe, Brylcreem, Dove, Fissan, Lifebuoy, Lux, Pond's, Radox,
Rexona, Signal & Close, Simple, St Ives, Sunsilk, TRESemmé, Vaseline, and VO5, it sells skin
and hair care products, deodorants, and oral care products. This paper makes a SWOT analysis
from an investor point of view in terms of its finances, business sustainability and corporate
governance
STRENGHT
Product portfolio is robust and diversified Unilever is well-known for its broad
product line. Unilever operates primarily in three industries: food and beverages, beauty
and health care, and home care. When we examine the percentages of each division in
terms of revenue, we discover the following:
Division
Turnover € billion for the year 2020
Percentage of Total
Turnover
Food and Refreshments
19.1
38%
Beauty and Personal Care
21.1
41%
Home care
10.5
21%
Total
50.7
100%
From the table above each of the three divisions contribute significantly to overall
revenue. This is an unquestionably strength from an investor point. There may be
instances when one division performs poorly, but the other two compensate. ABF also
have this strength, Grocery, sugar, agricultural, ingredients, and retail are the five
categories in which ABF works.
Geographic diversification Unilever brands are available in over 190 countries. It has a
worldwide presence. The company is insulated against economic downturns or other reasons of
poor performance. A poor performance in one location might be offset by a strong performance
in another. Below is the turnover from all regions
Geographic Region
Turnover € billion for the year 2020
Percentage of Total Turnover
Europe
11.2
22%
North America
10.1
20%
Asia/AMET Africa, Middle East, Turkey, RUB
(Russia, Ukraine, Belarus)
23.4
46%
Latin America
6
12%
ABF also have this strength.
Sustainability leader Unilever's vision is to “be the global leader in sustainable business. We
will demonstrate how our purpose-led, future-fit business model drives superior performance,
consistently delivering financial results in the top third of our industry”. Unilever places a high
value on conducting business in a sustainable manner. Unilever is working to achieve the
following, Zero emissions in operations by 2030, Replace fossil-fuel derived carbon with
renewable or recycled carbon in all cleaning and laundry, Help protect and regenerate 1.5 million
hectares of land, forests and oceans by 2030, 100% of ingredients being biodegradable by 2030,
50% virgin plastic reduction by 2025, including an absolute reduction of 100,000 tonnes,25%
recycled plastic by 2025, 70% of portfolio to meet WHO-aligned nutritional standards by 2022,
85% of Foods portfolio to help consumers reduce their salt intake to no more than 5g per day by
2022, Spend €2 billion annually with diverse businesses worldwide by 2025, Help 5 million
small and medium-sized enterprises grow their business by 2025 among others Unilever's market
leading position in terms of sustainability is a significant asset as society increasingly focuses on
sustainable solutions and consumers want environmentally friendly goods. AFB on the other
hand has a strong business image in this regard. ABF is the world's second biggest sugar
processing company, with operations in Europe, Africa, and China. ABF also engage in activities
such as: being the first to establish a carbon footprint model. Investing £25m invested in
environmental risk management, 84% of waste generated was sent for recycling, recovery or
other beneficial use, 25% of total water abstracted was reused before being returned to the
environment, 55% of the energy used came from renewables and £46m invested in safety risk
management. This makes both companies industry leaders in terms of sustainability.
Marketing Capabilities Unilever was the second-largest advertiser in the world based on media
spend. They created an increasing amount of tailored digital content to connect with consumers
and make it easy to choose a Unilever brand. Because competition is fierce, a great marketing
approach may help businesses win over customers.
Earnings per share Currency had a negative effect of 6.5 percent on underlying profits per
share, which fell to €2.48. Underlying profits per share climbed by 4.1 percent on a constant
basis. The rise was primarily driven by improved operational performance, decreased tax and
financing expenses, and an increase in profit attributable to minority interests as a result of the
Horlicks purchase in India. ABF's adjusted profits per share fell by 41%.
Robust finances Unilever 2020 profitability was healthy, despite the additional Covid-19 costs.
Underlying operating profit of €9.4 billion declined by 5.8% but rose by 0.7% at constant
exchange rates. Gross margin decreased by 50 basis points, resulting in a 60 basis point drop in
underlying operating margin. Meanwhile, their emphasis on cash protection and efficient
operations resulted in €7.7 billion in free cash flow.. This increase of €1.5 billion was driven by
favorable movements in working capital, as they increased their focus on payments from
customers (receivables) and rephased capital expenditure in light of Covid-19.They grew
underlying sales by 1.9% in 2020, with volumes growing 1.6% and 0.3% from price. They paid
Dividends amounting to €4.1bn 2020: as compared to 4.3 in 2019 in spite of covid €4.2bn. On
the other hand ABF showed weakness in this regards, Revenue for the group was £13.9bn, 12%
lower than previous year. Adjusted operating profit in 2020 was £1,024m was lower than the
£1,421m reported last year. They estimated that Primark lost £2bn of sales and some £650m of
profit as a result of COVID-19. ABF elected not to propose a final dividend for the year
WEAKNESS
The use of plastic Unilever, like many other companies in the consumer products business,
makes extensive use of plastic in its packaging. Plastic pollution is wreaking havoc on the
ecosystem, particularly the seas. Consumers are becoming more concerned about the negative
environmental effect of plastic. Furthermore, law is putting a damper on the usage of plastic.
Unilever seeks to reduce its environmental effect by eliminating plastic packaging and utilizing
more recyclable plastic
Vulnerable to imitations Unilever employs tens of thousands of workers in research and
development. The essence of consumer products, on the other hand, is that they are relatively
simple to replicate. Enterprises may invest a lot of money on R&D, create unique goods, and
then (illegally) be copied by other firms. Counterfeit consumer items are often offered under the
same brand name without permission, albeit being of lower quality. They spent €800 million on
R&D in 2020
There is no direct sales route to customers. As a sales channel, Unilever relies nearly
exclusively on retailers. The corporation does not offer its goods directly to customers. Instead,
a'middle man' is required. Depending on the size of a shop in a certain geographic region, this
might give these businesses a position of power. They have 56,000 direct suppliers in 150
countries
Dependency on currency exchange Unilever is a multinational corporation. The relative
strength of the local currency influences the results in various geographic locations. A currency
depreciation may have a detrimental influence on financial outcomes. For example, Unilever's
2020 revenue was reduced by 5.4 percent due to currency-related issues. This risk is inherent in
being an international firm; Unilever's rivals must also deal with it. On the other hand, it may
have a favorable impact.
OPPORTUNITIES
Emerging markets In 2019, developing and emerging markets accounted for more than half of
Unilever's revenue.. While conducting business in developing economies comes with certain
(political and economic) risks, it is largely a growth opportunity. Emerging market performance
in 2020 were poor, owing to stringent lockdowns imposed during Covid-19. Emerging
economies have a lot of development potential when the global economy normalizes and the
pandemic is under control. Emerging markets grew 1.2%.Developed markets grew 2.9% This is
also an opportunity for ABF.
Digital sales channels Unilever has the chance to increase its digital distribution channels in
order to become less reliant on physical retail channels. As the global economy becomes more
digital, this is becoming more vital. Ecommerce is becoming more important to emerging market
retailers.. Unilever's Ecommerce sales increased by 61% in 2020 compared to the previous year.
This is also a result of the pandemic, since people are purchasing more things online.. In 2020,
online accounted for 9% of Unilever's revenues, and the business should see opportunity.
Acquisitions and Disposals Mergers and acquisitions are common in the consumer products
business. Acquisitions and dispositions, particularly for major conglomerates such as Unilever,
provide an excellent chance to continue streamlining the product range. Unilever purchased
numerous new brands in 2020. examples: Horlicks Indian business and SmartyPants Vitamins
THREAT
Fierce competition Unilever is involved in a number of ongoing investigations and cases by
national competition authorities, including those within Italy, Greece, South Africa and Turkey.
Both Unilever and ABF face competition from companies like Nestle, Sudzucker, Tesco, Dean
Foods, Greencore Group, Kellogg, Kerry Group, Danisco, Northern Foods, Tate & Lyle, and
Fonterra
Covid-19 is another threat to Unilever and ABF. The coronavirus had a significant effect on
Unilever in 2020, and it is still unknown how quickly things will return to normal
Consumer tastes are changing. Unilever should be on the watch for changes in customer
preferences at all times. In today's social and corporate context, customers' wants and demands
are always changing. This might pose a threat to Unilever since brands that are today meeting the
demands of consumers may become much less popular in the future. Furthermore, items that are
now unpopular with consumers may soar to the top of the consumer wish list in the future.
Unilever views this as both a threat and an opportunity. Unilever uses 36 People Data Centres
across the globe to monitor shifting customer mood, integrating social listening with
conventional consumer research.
Uncertainty in politics Because Unilever has a worldwide footprint, political instability will
always have an impact on business. Political instability is frequent in developing and emerging
economies. Politics may also have an influence on a country's or region's economic prospects.
Unilever's operations might be made simpler or more difficult as a result of political
developments. In some ways, Unilever's varied sales distribution mitigates this threat.
CORPORATE GOVERNANCE
Factors
Diversity of
Corporate Leadership
Measure
Companies are graded based
on things like board diversity
and senior management
diversity. Companies who do
well in this area are often
more profitable than their
competitors.
Labor
The grade a corporation
receives on this problem is
determined by its use of
forced labor and the working
conditions for outsourced
workers.
Corporate
The accounting processes,
Governance intergrity Executive remuneration,
board organization, and
ownership structure of the
corporation all contribute to
this grade.
Employee
The frequency and
Ownership,
probability of labor conflicts,
Satisfaction, Benefits as well as strategies to
& Remuneration
maintain and retain talent such as remuneration, family
leave, employee health care,
and other perks - determine a
company's score on this
subject. Employers ranked as
excellent places to work
frequently outperform their
rivals in terms of stock
returns.
Unilever
50/50 gender balance
in management,
Board members are
selected across
different countries
ABF
Gender balance in
workforce – all
employees 2020
53%females,
47%males
93% of its leaders are
recruited locally
ABF performed
poorly as compared
to Unilever
Top performer in this
field
Top performer in this
field as compared to
competitors
Uniliever is a top
ABF is an average
performer in this field performer