COMPANY OVERVIEW
• Ticker: UL (NYSE)
• Current Price: $55.80
• Market Cap: $146.90 billion
• Employees: 150,000 people COMPANY OVERVIEW
•190 countries
•400 brands
•2.5 billion people daily COMPANY HISTORY TIMELINES
1884: William 1930: Margarine Lever and Lever & Unie & Lever 1971: Unilever acquires Lipton Co launch the Brothers unite International first branded soap to establish Unilever
1927: The formation 1955: Unilever launches 1983: Unilever launches of Margarine Unie First dove bar Axe body spray TIMELINES
1989: Unilever 2004: Unilever 2013: Unilever re- launches Magnum launches Dove Real enters Myanmar in Germany Beauty campaign
2008: Unilever commits to 2020: Unilever 1997: Unilever acquired sustainable palm oil completes Unification Kibon process. RECENT NEWS
•September 1st, Unilever acquires GSK & Liquid IV
•March 9th, Continues Positive Beauty Campaign across the product lines.
•March 15th released plan to remove more than 100,000 tons of plastic entirely by 2025. COVID NEWS
• Donating millions worth of soap and food
•Due to the bankruptcy & closures of niche companies there will be a reduction in competition
•Unilever is past the worst point of the pandemic (Q2). Now facing a strong recovery.
“Crisis drives demand back to big brands” -CEO Alan Jope Company Breakdown REVENUE BREAKDOWN REVENUE BY GEOGRAPHIC REGION
Europe 22%
Asia, Africa, Middle 46% East, Turkey, Russia, Latin America 12% Ukraine, and Belarus
20%
North America BEAUTY AND PERSONAL CARE SEGMENT
Consists of skin cleansing, hair care, skin care and deodorant categories
Highest margin segment due to relative switching costs
Insulation from private label competition
High Single-digit organic growth BEAUTIFUL SCALE FOODS AND REFRESHMENTS SEGMENT
Primarily consists of ice cream, seasonings, dressings, and tea categories
Sell their famous brands directly to businesses with Unilever Food Solutions, creating entrenched relationships
Low single-digit organic growth as management has shifted from decaying global brands to fast-growing local brands DIVERSIFICATION THROUGH LOCAL BRANDS HOME CARE
Primarily sales of fabric solutions (detergents), as well as other home and hygiene brands
They are the leading brands in international regions, with 80% of this segment’s sales coming from emerging markets
This segment is contributing mid-single digit organic growth DOMINANCE IN EMERGING MARKETS OPERATING MARGIN BY SEGMENT
25% 23% 21% 20% 19% 17% 17% 15% 15% 13% 11% 9% 7% 5% 2015 2016 2017 2018 2019 2020 Home Care Food and Refreshments Beauty and Prestige MANAGEMENT UNILEVER
EXECUTIVES Chief Executive Officer: Alan Jope
Annual Bonus is Based on Unilever’s: Chief Financial Officer: Chief Operating Officer: Underlying Operating Margin Greame Pikethly Nitin Paranjpe Expansion
Free Cash Flow Growth
Underlying Sales Growth President, Foods President, Beauty President, and Refreshment: and Personal Care: Home Care: Hanneke Faber Sunny Jain Peter Ter Kulve UNIQUE LEADERSHIP
• Former CEO of Prestige and Beauty
• Took over as CEO of the company in 2019
• Focused on internal cash flow generation
• History of executing on growth initiatives
CEO, Alan Jope POWER SHIFT TO RETAILERS
Penetration of Private Label Brands in the U.S. CHANGING THE PORTFOLIO PRIORITY FOCUS AREAS TRANSITION TO GROWING BRANDS PURPOSEFUL BRANDS SHIFT IN REVENUE MIX
Segments as a % of Revenue 60%
50% 41% 40% 38% 30% 21% 20%
10%
0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Home Care Food and Refreshments Beauty and Prestige RETURNING CASH FLOW TO SHAREHOLDERS
Cash Used For Dividends 5,000 4,500 Increased their dividend by 4.5% on average 4,000 3,500 3,000 Current dividend yield is 3.4% 2,500
Millions ($) Millions 2,000 1,500 Bought back nearly 9.6% of total shares 1,000 outstanding in last 10 years (almost 1% every year) 500 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 MANAGEMENT’S OUTLOOK THROUGH 2025 Growth Opportunities ACQUISITIONS • Management has shown a willingness to pursue acquisitions.
• Scale allows them to acquire brands to expand shelf space and put innovative products in consumers hands.
• They have acquired 32 companies since 2015, with a focus on growth and innovation. EMERGING MARKETS • Emerging Markets account for the biggest portion of revenue $25b
• Growth is faster in these economies that are Developed modernizing Emerging
• Unilever has positioned itself well to take advantage of this POPULATION GROWTH GROWTH OF THE MIDDLE CLASS FIRST-MOVER ADVANTAGE ENHANCING THE CUSTOMER EXPERIENCE
• Brands with a purpose growing 2x faster than other brands. • Business to Consumer = Margin Expansion. • Acquiring brands to make this happen. UNDERLYING SALES GROWTH
UVG = Underlying volume growth; more products sold
UPG = Underlying price growth; products sold at a higher price
UPG + UVG = USG (Underlying Sales Growth) CONSISTENT ORGANIC GROWTH Risk Factors Company Risks
• Commoditization of Brands. • The consumer goods industry has notoriously been sensitive to macroeconomic issues. • Few organic growth levers. Investment(Stock)-Specific Risks
• This is a large, and mature international company. • Large Dividend Payout • Management not executing on said growth opportunities Macroeconomic Risks
• Energy Costs
• Input costs increases
• Foreign Exchange Economic Moat ECONOMIES OF SCALE/COST ADVANTAGES
▪ Brands available in 190 countries Global Business ▪ 400+ Different brands ▪ 2.5 Billion people use their products everyday
▪ 56,000 direct supplier partners in 150 countries Supply Chain ▪ Spread manufacturing costs across wide array of products ▪ Entrenched relationship with retailers.
▪ Over €7 Billion spent on Marketing in 2020 Marketing & R&D ▪ €800 Million spent on R&D ▪ Scale facilitates this spend as well as slotting fees on new products INTANGIBLE ASSETS ▪ 25 Million retail outlets ▪ Large brick-and-mortar, online-only, family-owned shops, Retail Relationship and value retailers ▪ Retailers depend on sales volume; Unilever provides Entrenchment products that sell effectively
▪ Trusted brands fare well in emerging markets ▪ Diversified portfolio allows for opportunity Brands ▪ Target different demographics
▪ Data from across the globe helps them create target demographics for brands and give them a purpose Technology, Data ▪ ECommerce accounted for 9% of sales in 2020 and is rapidly growing Competitor Analysis Food & Beverage Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
GIS 35% 18% 13% 11%
K 34% 13% 9% 11%
KHC 35% 21% 1% 0%
MDLZ 39% 16% 13% 8%
PEP 55% 14% 10% 13% Food & Beverage Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
GIS 35% 18% 13% 11%
K 34% 13% 9% 11%
KHC 35% 21% 1% 0%
MDLZ 39% 16% 13% 8%
PEP 55% 14% 10% 13% Food & Beverage Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
GIS 35% 18% 13% 11%
K 34% 13% 9% 11%
KHC 35% 21% 1% 0%
MDLZ 39% 16% 13% 8%
PEP 55% 14% 10% 13% Food & Beverage Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
GIS 35% 18% 13% 11%
K 34% 13% 9% 11%
KHC 35% 21% 1% 0%
MDLZ 39% 16% 13% 8%
PEP 55% 14% 10% 13% Food & Beverage Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
GIS 35% 18% 13% 11%
K 34% 13% 9% 11%
KHC 35% 21% 1% 0%
MDLZ 39% 16% 13% 8%
PEP 55% 14% 10% 13% Beauty Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
EL 75% 15% 7% 9%
ELF ELF 65% 4% 2% 2%
LRLCF 73% 18% 13% 12% Beauty Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
EL 75% 15% 7% 9%
ELF ELF 65% 4% 2% 2%
LRLCF 73% 18% 13% 12% Beauty Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
EL 75% 15% 7% 9%
ELF ELF 65% 4% 2% 2%
LRLCF 73% 18% 13% 12% Beauty Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
EL 75% 15% 7% 9%
ELF ELF 65% 4% 2% 2%
LRLCF 73% 18% 13% 12% Beauty Companies
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
EL 75% 15% 7% 9%
ELF ELF 65% 4% 2% 2%
LRLCF 73% 18% 13% 12% PERSONAL/HOMECARE
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
BDRFY 58% 13% 8% 9%
CL 61% 24% 16% 32%
KMB 36% 17% 12% 27%
PG 51% 24% 19% 17%
RBGLY 60% 22% 8% 5% PERSONAL/HOMECARE
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
BDRFY 58% 13% 8% 9%
CL 61% 24% 16% 32%
KMB 36% 17% 12% 27%
PG 51% 24% 19% 17%
RBGLY 60% 22% 8% 5% PERSONAL/HOMECARE
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
BDRFY 58% 13% 8% 9%
CL 61% 24% 16% 32%
KMB 36% 17% 12% 27%
PG 51% 24% 19% 17%
RBGLY 60% 22% 8% 5% PERSONAL/HOMECARE
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
BDRFY 58% 13% 8% 9%
CL 61% 24% 16% 32%
KMB 36% 17% 12% 27%
PG 51% 24% 19% 17%
RBGLY 60% 22% 8% 5% PERSONAL/HOMECARE
Gross Profit Operating Margin Profit Return on Invested Company Ticker Margin (TTM) Margin Capital
UL 43% 18% 11% 16%
BDRFY 58% 13% 8% 9%
CL 61% 24% 16% 32%
KMB 36% 17% 12% 27%
PG 51% 24% 19% 17%
RBGLY 60% 22% 8% 5% Interpretation of Financial Statements REVENUE $80,000.00
$70,000.00
$60,000.00
$50,000.00
$40,000.00
Millions ($) Millions $30,000.00
$20,000.00
$10,000.00
$- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 CAGR 10-year 5-year 1-year Revenue -0.17% -0.16% -0.32% Sales Per Share 0.84% 1.52% -0.34% $8,000.00 Net Income
$7,000.00
$6,000.00
$5,000.00
$4,000.00 Millions ($) Millions $3,000.00
$2,000.00
$1,000.00
$- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 CAGR 10-year 5-year 1-year Net Income 2.07% 5.18% 9.07% Earning Per Share 3.11% 6.95% -9.05% Free Cash Flow $10,000.00 $9,000.00 $8,000.00 $7,000.00 $6,000.00 $5,000.00
Millions ($) Millions $4,000.00 $3,000.00 $2,000.00 $1,000.00 $- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 CAGR 10-year 5-year 1-year Free Cash Flow 4.17% 9.45% 19.96% FCF Per Share 5.22% 11.29% 19.94% SHARES OUTSTANDING 2,950.00
2,900.00
2,850.00
2,800.00
2,750.00
2,700.00 Millions ($) Millions 2,650.00
2,600.00
2,550.00
2,500.00
2,450.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 LT DEBT 30,000
25,000
20,000
15,000
10,000
5,000
0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 RETURN ON EQUITY 35%
30%
25%
20%
15%
10%
5%
0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Return on Equity Return on Equity Adjusted to TS and Goodwill Threshold RETURN ON INVESTED CAPITAL 25%
20%
15%
10%
5%
0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 ROIC ROIC adjusted w/ Goodwill Threshold GROSS PROFIT MARGIN 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 GPM Threshold OPERATING MARGIN 30%
25%
20%
15%
10%
5%
0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Operating Margin Threshold NET PROFIT MARGIN 14%
12%
10%
8%
6%
4%
2%
0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 NPM Threshold FREE CASH FLOW MARGIN 18%
16%
14%
12%
10%
8%
6%
4%
2%
0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 FCF % of Sales Threshold SGA TO GP 90%
80%
70%
60%
50%
40%
30%
20%
10%
0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 SGA to GP Threshold DDA to GP 12%
10%
8%
6%
4%
2%
0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 DDA to GP Threshold INTEREST EXP. TO OPERATING INCOME 16%
14%
12%
10%
8%
6%
4%
2%
0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Interest Expense as a % of Operating Income Threshold OBLIGATION RATIO
+ Total Debt + 30,409 + Leases *7 + 0 + Pension Shortfall + 0 + Preferred Stock + 0 - Cash Assets - 7,661
Sum / Net Income = ___ 22,748 / 6,790 = 3.35 DEBT MATURITIES SCHEDULE Value Bands Price/Sales
3.0
2.8
2.6
2.4
2.2
2.0
1.8
2016 2017 2018 2019 2020 2021 Price/Earnings 29 28 27 26 25 24 23 22 21 20
2016 2017 2018 2019 2020 2021 PRICE/EARNIGNS LESS CASH 28
27
26
25
24
23
22
21
20
19
2016 2017 2018 2019 2020 2021 PRICE/BOOK 13.0
12.0
11.0
10.0
9.0
8.0
7.0
6.0
2016 2017 2018 2019 2020 2021 EV/REVENUE 3.4
3.2
3.0
2.8
2.6
2.4
2.2
2.0
1.8
2016 2017 2018 2019 2020 2021 EV/EBITDA
17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0
2016 2017 2018 2019 2020 2021 EV/EBIT
20 19 18 17 16 15 14 13 12 11 10
2016 2017 2018 2019 2020 2021 Intraportfolio Valuation Return on Invested Capital 70%
60%
50%
40%
30%
20%
10%
0% Price/Book 120.00
100.00
80.00
60.00
40.00
20.00
0.00 Price/Earnings Ratio 70
60
50
40
30
20
10
0 LMT ORCL AZO DG QCOM UL HD TSCO UNP FB CNI PAYX GOOGL MSFT BF.B V MA NKE Price/Sales 25
20
15
10
5
0 PRICE TO FREE CASH FLOW
60.00
50.00
40.00
30.00
20.00
10.00
0.00 AZO UL LMT ORCL DG TSCO HD ROST QCOM ULTA UNP PAYX CNI FB GOOGL MSFT BF.B V MA EV TO EBITDA
80
70
60
50
40
30
20
10
0 EV-TO-EBITDA 80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00 Discounted Cash Flow Discounted Cash Flows - FCF
Bear Case Base Case Bull Case FCF/Share $3.72 FCF/Share $3.72 FCF/Share $3.72 Growth Rate 4% Growth Rate 6% Growth Rate 9% Years 10 Years 10 Years 9 Terminal Rate 4 Terminal Rate 4 Terminal Rate 4 Discount Rate 10% Discount Rate 10% Discount Rate 10% Current Price 55.82 Current Price $55.82 Current Price $55.82 Fair Value $43.48 Fair Value $49.63 Fair Value $60.66 Margin of -28.38% Margin of -12.47% Margin of 7.98% Safety Safety Safety Valuation Model Bear Case Base Case Bull Case SENSATIVITY ANALYSIS CONCLUSION AND RECOMMENDATION
Phenomenal business trading at a relative discount
Buy 900 shares or 5% of the portfolio at a limit of $56 per share
We could buy UL at a limit order, or use puts if we try to lower our cost basis and increase cash flow to the portfolio QUESTIONS? APPENDIX Price Price/FCF
Restructuring
November 2020 – Netherlands-based Unilever N.V. and U.K Headquartered Unilever PLC combined into one parent company Unilever PLC with only one class of shares.
Unification had 76% approval from N.V. shareholders and 99% approval from PLC shareholders.
Does not dilute effectiveness of regional managers.
Increases fairness of voting to shareholders.
ROCE 20%
10%
0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -10%
-20%
-30%
-40%
-50%
-60%
-70%
-80% ROCE Threshold
OPERATING MARGIN
Dividend Payout Ratio 80%
70%
60%
50%
40%
30%
20%
10%
0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Dividend Payout Ratio Threshold
Return on Equity 0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00 ROST ULTA CNI GOOGL FB UNP V UL DG PAYX BF.B MSFT TSCO NKE Return on Equity 0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00 ROST ULTA CNI GOOGL FB UNP V UL DG PAYX BF.B MSFT TSCO NKE