Financial Analysis Report: Unilever Pakistan (2008-2010)

This report presents a detailed financial analysis of Unilever's balance sheet and income statement from 2008 to 2010, focusing on trends in profit, net income, liquidity, credit risk, and profitability. The analysis employs various techniques, including trend percentages, component percentages, rupee amounts and percentages, and ratio analysis. The report examines both horizontal and vertical analyses, providing insights into the company's performance over the specified period. Key findings regarding liquidity, short-term credit risk, and profitability are discussed, along with a conclusion summarizing the company's financial health and performance. The analysis covers Unilever Pakistan's history, product portfolio, and the application of financial tools to assess its financial position and operational efficiency.

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Lahore School of Economics
BBA II Majors in Finance and Minors in Mathematics and Statistics
Financial Accounting II, B
Ms. Maheen Khan
11th April, 2011

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Executive Summary
The report discusses the detail analysis of Unilever Balance Sheet and Income
Statement from 2008-2010. The purpose of this report is to determine the overall trend in profit
and net income; liquidity; credit risk and profitability.
Financial statements of Unilever were used to assist us in identifying key relationships and
trends. These are presented in comparative form. All the necessary information was extracted to
conduct financial analysis. The four tools used for analysis were:
o Trend percentages
o Component percentages
o Rupee amount and percentages
o Ratios
Trend analysis shows extent and direction of change. The base year selected to conduct trend
analysis was 2007. Component percentages shows relative size of each item included in total and
express which items are increasing in importance and which are becoming less significant.
Rupee percentages show rates of growth or decline. The following ratios were used to check
liquidity position of company. :
o Current ratio
o Working capital
o Quick ratio
o Debt and equity ratio
o Return on equity
o Return on assets
Unilever had overall favorable current ratio which suggests that the company is able to pay
off short term debts with its short term assets. However, company’s debt portion was more than
its asset which is a bad sign for the company. Overall, a continuous increase in ROE resulted
from increasing profitability, improving asset efficiency, and proper financial leveraging.

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Table of Content
1. History………….…………….......………………………………………………..………4
2. Unilever Pakistan History…………………………………………………………………5
3. Product………..…………………………………………………………………………...5
4. Analysis………...………….………………………………………………………………7
a. Trend Analysis…………………………………………………………………….7
b. Horizontal Analysis……………………………………………………………...14
c. Vertical Analysis…………………………………………………………………24
d. Ratios…………………………………………………………………………….29
i. Liquidity………………………………………………………………….29
ii. Short term credit risk…………………………………………………….30
iii. Profitability………………………………………………………………31
5. Conclusion…...…………………………………………………………………………..35
6. Appendix….………….…………………………………………………………………..

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History
In 1930, Unilever was established by the incorporation of British soap maker Lever
Brothers and Dutch margarine (producer of Margarine Unie). For both Margarines and Soaps
palm oil was a major raw material and was imported more efficiently in hefty quantity.
Unilever’s new business enterprises were launched in Latin America in 1930s. In 1972, Unilever
purchased A&W Restaurants' (Canadian division) but sold its shares through a management
buyout to former A&W Food Services of Canada CEO Jefferson J. Mooney in July 1996. In
1984 Unilever lead to the brand Brooke Bond (maker of PG Tips tea).
In 1987, Unilever strengthened its position on the international level by acquiring Chesebrough-
Ponds, the maker of Ragú, Pond's, Aqua-Net, Cutex Nail Polish, and Vaseline. In 1989, Unilever
bought Calvin Klein Cosmetics, Fabergé, and Elizabeth Arden, but the latter was later sold (in
2000) to FFI Fragrances.
In 1996, Unilever purchased Helene Curtis Industries, giving the company influential and
authoritative presence in the United States shampoo and deodorant market. In 2000, the Unilever
immersed the American business Best Foods, extending its range of foods brands and
strengthening its presence in North America.
Unilever is a multinational company with operating companies and factories in every
continent except Antarctica. It also has research laboratories in England, Netherlands, United
States, India and China. The US division carried Lever Brothers name until the 1990s, which it
adopted from its parent company. Unilever has its headquarters in New Jersey.
In 1998, Unilever promoted sustainability and started a sustainable agriculture program.
In May 2007, it became the first tea company to commit to sourcing all its tea in a sustainable
manner. It declared its aim to have all Lipton Yellow Label and PG Tips tea bags sold in
Western Europe certified by 2010, followed by all Lipton tea bags globally by 2015.
Unilever is ranked based on positive versus negative news coverage for 2007 by an
ethical reputation ranking agency. In 2008, Unilever was honored for "Outstanding Achievement
in Advanced Media Technology for Creation and Distribution of Interactive Commercial
Advertising.
In 2009, Unilever lead brands such as Radox, Badedas and Duschdas to strengthen
category leadership in Skin Cleansing and Deodorants. In 2010, Unilever signed an asset

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purchase agreement with the Norwegian dairy group TINE. EVGA and Unilever
purchased Alberto-Culver, the maker of personal care and household products. In 2011, Unilever
announced that it has entered into a binding agreement to sell the global Sanex business to
Colgate-Palmolive and it also announced that this agreement was to acquire Colgate-Palmolive’s
laundry detergent brands.
Unilever Pakistan History
Unilever Pakistan has initiated an ineradicable name for itself with brands such as
Lifebuoy, Lux, Surf and Walls in the world of consumer products. In Pakistan, UPL is a part of
the consumer products giant Unilever. Some fifty years ago, UPL was established in the newly
created Pakistan. In 1958, Rahim Yar Khan Site was chosen for setting up a vegetable oil factory
and that is where the first UPL manufacturing facility developed.
Today, Unilever Pakistan is a force to deem with. It contributed a lot in Pakistan's
economic development, which can’t be overestimated. Today, it is also operating four factories
at different locations around the country, and contributes a significant proportion of the country's
taxes. It is providing with large numbers of well-trained and highly motivated employees to other
segments and has introduced new and innovative technologies into the country.
In the mid 60's, Unilever Pakistan’s UPL Head Office was shifted to Karachi from the
Rahim Yar Khan Site; as the village was the focal point for UPL. A residential estate situated
near the factory is the home of UPL employees at Rahim Yar Khan.
Products
Food Brands
 Becel, Flora
 Bertolli
 Lipton
 Blue Band
 Slim Fast
 Heart Brand
 Hellmann’s, Amora

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Personal care brand
 AXE
 Dove
 Lifebuoy
 Lux
 Ponds
 Rexona
 Signal, Close Up
 Sunsilk
 TIGI
 Vaseline

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Home Care Brand
 Comfort
 Rin
 Surf Excel
Analysis
Analysis has been conducted on Unilever’s financial statements of 2008, 2009 and 2010
in order to establish significant relationships and to identify changes and trends between those
years. Four analytical techniques are used: Trend Percentages; Dollar and Percentage changes;
Component Percentages and Ratios for both balance sheet and income statement.
Horizontal analysis is conducted through Dollar and Percentages changes whereas
Vertical analysis is conducted through Component Percentages.
Trend Analysis
Trend percentages show extend and direction of change in financial statement items from
a base year to a following year. In this case the base year is 2007 and the following years are
2008, 2009 and 2010. Firstly, a base year was selected and each item in the financial statement
was given a weight of 100%. Secondly, each item in the financial statement was expressed for
2008, 2009 and 2010 as a percentage of its base year amount.
Balance Sheet
Balance sheet is a financial statement that summarizes a company's assets, liabilities
and shareholders' equity at a specific point in time.

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Total Assets:
The Non-Current Assets show an increasing trend over the years: 2008, 2009 and 2010.
2008-2009 show an increasing trend mainly due to a tremendous increase in property,
plant and equipment, long term investment, long term loans, long term deposits and prepayments
and retirement benefits. The only item that decreased from 2008- 2009 was intangibles.
The reason for an increase in property, plant and equipment from 8.76% to 134.81% is
due to a drastic increase in operating assets in 2009. Operating assets are long-lived assets that
are used in normal business operations. The company’s operating assets at that time were land,
building, plant and machinery, furniture and fittings and motor vehicles. This 126.05%, increase
shows that the company invested in its operating assets to make favorable outcomes for itself. A
favorable amount shows that Unilever has what it needs to generate revenue that can settle short
term debts obligations.
Long Term investments and funds are investments a company intends to hold for more
than one year. The reason for an increase in Long term investments from 0% to 100% is that in
2009 Unilever bought ordinary shares of Lever Chemicals Pvt Ltd, Levers Associated Pakistan
Trust Pvt Ltd and Sadiq Pvt Ltd. There were 9500,000 shares bought from each company and
each share was worth Rs.10. Unilever benefited from the purchase of share by receiving
dividends which the company can invest in projects and new product innovations.
In 2009, there was an increase in Long term loans from 4.19% to 85.03% as directors and
executives of the company borrowed long term loans in 2009 of Rs. 98117000. According to the
notes in the annual report the loans under the terms of employment have been given interest free
charges to facilitate purchase of houses, vehicles and computers repayable in monthly
installments over a period of three to five years. Other reasons may include investments in a new
project or debt purposes. Another benefit of long term loans is that the repayments are spread
over a long period of time which means that monthly repayments are lower.
Long term deposits increased from 111.542% to 7985.69%. In 2008, Unilever only
received prepaid rent of Rs.9276000 whereas in 2009 Unilever received both prepaid rent as well

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as security of Rs 368,064000 and Rs.4627000 respectively. According to this there was a
tremendous increase in the amount of prepaid rent.
In 2009, there was a 17.65% increase in retirement benefits. The company has some
defined contribution plans: 1) Provident Fund- in which equal monthly contributions are made,
both by the Company and the employees, to the fund at the rate of 6% per annum of the gross
salary; 2) DC pension Fund - for permanent employees who joined on or after January 1, 2009;
and permanent employees who joined on or before December 31, 2008 and opted for DC
Pension plan in lieu of future benefits under the existing pension, management bonuses and
pensioners' medical plans. An increase in retirement benefits leads to cash inflows as 6% is
deducted from the employee’s gross salary.
Intangibles decreased drastically from 1488% to 19.99%. In 2008, Unilever made an
acquisition of GlaxoSmithKline Pakistan Ltd. When this event took place Unilever paid for the
goodwill, agreement in restraint of trade and trademark. Therefore the amount of intangibles in
2008 is more than 2009.
The non-current assets during the year 2009-2010 show an overall increasing trend. This
is due to an increase in property, plant and equipment, intangibles and long term investment. The
items that decreased from 2009- 2010 were long term loans, long term deposits and prepayments
and retirement benefits.
The reason for an increase in property, plant and equipment from 134.81% to 139.38% is
due to a drastic increase in operating assets in 2009. Operating assets are long-lived assets that
are used in normal business operations. The company’s operating assets at that time were land,
building, plant and machinery, furniture and fittings and motor vehicles. This 4.57% increase
shows that the company invests in its operating assets to make the outcomes favorable for itself.
A favorable amount shows that Unilever has what it needs to generate revenue that can settle
short term debt obligations.
Intangibles significantly increased from 19.99% to 6745.14% as the company acquired
license of SAP Enterprise Resource Planning (ERP) System Solution. The software integrates
internal and external management information across an entire organization including

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accounting, manufacturing, sales and service, CRM, etc. Unilever purchased this software
because it is important to remain updated with the growing trend of implementing highly
technological systems being introduced in today’s world.
Long term loans decreased from 85.03% to 72.70%, due to monthly payments made by
Unilever which automatically reduced the principal amount. Another reason for not borrowing
more loans is that Unilever may have financed its operations through its retained earnings for the
year 2010.
Long term Deposits and prepayments decreased from 7985.69% to 569.04% in 2010,
because prepaid rent fell by a very large amount of Rs. 362027.
Retirement benefits decreased from 74.96% to 59.31%. This may be the fact that many
employees retired during 2009-2010 and payments were made to them.
Even in 2010 the Long term investment was 100% which is the same as 2009. This
means that no further investment was made in 2010. The company might be receiving sufficient
return on its investments and therefore did not feel the need to increase its investments further.
The Current Assets show an increasing trend over the years: 2008, 2009 and 2010.
In 2008-2009 the current assets increased from 12.62% to 144.48%. The reason for this
131.86% increase is that there was an increase in stocks and spares, stocks in trade, trade debts,
loans and advances, trade deposits and short term prepayments, taxes refunds due from
government, other receivables and cash and bank balances.
Stores and spares increased to 139.52%. The Company made a provision of Rs. 8.31
million (2008: Rs. 8.63 million) for obsolescence and has written off stores and spares of Rs.
4.54 million.
Stocks in trade are goods kept available for sale at a store or tools, materials, etc. used in
carrying on a trade or a business. They increased from 7.65% to 147.17%. Unilever had finished
goods worth of Rs. 1,293,954,000 and made a provision of Rs. 109.19 million for obsolescence.
Trade debts facilitate business activities by permitting purchasers to pay at a later date
and in this case it is trade receivables. This is a credit facility for increasing the sales revenue
for Unilever. This increased from 20.88% to 211.59%.

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Loans and advances increased to 91.92%. According to the annual report notes the
advances to executives are given to meet business expenses and are settled as and when the
expenses are incurred.
Trade deposits and short term prepayments increased to 274.85% because trade deposits
increased from Rs. 1605000 to Rs. 16192000 in 2009.
Taxes refunds due from government increased from 0% to 239.10% because sales tax
refundable was zero in 2008 and increased to Rs. 137012 in 2009.
Other receivables increased to 31.96%. They include receivables from distributors on
account of Equipment supply and receivables in respect of sale of fixed assets from the following
parties:
o Unilever Pakistan Foods Limited
o Unilever Gratuity Fund
o Associated undertakings
o Workers' Profits Participation Fund
Cash increased to 122.71% due to overall high sales from a variety of diversified
products resulting from high demand and successful and efficient operations of business.
In 2009-2010 there is an increase of 37.01%. The increase in the current assets in 2009-
2010 was because of an increase in stocks and spares, stocks in trade, trade debts, and taxes
refunds due from government, and cash and bank balances.
Stores and spares have increased to 50.97%. The Company has made a provision during
the year of Rs. 4.18 million (2009: Rs. 8.31 million) for obsolescence.
Stocks in trade for Unilever had finished goods worth of Rs.1, 264,130,000 and made a
provision of Rs. 109.19 million for obsolescence.
Trade debts are a credit facility for increasing the sales revenue for Unilever. This has
increased to 6.87%.
Taxes refunds due from government had a 74.98% increase because taxation payment
increased from Rs. 218013 to Rs. 329355 in 2010.
Cash had an 804.82% increase due to overall high sales of a variety of diversified
products resulting from high demand and successful and efficient operations of business.

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Equity and Liability section:
The equity and liabilities section of balance sheet show an increasing trend over the three
years. Trend percentages for 2008, 2009 and 2010 were 12.56%, 141.33% and 167.01%
respectively.
In 2008-2009, there was an accelerated increase in trend percentages of total equity and
liabilities and this was due to the fact that all the three components: capital and reserves, non-
current liabilities and current liabilities were increasing.
The trend percentages for capital and reserves increased from 15.11% to 165.69% in
2009. This sharp increase was based on shares capital, reserves and surplus on revaluation of
fixed assets. Shares capital increased from 9.2% to 100% because Unilever authorized and issued
more shares in 2009 as compared to 2008.The authorized share capital and issued capital for
2009 was Rs. 800000000 and Rs. 669477000 and for 2008 was Rs. 200000000 and Rs.
61576000 respectively. The reserves increased from 18.29% to 200.07% in 2009 as Unilever had
schemes of arrangements for amalgamation with former Mehran International (Private) Limited,
former Ambrosia International Limited and former Pakistan Industrial Promoters (Private)
Limited. No such schemes for amalgamation were part of financial year of 2008. The surplus on
revaluation of fixed assets increased from 0% to 90.91% as revenue figure in 2009 was Rs.
2229243000 as compared to Rs. 214251000 in 2008. The increase in revenue shows that year
2009 was more profitable.
The trend percentages for Non-current liabilities increased from 8.37% to 203% in 2009.
This increased is based on liabilities against assets subject to finance leases, deferred taxation
and retirement benefits obligation. There was no liability against assets subject to finance lease
in 2008 and in 2009 this liability amounted to Rs.56762000 which results in 107.24% increase
during the year. Deferred taxation increased from 12.03% to 205.84% because the credit balance
arising in result of accelerated tax depreciation allowances and surplus was Rs. 881206000 in
2009 more than Rs. 720512000 in 2008 which caused increased deferred tax amount of
Rs. 636130000 in 2009. The trend percentages for Retirement benefit obligation increased from
3.48% to 232.84% in 2009. This can be explained as company contributed Rs. 14.2 million
towards Retirement benefit fund in 2009 as compared to Rs. 9.57 million in 2008.