COVID-19 Impact on Unilever: Investment Appraisal and Risk Analysis

This report analyses the impact of COVID-19 on Unilever's business and recommends profitable investments. It includes quantitative and qualitative investment appraisal methods, risk and return analysis, and potential financial performance impact.

Individual Case Study

Contents
1. EXECUTIVE SUMMARY.........................................................................................................3
2. The motivation for the proposed investment...............................................................................3
3. Product investment appraisal using Both quantitative and qualitative information....................4
4. Discuss the risk and return and its potential impact on its financial performance......................8
REFERENCES................................................................................................................................9

1. EXECUTIVE SUMMARY
The following report is based on the COVID-19 impact on businesses and companies.
This report tells about the impact of COVID-19 on Unilever's business. Unilever's head office is
suited in London, United States and this is a British consumer goods company. The company has
operated its business operations across 190 countries. Unilever plc own around 400 brands across
the world. Unilever was founded in 1929 by the Amalgamation of lever brothers and Margarine
Unie.
The motive of this report is to study the recommended investments which would be
profitable for the company. These analyses also help investors to know whether it is beneficial to
invest in the organization. This report helps in analysing the growth and success of the company
by its proposed investments. The investment appraisal techniques and methods will be adopted
for measuring the future performance and risk of the company (Deliema, Shadel and Pak, 2020).
The needs of the report will be satisfied by the conclusion and recommendation which are
given to the company. The NPV approach plays a very important role in the acceptance of
investment proposals.
The recommendation provided to the company is that it should focus on new technologies and
also acquire new corporations which may take the firm towards its growth. Unilever has to adopt
new technologies and also adopt new marketing techniques.
2. The motivation for the proposed investment
The major challenge faced by the company during the COVID-19 pandemic is a massive
decrease in production and sales due to the lock down. This pandemic decreases the demand and
supply of the company's products which is very critical to improve. This is a major concern for
the company to increase efficiency and productivity levels. Suffering from market lock downs
many businesses have shifted their businesses from offline to online which reduces the long-term
sustainability of their clients. This will damage the economic position of the company in the
competitive market (Ghosh and Dutta, 2021).
To fix the financial position of Unilever a casual driver has been taken that is handed over
to the management to analyse the inefficiency and the risk factor which exists in the market

between its competitors. A positive analysis is necessary to solve the problems regarding risk and
return capabilities and this analysis helps in finding out the strength and weaknesses of the firm.
The company needs a change in motivation level for solving the issues in the capabilities which
is a major step to improve financial position. Unilever could propose a new investment that will
act as a motivational factor.
3. Product investment appraisal using Both quantitative and qualitative
information
A company needs to conduct a analysis before investing, to know whether this investment gives
profit or not in the future. Quantitative and qualitative approaches are used to collect the data.
Quantitative approaches are Payback analysis, net present value and internal rate of return in
other hand Qualitative measure includes PESTEL and SWOT analysis. These methods help in
analysing the overall performance of the company (Jalilian and et.al., 2021).
Quantitative measures are as follows:
• Payback period
Investmen
t Proposal
Description Year 0
(£K)
Year 1
(£K)
Year 2
(£K)
Year 3
(£K)
Year 4
(£K)
Initial Investment Cost (200) (500) (50)
Annual Benefits 150 250 400 600
Net Cash Flow (200) (350) 200 400 600
Cumulative Cash Flow (200) (550) (350) 50 650
Payback period = Number of years + Uncovered Amount / Cash Flow in recovery year
= 2 years + (50 / 350) = 2 + 0.142
= 2.142 years
• Net Present Value
Investmen
t Proposal
Description Year 0
(£K)
Year 1
(£K)
Year 2
(£K)
Year 3
(£K)
Year 4
(£K)

Initial Investment Cost (200) (500) (50)
Annual Benefits 150 250 400 600
Net Cash Flow (200) (350) 200 400 600
Cumulative Cash Flow (200) (550) (350) 50 650
Cost of Capital (CoC) 20.0%
Discount Factor 1.00 0.83 0.69 0.58 0.48
Present Value (PV) (200) (292) 139 231 289
Net Present Value (200) (492) (353) (121) 168
Year 0
(£K)
Year 1
(£K)
Year 2
(£K)
Year 3
(£K)
Year 4
(£K)
Net Present Value (200) (492) (353) (121) 168
 Calculation of Internal Rate of Return
Discounting Factor @8%
Years Cash Flows Discounting Factor @8% PV value of cash inflow
0 -200 1 -200
1 -550 0.926 -509.3
2 -350 0.857 -299.95
3 50 0.794 39.7
4 650 0.735 477.75
5 1450 0.681 987.45
NPV 495.65

Discounting Factor @15%
Years Cash Flows Discounting Factor 15% PV value of cash inflow
0 -200 1 -200
1 -550 0.87 -478.5
2 -350 0.756 -264.6
3 50 0.658 32.9
4 650 0.572 371.8
5 1450 0.497 720.65
NPV 182.25
IRR = Lower rate + Lower Rate NPV/ (Lower Rate NPV – Higher Rate NPV) * Diff. in Rates
= 8% + (495.65 / 495.65 – 182.25) * (15 – 8)
= 8% + (495.65 / 313.4) * 7
= 8% + (1.52) * 7
= 8% + 10.64 %
= 18.64 %
• PESTLE analysis of Unilever:
Political factors: Political factors may impact the business decisions and environment.
Company need to adopt all guidelines of the government and it has to decrease interference of
government activities.
Economical factor: Economical factor which affect the company are conflicts with the
competitors or distributors. Fluctuation in the market condition may affect business operations.
Social Factors: Unilever always focus on developing strong reputation in the market. The
company provide standard of living with their premium products (Jiang, Xia, and Yang, 2019).
Technological factors: Unilever work with the higher level of automation. Company
always ready to adopt new technology for improving digital marketing and selling products.
Legal factors: Company follow all national and international rule and regulations across
the country where it is operational. Company follow Copyrights and product safety laws to
provide safeguard from any legal deficiency.
Environmental Factors: Unilever designed safe product to its consumers which are
reusable and renewable. They prepare product with eco-friendly material.
• SWOT Analysis
STRENGTH: WEAKNESSES:

1.Unilever has a good global presence in
around 190 countries having the benefit of
international brand image.
2.Unilever has been able to set their brand
name in customer's mind which is quite
unforgettable for them, giving the great
strength t the Unilever.
3. Unilever has a wide variety of product range
in accordance to their customer's choices and
preferences.
4.Unilever is quite flexible regarding their
work and also adaptable towards innovative
products and new technologies.
1. Nowadays, it is quite easy to make imitable
products of big companies, Unilever is also
facing the same problem.
2.Unilever has a huge dependence on retailers
due to which consumers or buyers are directly
affected because of the influence of retailers.
3.Unilever deals in a variety of products which
are used in our day to day life which have the
substitutes in the market with low or similar
cost. So, it is very easy for customer to shift
their preference against brands.
OPPORTUNITY:
1.The emerging economies are raising the
living standards of persons which works as a
great opportunity as people are eager to buy or
demand more.
2. Unilever can promote their products easily
through advertising or social media as people
get influence by social media easily which can
be more effective for a company'.
THREAT:
1. There is a lot of competitors in the market
for the similar products with availability of
zero switching cost so, it is very difficult for
Unilever to sustain in the market for a long
time at a same position.
2.People are more aware about their health and
because of that their interests are shifting
towards Ayurvedic products which causes a
threat to the company.

4. Discuss the risk and return and its potential impact on its financial
performance
To measure risk and return of a company, sensitivity analysis plays an important role
which is helpful in evaluating the degree of uncertainty in the results. It will also help in reducing
the financial risk without any financial losses. It helps in measuring productive opportunities and
risk management (Kubińska and et.al.,2018). Sensitivity analysis helps in measuring the impact
of certain activities or actions.
The rate of cost of capital is measured after applying the discounted models is about 8%
which is good for the investment. According to the rate, there is low chances of risk in such
investment. Company could make this investment because of low risk factor. Cost of benefit
analysis refers to the potential returns from the chosen investment. Company will continue with
this investment project which maximise cost of capital of the firm. If the cost of capital is high
than it will also give higher returns. Cost-benefit method is useful in computing actual cost of
future investment projects.
Accosting the above computed net present value, this investment project can provide good
returns to the company of £ 490 considering cost of capital at a rate of 20% as return on
investment. This investment overpowers the company and it will defiantly a good decision for
the company. This project provides good returns for the company. As per the Calculated NPV,
this is a good opportunity for the company which will improve financial position of the company.
This invest should be accepted by the company to increasing their long term growth. This project
increase the interest of the partners and investors (Linh, 2019)(Paserman, 2019).
To calculating the time period of recover the expenditure cost is calculated by the help of
discounted payback period method. The shorter discounted payback period shows that the
investment cost is recovered more easily. The company has to invest around £ 800 on the whole
project and the cash inflow of 5 years are £ 1450. The payback period of the firm is 2.142 years
Which is approximately 2 years and 2 months. This shows firm can recoup the whole invest
amount is just 2 years which is good for the company to invest in such project.
After analysing the financial performance of the company Unilever, it is assumed that the profit
margin of the company in year 2022 is decreased but its equity returns are increased. It is
beneficial for the company to invest in such investment project.

REFERENCES
Books and Journals
Deliema, M., Shadel, D. and Pak, K., 2020. Profiling victims of investment fraud: Mindsets and
risky behaviors. Journal of Consumer Research. 46(5), pp.904-914.
Ghosh, D. and Dutta, M., 2021. Investment behaviour under financial constraints: a study of
Indian firms. SN Business & Economics. 1(8). pp.1-15.
Jalilian, J. and et.al., 2021. Evaluation the profitability of dynamic investment projects by using
ordered fuzzy numbers. Advances in Mathematical Finance and Applications.
Jiang, J., Xia, X. and Yang, J., 2019. Investment-based optimal capital structure. Applied
economics, 51(9. pp.972-981.
Kubińska, E. and et.al.,2018. Technical analysis gives you courage, but not money-von the
relationship between technical analisys usage, overconfidence and investment
performance.
Linh, D.H.M., 2019. The impact of financial leverage on firm investment-The case of
Vietnamese companies (Doctoral dissertation, International University-HCMC).
Paserman, M., 2019. Adaptive Sovereign Bond Investment Strategies During Financial Crises:
An Experiment with Financial Professionals. In Behavioral Finance: The Coming of
Age (pp. 109-164).