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What better time to start our hunt for our next Qualiport share than on a day when the Footsie drops over 100 points? As net purchasers of shares, we actually want the stock market to go down in the short term so we can buy our chosen companies just that little bit cheaper. Over time, as our (hopefully) great companies' earnings go marching upwards, the share price will ultimately reflect their great growth and profitability. Today begins our series on branded consumer goods companies, and the three we've chosen are Cadbury Schweppes, Reckitt & Coleman, and Unilever. Here goes with number one...
The Unilever Group was established in 1930 when the Margarine Union and Lever Brothers companies decided to merge their interests. As measured by market capitalisation, Unilever is the third biggest company listed on the London Stock Exchange, valued just short of £50 billion. It has two parent companies, Unilever N.V. and Unilever PLC, although for all intents and purposes they operate as a single entity. The company's shares are listed both as pence in London and as in florins in Holland. They are also traded on the New York Stock exchange. From March 1982 to date, the UK shares have gone from an equivalent of 30.875p to about 680p. That works out at a compounded annual growth rate (CAGR) of an amazing 21.3% before dividends.
The Group has joint top men -- Niall FitzGerald is Chairman of Unilever PLC, and Morris Tabaksblat is Chairman of Unilever N.V. Both are long-time Unilever men, FitzGerald (aged 52) having joined the company in 1967, and Tabaksblat (aged 60) having started in 1964. Of the other five members of the top Unilever Executive Committee, the latest starter began at Unilever in 1970. It is obviously a company that promotes from within!
Unilever is a truly global company, employing nearly 270,000 people in 88 countries. In their annual report, they state their corporate purpose as "to meet the everyday needs of people everywhere…with branded products and services which raise the quality of life." They split themselves into two main product areas, Foods and Home & Personal Care, which are subdivided into 12 Business Groups essentially based on geographical markets.
Foods
This product area is split into various sub-categories, which are highlighted.
Oil and dairy based foods includes products such as margarine, butter, olive oil, cheese and bakery. Brands are the name of the game for Unilever, so we'll run through a few that may be familiar. Blue Band, Rama, Brummel & Brown and Bertolli. Ice cream and beverages include Walls, Popsicle, Brooke Bond, PG and Lipton teas. Culinary and frozen foods includes Ragu, Five Brothers, Birds Eye, Oxo, Coleman's and Boursin.
1997 £m 1996 £m
Turnover 14,838 16,739
Operating Profit 1,314 1,331
Operating Margin 8.9% 8.0%
Home & Personal Care
Similar to Foods, this area is split into various sub-categories.
Home care & professional cleaning includes products for the laundry, household cleaning and dishwashing. In household cleaning, popular brands include Persil, Omo, Ala, Domestos, and Jif. Professional cleaning goes under the auspices of the DiverseyLever business, which operates in the institutional and industrial markets. The unimaginatively named company came about through the merger of Diversey and Lever Industrial International and is established as one of the leading companies of its type in the world.
Personal care includes personal wash, skin care, hair care, oral care, deodorants and the prestige businesses of Calvin Klein Cosmetics and Elizabeth Arden. Personal wash brands include Helene Curtis, Lux soap (over 3.5 billion bars sold worldwide in 1997) and Dove. Skin care brands include Pond's and Vaseline Intensive Care. Hair care has the Helene Curtis brands of Salon Selectives and Finesse. Also included in this area are Sunsilk and Timotei. In oral care, Mentadent has a strong position in North America, and other brands include Pepsodent and Close-Up. Finally, deodorants include the brands of Lynx, Degree, Suave and Rexona.
1997 £m 1996 £m
Turnover 12,933 13,205
Operating Profit 1,395 1,325
Operating Margin 10.8% 10.0%
These two operational areas provide the Unilever Group with virtually all its turnover and profits. Foods has the greater sales of the two, but Home & Personal Care makes slightly bigger operating profits. The other tiny (relatively) operational area is called Plantations, Plant Science & Trading Operations. This business provides Unilever with a profitable agribusiness and skills base and focuses on the development and sourcing of raw materials for its food businesses.
Company Organisation
It is slightly difficult to get your head around how the sprawling group is actually structured. Although it has the main product areas of Foods and Home & Personal Care, for reporting purposes the company is divided into 12 largely Regional Business Groups. For example, there are the North East Asia and Central & Eastern European Business Groups, and each of them will be responsible for selling both Foods and Home & Personal Care Products in their respective markets.
Just to confuse matters, the regional operations of Europe and North America are considered too large to be managed as a single group, and so they are sub-divided into 3 European Business Groups and 2 North American Business Groups. Finally, DiverseyLever is organised globally.
When it comes to having a closer look at the numbers, there are therefore at least two ways of looking at the company's margins and growth potential. Firstly, by product category, and secondly, by Business Group. Unilever themselves are putting particular emphasis on growth in the developing and emerging markets of the world. They say these account for nearly 90% of the world's population, and they are targeting in particular five priority regions: Central and Eastern Europe; China; India; South East Asia; South Latin America. By comparison, the company is concentrating on margin improvement in the much more mature European and North American markets. The enhanced cash flow they hope to produce will be siphoned into the growth regions. Whilst Unilever can only realistically hope to gain market share in the developed economies, they hope to achieve genuine growth and market leadership in the emerging world.
Next Step & Portfolio Update
On Friday we'll continue our look at Unilever by getting a bit closer to the key numbers. Remember, among other things, that we are trying to establish whether they are a well managed company.
On a big down day for the market, the Qualiport was remarkably resilient, and the share prices of all three of our existing companies actually rose on the day. That was in complete contrast to yesterday where we lost 2.5% as Rentokil Initial gave back much of Friday's gains and Marks & Spencer went ex-dividend. Who'd be a day trader? Don't forget to check out the updated numbers.
If you have any comments, don't hesitate to direct them at the Qualiport message board.
Bruce Jackson (TMF Googly)
Qualiport Numbers
Today's Numbers Date 27/05/98
Change Bid
pence £
RTO 0.02 4.14
EMAP 0.05 12.65
MKS 0.01 5.64
Rec'd # Stock Buy Now % Change £ Change
19/12/97 1565 Rentokil 2.55 4.14 62.4% 1.59
17/04/98 337 EMAP 11.85 12.65 6.8% 0.80
11/05/98 722 M & S 5.535 5.64 1.9% 0.105
19/12/97 1565 Rentokil 4,040.63 6,479.10 60.3% 2,438.47
17/04/98 337 EMAP 4,043.37 4,263.05 5.4% 219.68
11/05/98 722 M & S 4,052.24 4,072.08 0.5% 19.84
Cash 33.96
Total 14,848.19
Day Month Year History
Qualiport 0.4% 4.7% 52.6% 56.0%
FTSE 100 -1.7% -1.0% 14.3% 16.9%
FTSE All Share -1.4% 0.4% 16.1% 18.6%