Vous êtes sur la page 1sur 44

MBA Course work: Corporate Finance 18th March 2011

Bradford University School of Management


Full Time MBA 2010 – 11

Evaluation of Shareholder Value and Market Evaluation of


Equity for

UB No: xxxxxxxxx

Module Name: Corporate Finance


Module Leader: Patrick Barber
Module Code: MAN4071M

I certify the word count does not exceed more than the number of
words mentioned: 3500
(Excluding References, Appendix, tables, name of graphs/figures/tables, figure
captions, table captions, abbreviations)

UB: xxxxxxxxxx Page 1 of 44


MBA Course work: Corporate Finance 18th March 2011

Abbreviations:

BRIC: Brazil Russia India China


DCF: Discounted Cash Flow
EPS: Earnings per Share
EVA: Economic Value Added
FCF: Free Cash Flow
GBP: Great British Pound
MVA: Market Value Added
NOPAT: Net Operating Profit after Tax
NPV: Net Present Value
P/E: Price/Earning
PLC: Private Limited Company
SAV: Shareholders Value Analysis
TSR: Total Shareholders Reuters
UN: United Nations
USD: United States Dollar
Y-o-Y: Year-on-Year

UB: xxxxxxxxxx Page 2 of 44


MBA Course work: Corporate Finance 18th March 2011

Introduction:.........................................................................................................................5
Executive summary:.............................................................................................................5
Company Overview:............................................................................................................6
Financial Position:...............................................................................................................8
Future of Unilever:.............................................................................................................11
Shareholder Value Analysis (SAV):..............................................................................12
Total Shareholders Return Analysis:.........................................................................13
Market Value Added (MVA):....................................................................................16
Economic Value added (EAV):.................................................................................17
Dividend Payout.................................................................................................................18
Effective Market Hypotheses:............................................................................................19
Share price movement:......................................................................................................20
Equity Evaluation:.............................................................................................................22
Net Asset Value:............................................................................................................22
Price/Earning Value (P/E):............................................................................................24
Discounted cash flow:....................................................................................................26
Revenue Growth:.......................................................................................................26
Operating margin:......................................................................................................27
Depreciation and Amortization (D&A):....................................................................27
Tax Rate:....................................................................................................................28
Capital Expenditure:..................................................................................................29
Working Capital:........................................................................................................29
Free Cash Flows:........................................................................................................30
Cost of Equity:...................................................................................................................30
Gordon Growth Model:..................................................................................................30
Capital Asset Pricing Model: ........................................................................................31
Free Cash Flow (FCF) and Net Present Value:.................................................................32
Terminal Value:.................................................................................................................33
Sensitivity Analysis: .........................................................................................................34
Long Term Growth Rate:...............................................................................................34
Best Case Scenario.....................................................................................................34
Worst Case Scenario..................................................................................................35
Discount factor:..............................................................................................................35
Best Case Scenario:....................................................................................................35
Worst Case Scenario:.................................................................................................36
Sales Revenue:...............................................................................................................37
Best Case Scenario.....................................................................................................37
Worst Case Scenario:.................................................................................................38
Conclusion:........................................................................................................................39
Reference:..........................................................................................................................41
Appendix:...........................................................................................................................43
List of Figures:

Figure 1: Beauty and Personal Care Percentage Market Share (Source: Global Market
Information Database).........................................................................................................7

UB: xxxxxxxxxx Page 3 of 44


MBA Course work: Corporate Finance 18th March 2011

Figure 2: Home Care Products Market Share (Source: Global Market Information
Database)..............................................................................................................................7
Figure 3: Packaged Food Market Share (Source: Global Market Information Database)...8
Figure 4: Global Home Care Market Share (Source: Global Market Information
Database)..............................................................................................................................8
Figure 5: (Key Finance Indicators, Source: Unilever PDF)................................................9
Figure 6: Financial Report (Source: Unilever website).......................................................9
Figure 7: Earnings per Share (Source: Unilever Annual Share)........................................10
Figure 8: Long Term Debt (Source: Unilever Annual report)...........................................11
Figure 9: SAV (Source: Pike and Neale, 2009).................................................................12
Figure 10: Dividend Payout (Source: FT.com)..................................................................14
Figure 11: TSR as %..........................................................................................................15
Figure 12: EVA..................................................................................................................17
Figure 13: Unilever Time Series........................................................................................19
Figure 14: Share Performance (Source: Ft.com)...............................................................20
Figure 15: NAV per Share (Source: Financial Reports of Unilever, Colgate Palmolive
and P&G)...........................................................................................................................23
Figure 16: P/E Value (Source: Financial Report of Unilever, Colgate and P&G)............25
Figure 17: Unilever's Dividend per Share (Source: Unilever Annual Report, 2010, 2009,
2008, 2007, 2006)..............................................................................................................31

UB: xxxxxxxxxx Page 4 of 44


Introduction:

Organization valuation remains critically important for any investor


irrespective of the economic market conditions. It is only after
valuation, an investor makes buying or selling decisions and estimates
true value of the company. Brealey and Myers (1996) claims, knowing
the value of the asset enables the stakeholders of a company to make
intelligent decisions. Every investor has his/her own valuation
methodology, however, the underlain valuations principles, such as
NAV, P/E, DCF and many such, for any investors more or less remains
the same. Therefore, the premise of valuating the chosen organization
is that a realistic estimation is made on the assets bases through
publicly available information.

This course being with an objective of evaluation, followed by an


executive summary which gives a shorthand information on the

Executive summary:
This report is on shareholders value and market evaluation for Unilever
(PLC), also called as the Unilever Group or Group. The report begins
with the overview of the company, giving the present market situation
and the market share of Unilever in consumers goods, home and
personal care and packaged food industry in the U.K. Followed by the
financial situation which talks about Unilever’s performance for the
fiscal year 2010. A critical evaluation has been made on the in
fluctuations in the turnover, operating profit, earnings per share and on
long term debts. The prospects of Unilever are discussed in the later
section, by using detailed analysis of TSR, P/E and EAV, in addition,
comparison are made with peer groups such as Colgate-Palmolive,
Procter & Gamble and Reckitt Benckiser. Comments are also made on
the Dividend payout practice of the above companies. Share price
movement of Unilever, from 1st Feb 2010 to 31st Jan 2011 is discussed
in the following section. Different methods of equity evaluation are
used to took at the prospects of Unilever for 10 year period from the
base year. A detailed cash flow is also made considers various favoring
and adverse conditions.

Company Overview:
Unilever, Chaired by Michael Treschow, is a €44.3 billion turnover,
fortune 500 (Ranked: 121, Source: CNNMoney.com), global
conglomerate in food, home and personal care products, having
presence in more than 180 countries with 167000 employee. Unilever
claims that 150 million times a day, someone somewhere chooses a
Unilever product. The top 12 brands, Axe/Lynx, Blue Band, Dove,
Becel/Flora, Heartbrand ice-cream, Hellmann’s, Knorr, Lipton, Lux,
Omo, Rexona and Sunsilk contribute €1 billion to sales and top 20
brands contribute 70% of the total sales. (Unilever, 2010 financial
report)

Unilever N.V (N.V) is a public Unilever N.V. (NV) is a public limited


company registered in the Netherlands. Unilever PLC (PLC) is a public
limited company registered in England and Wales. It has shares listed
on the London Stock. However, the two parent companies, NV and PLC,
together with their group companies, operate as a single economic
entity (the Unilever Group, also referred as the Unilever.

In the year 2009, Unilever sharpened it product portfolio by acquiring


Sara Lee personal care business and in the year 2010, Unilever
announced the acquisition of Alberto Culver.
In the U.K, Unilever has been increase its market share percentage in
Beauty and Personal Care, Home care, and packed foods since 2001
and has seen a steep increase in both Beauty care and care products
during the year 2005.

7 6.58 6.47 6.37


6.33 6.31
6

1
0.15 0.21 0.21 0.21
0
2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 1: Beauty and Personal Care Percentage Market Share (Source: Global Market Information
Database)

20
18 17.18
15.15 15.78
16 14.94 14.63
14
12
10
8
6
4
1.05 1.07 1.17 1.26
2
0
2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 2: Home Care Products Market Share (Source: Global Market Information Database)
2
1.8 1.72 1.66 1.68 1.69 1.65 1.64
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2 0.01 0.01 0.02
0
2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 3: Packaged Food Market Share (Source: Global Market Information Database)

Though Unilever has low market presence in the U.K, it has been
ranked 6th in global Health and wellness industry with 1.4% market
share, 10.4% in the Home Care and is ranked number one, globally, in
the ice-cream industry with a global market share of 18% (Global
Market Information Database).

Figure 4: Global Home Care Market Share (Source: Global Market Information
Database)

Financial Position:
In the recent economic downturn, many organization had to face sever
cash flow problems due to low consumer spending; fall in sales and low
liquidity. However, Unilever, on the contrast, has experienced best
volume growth for more than 30 year, increased its sales growth by
4.1% and increased its operating margin by 15%.

Figure 5: (Key Finance Indicators, Source: Unilever PDF)

Financial Report

50,000 44,262
39,642 40,187 40,523 39,823
40,000
E millions

30,000

20,000

10,000 5,408 5,245 7,167 5,020 6,339

0
2006 2007 2008 2009 2010

Turnover Operating Profit


Figure 6: Financial Report (Source: Unilever website)

The 15% increase in the operating profit or the 11.1% increase in the
turnover cannot be completely attributed to the 5.4% increase in the
volume sales. As a global conglomerate, the average 7.3% currency
variation also contributed to the increase in the operating profit. The
decrease in the net cash flow from operating activities by 4.9%
between the years 2009-10 supports the above argument. The net
income, in the 2010 annual report, also reflects decreased
restructuring costs, decreased financial costs and increase from
business disposals. Though there was a volume growth, due to current
economic conditions and intense competition, Unilever had to price its
products with minimal margin. However, with the current focus on
BRIC nations and penetration in to African continent could help
Unilever achieve economics of scale and increase its operating
margins. In addition, Unilever’s financial performance was significantly
good when compared with its competitors such as P&G, with 4.2%
increase in operating income and 2.9% increase in the net sales, and
Nestle, with 1.9% increase in the net sales.

Earnings per Share

2 1.79
1.8
1.6 1.46
1.32
1.4 1.19 1.21
1.2
euro

1
0.8
0.6
0.4
0.2
0
2006 2007 2008 2009 2010

Figure 7: Earnings per Share (Source: Unilever Annual Share)

During the year 2008-09, there was a drop in EPS by 32.4%, this drop
was not with the performance of the company, but due to the earning
earned by disposals of European frozen food business during 2007-08.
Nevertheless, EPS continued to rise by 21% during 2009-10 Y-o-Y.
Long Term Debt

12,000
9,971
10,000 8,823
8,000 7,289
E million

6,000

4,000

2,000

0
2008 2009 2010

Figure 8: Long Term Debt (Source: Unilever Annual report)

To maintain maximum flexibility in meeting the changing business


environment it is important to concentrate on cash., Unilever, for
raising capital, not only relies on shareholders funds but also on long
term debts. However, the long-term loans for Unilever are instituted
either by Unilever Finance International BV or by Unilever Capital
Corporation. This backward integration would help Unilever in
prospering markets as the profits is shared within the group, but could
also be lethal if there is no enough operating profit is generated.

Future of Unilever:
The penetration into African continent by launching more than 100
products (OMO being the most successful one so far) and increasing
market share in the BRIC nations shows a potential growth prospects
for Unilever in the coming years. The increase EPS Y-o-Y since 2005
attracts new investors for long-term investment. The acquisition of
Sare Lee in 2009 and the acquisition announcement of major European
home and personal care brand Alberto Culver help Unilever to widen its
product portfolio and increased markets share in the existing European
and global market.
Shareholder Value Analysis (SAV):

Figure 9: SAV (Source: Pike and Neale, 2009)

SAV helps in ascertaining value add to the shareholders of a firm.


Rappaport’s (1986) SAV pyramid says focus on “Value Drivers” can
help to add value to shareholders wealth, and created confidence in
the market to attract new investors.

Unilever has been consistently delivering value to its shareholders. As


a consumer goods industry, Unilever’s prime focus is to increase
markets share, either by increasing sales or through acquisitions and
partnerships, entering new geographies and improving brand value
globally. In addition, in changing market environment and concern for
environment also enabled Unilever to invest significantly into research,
development and innovation. From a strategic point of view, these
business focuses are key value drives to improve cash flow and the
consistent A+/A1 long-term credit rating and A1/P1 short-term credit
rating are good signs to generate finance for operation. However, the
value added by Unilever to its shareholders can be calculated using
three methods, such as:
1. Total Shareholders Return
2. market Value Added
3. Economic Value Added.

Total Shareholders Return Analysis:


In general, it is considered that, higher the risk associated with an
investment, the greater are the returns. In addition, the firm that
delivers investment above the market rate would offset the risks that
are specific to it and to gain the market confidence it is essential to
have a consistent performance. Unilever aims to be among the top
three companies of the reference group, which include international
consumer goods companies.

TSR is calculated using the formula below.

Dividend + (Closing Share Price - Opening Share Price)


TSR = ---------------------------------------------------------------------
Opening Share Price

The dividend payout of Unilever is progressive since 2006, however, it


is very low when compared with its peer groups. Nevertheless,
Unilever is among the top three players in the global consumer goods,
health and personal care, and packaged foods in TSR percentage.
Dividend Payout

1.6
1.4
1.2
1
GPB

0.8
0.6
0.4
0.2
0
2006 2007 2008 2009 2010
Unilever 0.46 0.49 0.55 0.64 0.7
Colgate Palmolive 0.19 0.78 1.23 1.51
Reckitt Benckiser 0.21 0.5 0.62 0.92 1.07
Procter & Gamble 0.2 1.23 1.23
Figure 10: Dividend Payout (Source: FT.com)

Unilever practices two-dividend payout each year. In 2009, there was


an increase of 14% in dividend payout, though not the highest
percentage change in the industry sector, but was certainly highest in
the history of Unilever so far. In addition, in the same year, the share
price rose by 139p, which can be attributed to the acquisition of Sara
Lee’s home and personal care segment. In 2010, Unilever paid
quarterly divided, as never before, with an increase of 9%,
nevertheless, it is one in its sector to pay highest divided. An
interesting point to note here is TSR is seldom negative, even in
current economic conditions, although there has been slack growth in
the share price. Therefore, it can be deduce that, packed food industry
experiences less impact by economic depressions when compared with
other industry sectors.

Total Shareholder Value: Comparison Analysis


Unilever 2006 2007 2008 2009 2010
Dividend Paid in p 460 490 550 640 700
Dividend Growth in Percentage NA 7% 12% 14% 9%
Share Price on 1st Feb 1327 1411 1715 1528 1913
Share Price on 31st Jan 1330 1390 1623 1389 1910
Change in Share Price -3 21 92 139 3
TSR in percentage 34.43858 36.21545 37.4344 50.98168 36.74856
Colgate Palmolive
Dividend Paid in p NA 0.19 0.78 1.23 1.51
Dividend Growth in Percentage NA NA 310.5263 57.69231 22.76423
Share Price on 1st Feb NA 69.5 77.368 63.4 79.55
Share Price on 31st Jan NA 77.96 68.54 82.15 79.55
Change in Share Price NA 8.46 -8.828 18.75 0
TSR in percentage NA 12.44604 -10.4022 31.5142 1.898177
Reckitt Benckiser
Dividend Paid in p 0.21 0.5 0.62 0.92 1.07
Dividend Growth in Percentage NA 138.0952 24 48.3871 16.30435
Share Price on 1st Feb 1991 2485 2660 2671 3194
Share Price on 31st Jan 1994 2612 2607 2694 3256
Change in Share Price 3 127 -53 23 62
TSR in percentage 0.161226 5.130785 -1.96917 0.895545 1.97464

TSR Graph

2010

2009
Reckitt Benckiser
2008 Colgate Palmolive
Unilever
2007

2006

-20 -10 0 10 20 30 40 50 60
TSR Percentage
Figure 11: TSR as %

Considering the interim share price value on 26th March 2006, the
price per share and purchase value was 1,306.67 GBp, would price
1795 GBp as on 14th March 2011, which is an increase by 37.37% and
a total return of 488.33 GBp, which is significantly good return when
compared with the -6.5% return with FTSE 100 industry. In spite the
promising figures, the economic factors governing (directly or
indirectly) cannot possible tell the true value added to the
shareholders.
Market Value Added (MVA):
MVA has become an important tool for financial managers to evaluate
their firm with the help of market value added in a manner that is
consistent with the evaluation by the capital markets (Young and
O’Byrne 2000). This evaluation is build on the primes that someone is
always right. Nevertheless, this method not only emphases on the
traditional accounting method but also the value added to the
shareholders.

Market Value Added


Unilever 2006 2007 2008 2009 2010
Price as on 31 Jan 1330 1390 1623 1389 1910
(*)Total Outstanding shares in m
GBP 484 484 484 484 484
(=) Market Capitalization (in m GBP) 643720 672760 785532 672276 924440
(-) Shareholders equity 4,745 3888 5027 3370 4244
(=) Market Value Added 638,975 668872 780505 668906 920196
Colgate Palmolive
Price as on 31 Jan 65.24 77.96 68.54 82.15 79.55
(*)Total Outstanding shares in m
GBP 188.0 509.0 262 354 325
(=) Market Capitalization (in m GBP) 12265.12 39681.64 17957.48 29081.1 25853.75
(-) Shareholders equity 517.8 1179.7 945.7 2017 2139.8
(=) Market Value Added 11747.32 38501.94 17011.78 27064.1 23713.95
Reckitt Benckiser
Price as on 31 Jan 1994 2612 2607 2694 3256
(*)Total Outstanding shares in m
GBP 734.2 733.6 722.4 722.4 728.6
(=) Market Capitalization (in m GBP) 1463995 1916163 1883297 1946146 2372322
(-) Shareholders equity 1,866 2,385 3,294 4,014 4,325
(=) Market Value Added 1462129 1913778 1880003 1942132 2367997

The higher MVA in the last two years for Unilever can be attributed to
the acquisition of Sara Lee and Alberto Culver, however, no clear
statement in given in the annual report as by how much this value has
been increase/decrease by the recent acquisition. Nevertheless, to
make the most of out the MVA method, it is advised to segment
products that gives positive NPV.
Economic Value added (EAV):
EVA attempts to measure the economic profit added by the company
to the shareholder over the previous year.

EVA can be calculated using the formula below:

EVA = NOPAT – (Ke * Invested Capital)

NOPAT= Net operating profit after tax


Ke = the rate of return required by the shareholders
Invested Capital = Net Assets or Shareholders fund

Economic Value Added


Unilever 2006 2007 2008 2009 2010
NOPAT (in million Euros) 5015 4136 5285 3659 4244
Ke 8 8 7.8 8 7.7
Invested Capital 23188 23743 22342 25417 27561
EVA 3159.96 2236.56 3542.324 1625.64 2121.803

Economic Value Added

4000 3542.324
3500 3159.96
EVA in m Euros

3000
2500 2236.56 2121.803
2000 1625.64
1500
1000
500
0
2006 2007 2008 2009 2010

Figure 12: EVA


Though the EVA remained positive, which mean Unilever has been
effectively making profit for its investor since 2006, it has been
declined since 2009. One reason being the NOPAT has been decreasing
however, investors return expectation remained the same, in addition,
the capital investment has also increased over the years, which,
therefore, declined the EVA.

The EVA however, does not give the true picture of the value, the
organization has added to its shareholders. In the above case, EVA is
decreased due to increase in investment and decrease in NOPAT,
however, with recent updates in product portfolio (by acquisition) and
targeting new geographies add value to the shareholders investments.

Dividend Payout
Dividend Payout
Unilever 2006 2007 2008 2009 2010
Earnings Per Share (EPS) in P 115.00 128.00 173.00 117.00 146.00
Dividend Per Share (DPS) in P 48.00 51.00 61.00 41.00 71.00
Dividend Cover (EPS/DPS) 2.40 2.51 2.84 2.85 2.06
Dividend Payout Ratio (DPS/EPS) in % 41.74 39.84 35.26 35.04 48.63
Share Price as on Jan 31st in P 1330.00 1390.00 1623.00 1389.00 1910.00
Dividend Yield (DPS/Share Price) 3.61 3.67 3.76 2.95 3.72
Colgate Palmolive
Earnings Per Share (EPS) in P 90.28 165.00 180.00 313.00 283.00
Dividend Per Share (DPS) in P 45.87 72.24 76.75 123.15 133.34
Dividend Cover (EPS/DPS) 1.97 2.28 2.35 2.54 2.12
Dividend Payout Ratio (DPS/EPS) in % 50.81 43.78 42.64 39.35 47.12
Share Price as on Jan 31st in P NA 7796.00 6854.00 8215.00 7955.00
Dividend Yield (DPS/Share Price) NA 0.93 1.12 1.50 1.68
Reckitt Benckiser
Earnings Per Share (EPS) in P 93.50 127.90 154.70 194.70 213.80
Dividend Per Share (DPS) in P 41.50 55.00 80.00 100.00 115.00
Dividend Cover (EPS/DPS) 2.25 2.33 1.93 1.95 1.86
Dividend Payout Ratio (DPS/EPS) in % 44.39 43.00 51.71 51.36 53.79
Share Price as on Jan 31st in P 1994.00 2612.00 2607.00 2694.00 3256.00
Dividend Yield (DPS/Share Price) 2.08 2.11 3.07 3.71 3.53
Unilever Times Series

200
180
160
140
Dividend Yield (DPS/Share
Percentage

120
Price)
100
80 Dividend Payout Ration
60
40
20
0
2006 2007 2008 2009 2010

Figure 13: Unilever Time Series

48.63% dividend payout ration in 2010 and the increasing value of it


since 2006 is evident that Unilever’s management aims to return funds
to its shareholders. This is a good attempt to retain the confidence of
current shareholders and to attract new one.

Effective Market Hypotheses:


EMH is primarily used to measure the efficiency of the capital market.
The seriousness of the information available on an organization
depends on the EMH of that market. EMH assumes that the market is
efficient in receiving and responding to the information available on a
company and investors are rational in making their decision on this
decisions. Fama (1970) indentified three forms of information
efficiency for stock markets.
1. Weak form

2. Semi-strong form

3. Strong form

The London Stock exchange is considered to be the global hub of


finance market, therefore the U.K law imposed strict law on the
markets to for effective operations. Nevertheless, some false
information often speculates among investors. Therefore, LSE is to be
between semi-strong and strong form, where the stocks react
rationally to both past performances and publicly announced
information as evidenced by the stock price movement.

Share price movement:

Figure 14: Share Performance (Source: Ft.com)

1st Feb 2010: Cadbury’s shareholders received a tidy profit due to the
courtesy of Kraft, which boosted proceedings to retain exposure to
consumer goods industry

26th Mar 2010: Qinetiq to downgrade to sell from its house broker,
created ripples in market causing negative in the first day four.

5th April 2010: Unilever marketing chief commented on there inability


to focus on digital media advertizing.

1st May 2010: Announced volume growth on ice-creams by cutting


cost, and introduced ‘Dove’ brand products for men.

21st June 2010: The drop was seen after Unilever announced, Mr. KFC
Weed (Director), transferred 4000 Unilever PLC ordinary shares to his
spouse. In addition, he sold 12, 057 Unilever shares at the price £19.02
per share.

5th July 2010: share price shot up as Unilever was awarded as the
company of the year in the community’s responsibility business
awards.

05th August 2010: The drop got steady, when Unilever CEO
announced 2010 first half yearly results, Turnover up by 9.7% at
Turnover up 9.7% at €21.9 billion, Underlying volume growth 6.6%,
Underlying sales growth 3.8% , underlying price growth (2.6)%,
Underlying operating margin up 30bps, Net cash flow from operating
activities €2.2 billion, up €0.2 billion, Fully diluted earnings per share
€0.70.

15th Sept 2010: Share price accelerated after Unilever announced


management actions for sustainable growth.

14th Oct 2010: UN’s initiative to collaborate with multinational


companies to combat poverty, positively affected Unilever’s share
price as it took it as a corporate social responsibility.

04th November 2010: Share price kept rising when 3rd quarter and 9
months results were announced. 4.8% volume growth, 3.6% sales
growth, operating profit up by 20bsp, turnover up 10.9%, fully diluted
EPS €1.13 up 29%

6th December 2010: Unilever completes SARA LEE Personal Care &
European Laundry Acquisition.
24th Jan 2011: Analyst report says, 50% of Unilever’s raw materials
comes for forest. Excessive rain in Canada and Pakistan, droughts in
Russia and US cutting exports and stocking agriculture material
created tensions for Unilever, which imports majorly from all these
countries, creating lowering share price in the market.

Equity Evaluation:
The shareholder theory suggests that the financial decisions made in a
firm are focused on value creation to its shareholders (Muller 2009).
The use of evaluation helps management to make seasoned financial
decisions, such as:
• Acquisition

• Reacting to takeover bid

• IPO floatation

• Privatization

• Management buy-out

Any one of the actions can be taken on an organization using Net Asset
Value, Price/Earning ratio (P/E), Discounted Cash flow methods.

Net Asset Value:


NAV analysis is made on the value of assets and liabilities mentioned
in the balance sheet, however, these values are book values which are
financed both my equities and debts. NAV is calculated using the below
formula.

NAV = [Fixed Assets + Current Assets] – [Current Liabilities + Long Term Debt]

NAV’s formula can also be used to calculate shareholders equity.


Net Present Value (in million except per share)
Unilever 2010 2009
Fixed Assets 28683 26205
Current Asset 12484 10811
Current Liabilities 13606 11599
long term debt 8823 9971
NAV 18738 15446
Avg no. of Outstanding
share 1310.1 1310.1
NAV per share 14.30 11.79
Colgate Palmolive
Fixed Assets 5432.6 5639
Current Asset 2723 2934
Current Liabilities 2721 2771
long term debt 2055 2172
NAV 3379.6 3630
Avg no. of Outstanding
share 733 733
NAV per share 4.61 4.95
P&G
Fixed Assets 71870 80856
Current Asset 12340 15684
Current Liabilities 15953 51159
long term debt 14033 14787
NAV 54224 30594
Avg no. of Outstanding
share 2843.47 2917.03
NAV per share 19.06 10.48

25

19.06
20

14.3
NVA/share

15
11.78
10.48
10

4.61 4.95
5

0
2010 2009

Unilever Colgate Palmolive P&G


Figure 15: NAV per Share (Source: Financial Reports of Unilever, Colgate Palmolive and P&G)

Although the NAV per share of Unilever has increase by 21.4% since
2009, its absolute value is less in comparison with P&G, which grew
81.9% since 2009. However, this steep increase in NAV per share % for
P&G is due less number of ordinary share in 2010 compared to 2009.
However, when Unilever and P&G are compared on business scale, the
NAV/Share of both is justified.

Price/Earning Value (P/E):


The P/E method values the company based on future performance
expectations. It indicates the market rating of the future earning
potential of the company (Healy and Palepu 2008). A high P/E ratio is
an indication of shareholders trust on the companies future prospects.

P/E Ratio
Unilever Coalgate P&G
Earnings per Share (in p) 146 283 241
Share Price on 31st Jan/11 1816 7955 4700
P/E Ratio 12.44 28.11 19.50
No. of Share 1310.1 733 2843.5
P/E Value 16295.49 20604.29 55454.15
P/E Value

55454.14
60000

50000

40000
20604.29
30000 16295.49

20000

10000
0
Unilever Colagate P&G
Figure 16: P/E Value (Source: Financial Report of Unilever, Colgate and P&G)

The P/E value however, does not represent the actual trust of
shareholder in investing in a company, the reason being, the
fundamental principles of P/E value calculation. It look at the profit
which can be changed either by retaining earnings (not paying
dividends), or by decreasing number of shares (which is not a good
idea). Although, Unilever’s P/E value is low when compared with the
peer group, its recent entry into new geographies and successful
merge of Sara Lee’s home and personal care products, are enough to
talk about the effective management and prospects in future and in
investors trust.

For valuing purpose, one needs to zero-in on a fair P/E value. This is a
subjective process and it depends on lots of factor. For brevity, the fair
P/E value calculation is:

P/E time series Average= 15. 14 (calculated)


(LondonStockExchange.com)
P/E five year high = 20.10
P/E five year low = 9.55
Avg 5 year high/low = (20.10+9.55)/2 =14.82 (Source:
Returns.com)
It is therefore clear that, the current P/E value of Unilever is under
valued, when compared with the fair P/E value.

Discounted cash flow:


The DCF is perhaps the most widely used valuation method of
valuation. It not only focuses on profits but also on cash flows, which
are less easy to manipulate. DCF also uses the investor’s required
return as the basis for assessing the value of cash flows. The valuation
is performed by forecasting the cash flow that is generated by the
value drivers. The cash flow is calculated with forecasted revenue and
deducting all the cash based expenses that are incurred by the
business that includes tax and capital expenditure.

The cash flow of Unilever is forecasted based on publicly available


information on its sustainable growth strategy. The forecast is made
for the next 10 year, and the enterprise value is determined at
terminal year. The beauty of DCF is that, it controls the forecasting
errors by discounting cash flows to find NPV; in addition, the remote
years are discounted more stringently than the close years to further
minimize errors.

Revenue Growth:
Unilever has recorded highest volume growth in 2010 in sever
economic conditions. With shoots of recovery of the current economic
downturn and focus on emerging markets can help Unilever maintain
sustainable growth of over 3% for the next 10 year. It is likely that,
Unilever could see an increase in revenue by 5.1% for the next 5 year,
which can drop (calculating most pragmatically) to 4.6% in the 2015
and 2016, to 3.8% in 2019 and finally at 3.6% in 2020. However, on a
very optimistic assumption, it is likely that Unilever can grow 5%
annually. (Appendix 3 for historic growth)
Revenue Growth by Discounted cash flow
2010
(Base) 2011 2012 2013 2014 2015 2016 2017 2019 2020
% increase in
Revenue 4.1 5.1 5.1 5.1 5.1 5.1 4.6 4.6 3.8 3.6
Sale Revenue 4651 4889 5138 5400 5676 5937 6210 6446 6678
in € m 44262 9.36 1.85 5.33 5.99 0.29 1.26 2.34 2.23 2.87

Operating margin:
Ever since 2006, Unilever has been maintaining an operating margin
above 10%. In 2010, it has seen 14.3% operating profit, which is 10
year high. However, this is expected to grow with the advent of
technology implementation in operations, in addition, Unilever has also
started a supply chain management program across the global
(Unilever.com, 2010). This can help maintain operating margin above
14%, which means 86% goes into operating costs.

2010
(Base) 2011 2012 2013 2014 2015 2016 2017 2019 2020
% increase in
Revenue 4.1 5.1 5.1 5.1 5.1 5.1 4.6 4.6 3.8 3.6
Sale
Revenue in € 4651 4889 5138 5400 5676 5937 6210 6446 6678
m 44262 9.36 1.85 5.33 5.99 0.29 1.26 2.34 2.23 2.87
Operating
cost % 85.7 85 85 85 85 85 85 85 85 85
Operating 37932. 3954 4155 4367 4590 4824 5046 5278 5479 5676
Cost in m 534 1.46 8.07 7.53 5.09 6.25 5.57 6.99 2.9 5.44
Operating
Margin (%) 14.3 15 15 15 15 15 15 15 15 15
EBITDA in € 6329.4 6977 7333 7707 8100 8514 8905 9315 9669 1001
m 66 .904 .777 .8 .898 .044 .69 .351 .335 7.43

Depreciation and Amortization (D&A):


The D&A rate for Unilever since 5 years has been over 3.4%, the
average depreciation for last three years has been 3.68% (see
Appendix 5), and it is assumed that it is like to continue for the next 5
years. It should be noted that, Unilever does not include free land cost
into depreciation, therefore only plants, machineries and other
perishable equipment are considered while calculating depreciations.
However, the depreciation rate could increase to 3.8% for the next two
years due to obsolescence of technology and finally to 4.0% in the
terminal years. Unilever, also considers Depreciation as an operating
expense while arriving at profit, but is added later in the cash flow as it
is cash less expense. In addition to D&A, as a global conglomerate,
Unilever has experienced 7.1% financial loss, which can be attributed
to instability in the currency market, which is assumed constant for the
next 10 years.

2010
(Base) 2011 2012 2013 2014 2015 2016 2017 2019 2020
% increase in
Revenue 4.1 5.1 5.1 5.1 5.1 5.1 4.6 4.6 3.8 3.6
Sale
Revenue in € 4651 4889 5138 5400 5676 5937 6210 6446 6678
m 44262 9.36 1.85 5.33 5.99 0.29 1.26 2.34 2.23 2.87
Operating
cost % 85.7 85 85 85 85 85 85 85 85 85
Operating 37932. 3954 4155 4367 4590 4824 5046 5278 5479 5676
Cost in m 534 1.46 8.07 7.53 5.09 6.25 5.57 6.99 2.9 5.44
Operating
Margin % 14.3 15 15 15 15 15 15 15 15 15
EBITDA in € 6329.4 6977 7333 7707 8100 8514 8905 9315 9669 1001
m 66 .904 .777 .8 .898 .044 .69 .351 .335 7.43
D&A as % 3.4 3.68 3.68 3.68 3.68 3.68 3.68 3.8 3.8 4
215.20 256. 269. 283. 298. 313. 327. 353. 367. 400.6
D&A in € m 1844 7869 883 647 113 3168 7294 9834 4347 972
Other
expenses as
(%) 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1
Other
expenses in € 449.39 495. 520. 547. 575. 604. 632. 661. 686. 711.2
m 2086 4312 6982 2538 1637 4971 304 3899 5228 376
5664.8 6225 6543 6876 7227 7596 7945 8299 8615 8905.
EBIT in € m 7207 .686 .196 .899 .621 .23 .656 .978 .377 496

Tax Rate:
As one of the world’s leading financial capital market, the government
of U.K has maintained stable taxation rate. The corporate tax rat which
was 28% in 2010 was reduced to 27% in 2011, which is least in the
major G7 economies, a major advantage for multinational companies
(HMRC.gov.uk, 2011). It is also likely that, to boots economy, U.K
government would further reduce the corporate tax rate to 26% during
2019 and 2020.
However, to raise cash, Unilever make long-term debts, the interest to
which on an average is calculated as 6.37% (see appendix 2)
5664. 6225 6543 6876 7227 7596 7945 8299 8615 8905
EBIT in € m 87207 .686 .196 .899 .621 .23 .656 .978 .377 .496
Tax in (%) 27 27 27 27 27 27 27 27 26 26
1529. 1680 1766 1856 1951 2050 2145 2240 2239 2315
Tax Paid 51546 .935 .663 .763 .458 .982 .327 .994 .998 .429
Interest payable
after tax in (%) 6.37 6.37 6.37 6.37 6.37 6.37 6.37 6.37 6.37 6.37
3871. 4255 4472 4700 4940 5192 5430 5673 5969 6170
Net Earnings € m 93439 .25 .268 .354 .072 .015 .848 .027 .268 .28

Capital Expenditure:
The average capital expenditure since 2006 is 2.9%, however, it was
3.9% for 2010, which has been increasing since 2008. This increase
can be attributed to Unilever’s rapid expansion in to support the
growing volume growth by investing in building new capacities in the
emerging markets. It is assumed that, to increase global market share
Unilever keeps investing in new geographies at a rate of 3.9%.

3871 4255 4472 4700 4940 5192 5430 5673 5969 6170
Net Earnings € m .93 .25 .26 .35 .07 .01 .84 .02 .26 .28
Investment in (%) 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
1726 1814 1906 2004 2106 2213 2315 2421 2514 2604
Investment in € m .21 .25 .78 .02 .23 .65 .47 .99 .02 .53
Net Earnings after 2145 2440 2565 2696 2833 2978 3115 3251 3455 3565
investment € m .71 .99 .48 .32 .83 .36 .36 .03 .24 .74

Working Capital:

Using historic data (see Appendix 9) of Unilever it is estimated that 3%


of the total revenue generated is used as working capital. For any
organization to work smoothly, working capital is essential. Negative
working capital in the historic data suggest that Unilever was in cash
debt. Using a optimistic approach, it is assumed that 3% of the working
capital would be required for Unilever through out the next 10 year
period. This is also justified by Unilever’s expansion plans to handle
increasing volume growth.

Estimated working capital as 0.00


(%) of revenue 23 3 3 3 3 3 3 3 3 3
146 154 162 170 178 186 193 200
Working Capital € m 1.01 1396 7 2 0 3 1 3 4 3
1394 71. 74. 78. 82. 78. 81. 70. 69.
Change is working capital € m NA .56 17 80 61 62 32 93 79 61

Free Cash Flows:


FCF is the cash flow that is free of all financial obligations. It is the cash
available for disposal on strategic investment decisions which is at the
discretion of directors. Unilever has been efficient in generating FCF;
however, it claims that FCF is not used as a liquidity measure. Although
the average FCF for the past 5 year is € 3907 million (see appendix 9),
it is assumed that, its growth will be in line with the growth of revenue.

Net Earnings after 214 244 256 269 283 297 311 325 345 3565
investment € m 5.72 1.00 5.49 6.33 3.84 8.36 5.37 1.04 5.24 .75
Estimated working capital 0.00
as (%) of revenue 23 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
139 146 154 162 170 178 186 193 2003
Working Capital 1.02 5.58 6.76 1.56 0.18 2.81 1.14 3.07 3.87 .49
139 71.1 74.8 78.6 82.6 78.3 81.9 70.8 69.6
Change is working capital NA 4.56 7 0 2 3 3 3 0 2
336 350 368 386 406 427 449 469 491 5101
Free Cash Flow (FCF) 5.00 2.97 1.62 9.38 6.72 4.12 2.10 8.74 4.88 .64

Cost of Equity:
The cost of equity is the return that a common share holder expects in
return to the investment made. There are two methods to calculate:
GRM : Gordon Growth Model
CAPM : Capital Asset Pricing Model

Gordon Growth Model:


The GGM method is used as indicator of future dividend growth based
on the past dividends (Puxty et al 1988). GGM measure the difference
the difference in the dividends paid out by the firm to its investors,
therefore, this method is suitable for those firms that consistently pay
dividends. If there is inconsistency (or no growth) in the dividend
payout, GGM model may not be a suitable technique. GGM is build on
the assumption that the rate of growth in dividends is constant
indefinitely, which is not possible in highly competitive market
environment. Consider Unilever’s dividend payout graph below,
although there has be increasing growth in the dividend payout has
been increasing since 2006, there was a sudden drop in 2009. This was
due to the retention of earnings used as cash for acquisition purpose.
Therefore, GGM cannot realistic value of future equity.

Unilever's Dividend per share

80
70 71
61
60 51
48
50
in p

40
41
30
20
10
0
2006 2007 2008 2009 2010

Figure 17: Unilever's Dividend per Share (Source: Unilever Annual Report, 2010, 2009, 2008, 2007,
2006)

Capital Asset Pricing Model:


In contrast to GGM, CAPM does not require growth projections, nor
does it depend on the instantaneously efficiency of the market (Pike
and Neale 2009). This is because, CAPM considers Market Risk Factors
in calculation and is not based on the past performance of company
and on the dividend payout history.
CAPM considers the following:
RF : Market Risk Free Rate, usually government stocks
ERM : Expected return on the overall market
β : Beta Value, market risk of individual security

The difference between ERM and RF is regarded as market risk


premium. Beta value (β) is analyzed on greater than or less than value
over one. If β<1 low risk, hence low reuters. If β>1, high risk, high
reuters. β for a company varies years on year bases, and different
analyst predict different values for β.
Beta value
Source Unilev P&G Colgate
er Palmolive
Reuters.c .66 0.51 0.4892
om 87

Capital Asset Pricing Model (Cost of Equity, KE = RF+ β*(ERM-RF))


Company Risk Free Beta( Equity Risk Cost of
Rate(RF) β) Premium Equity
Unilever 3.7% .66 4.5% 6.67%
Colgate- 3.7% . 4.5% 6.03%
Palmolive 5187
P&G 3.7% . 4.5% 5.90%
4892

Free Cash Flow (FCF) and Net Present Value:


Prudently, the forecast of free cash flow for the next 10 years is
discounted at a rate of 8%, to find the Net Present Value of € 26145.13
million
Terminal Value:
In the current economic conditions and putative continuous narrowing
margins is certainly a concern for Unilever. However, with the current
performance and brand recognition there is certainly no end in the
near future. Nevertheless, terminal values are calculated to determine
the value of the company at the end of the 10th year. IMF has
forecasted 8.0% growth rate for India, and 9.8% growth for China,
which are big markets for Unilever, and 2.6% growth rate for the U.K
(bbc.com). Assuming Unilever will also grow by the same rate, the
terminal values are calculated. Final Year FCF * (1+Longterm Cash flow
growth rate)
Terminal Value =
------------------------------------------------------------------
(Discounted Factor-Long term cash flow growth rate)

Terminal Value = 5101.64*(1+2.6%)/(8%-2.6%) =


€ 96648 million

Discounted Terminal Value = Terminal Value x (1+


Ke)^10
= 48465.6*0.5000 = € 48323.8
million
Enterprise Value:
Sensitivity Analysis:
Pike and Neale (2009) mention that the sensitivity analysis is used to
isolate and assess the potential impact of risk on a firms value.
There are different factors which may affect the valuation of the
company. The different factors are as follows:-
• Long term growth rate
• Discount factor
• Sales Revenue

Long Term Growth Rate:


Best Case Scenario
Assuming the current economic downturn will completely end after
2020, also assuming that the growth rate will be over 7.5% (at the
least), will boots the growth rate of Unilever, which is 3.6% in the final
year, to 4.8% after that.
Present Value at the Nth year = CF/(r-g)
CF = Actual final year FCF = € 5101.64
million
r = discounted rate = 8%

g = growth rate after final year = 4.8%

Present Value at 10th year = 5101.64/(0.08-0.048) =


€159426 m
Terminal Value = 159426*0.5000 =
€79713 m

Enterprise Value (€ million) = NPV + Terminal Value


= 26145.13+79713 = €105858 m
Debt (€ million) = 11753.79

Entity Value (€ million) = Enterprise Value – Debts


Worst Case Scenario
Assuming that the long term growth has reduced from 3.6% to 2%.

Present Value at the Nth year = CF/(r-g)


CF = Actual final year FCF = € 5101.64
million
r = discounted rate = 8%

g = growth rate after final year = 3.6%

Present Value at 10th year = 5101.64/(0.08-0.048) =


€ 115946 m
Terminal Value = 115946*0.5000 =
€ 57973 m

Enterprise Value (€ million) = NPV + Terminal Value


= 26145.13+57973 = € 84118 m
Debt (€ million) = 11753.79

Entity Value (€ million) = Enterprise Value – Debts


Discount factor:
Best Case Scenario:
As a best case scenario, it is assumed that the cost of equity is
discounted at 7.00%
Present Value at the Nth year = CF/(r-g)
CF = Actual final year FCF = € 5101.64
million
r = discounted rate = 8%

g = growth rate after final year = 4.8%

Present Value at 10th year = 5101.64/(0.08-0.048) =


€ 159426 m
Terminal Value = 159426*0.5000 =
€ 79713 m

Enterprise Value (€ million) = NPV + Terminal Value


= 27352.80+79713 = € 107065
m
Debt (€ million) = 11753.79

Worst Case Scenario:


Assuming that the discounted was peculiarly 2 percentage point higher
(at 10%) than the usual 8%
Present Value at the Nth year = CF/(r-g)
CF = Actual final year FCF = € 5101.64
million
r = discounted rate = 8%

g = growth rate after final year = 3.6%

Present Value at 10th year = 5101.64/(0.08-0.048) =


€ 115946 m
Terminal Value = 115946*0.5000 =
€ 57973 m

Enterprise Value (€ million) = NPV + Terminal Value


= 23969+57973 = €
81942 m
Debt (€ million) = 11753.79

Sales Revenue:
Best Case Scenario
Assuming that an optimistic economy has boots the sales of Unilever
on an average of 8% increase for the next 10 years.
Present Value at the Nth year = CF/(r-g)
CF = Actual final year FCF = € 5101.64
million
r = discounted rate = 8%

g = growth rate after final year = 4.8%

Present Value at 10th year = 5101.64/(0.08-0.048) =


€ 159426 m
Terminal Value = 159426*0.5000 =
€ 79713 m

Enterprise Value (€ million) = NPV + Terminal Value


= 29186+79713 = €
108899 m
Debt (€ million) = 11753.79

Worst Case Scenario:


Assuming that the underlying sales will grow at only 3% which is a
drop of 25% of 2010 sales.
Present Value at the Nth year = CF/(r-g)
CF = Actual final year FCF = € 5101.64
million
r = discounted rate = 8%

g = growth rate after final year = 3.6%

Present Value at 10th year = 5101.64/(0.08-0.048) =


€ 115946 m
Terminal Value = 115946*0.5000 =
€ 57973 m

Enterprise Value (€ million) = NPV + Terminal Value


= 24327+57973 = €
82308 m
Debt (€ million) = 11753.79

Conclusion:
Different analysis suggests that Unilever is under performing
compared to the market on the whole, however, this tread is not only
with Unilever but also across every industry of its type. When Unilever
is compared with its peer groups, even in the present economic
conditions, its is either performing better or equal. Though cost of
equity, different scenarios are considered for effective and ineffective
performance of Unilever. It is therefore advised that the shares of
Unilever should be kept on hold, as it is certainly expected to rise as
the economy recovers. Unilever’s focus on emerging markets and
rapid expansions plans supposed to the advice of ‘Hold’.

Hol
d
Strong Buy Strong Sell
Reference:
Brealey, R., and Myers, S. (1996). Principles of Corporate Finance, 5th edition. New
York: McGraw Hill Publication.

Pike,R. And Neale,B. (2009). ‘Corporate finance and Investment – 6th edition’. Pearson
Education Limited, Essex.

Puxty,A.G., Dodds,J.C., and Wilson,M.S. (1988).’Financial management: method and


meaning’.VNR Series,pp 95.

Rappaport, A. (1998). Creating Shareholder Value: a Guide for Managers and Investors,
2nd edition. New York: The Free Press.

Online References:

BankOfEngland.co.uk [ND]
http://www.bankofengland.co.uk/publications/fsr/2010/fsr28.htm [Accessed on
13.03.2011]

BBC.com (2010). “Market Data”


http://news.bbc.co.uk/news/business/market_data/gilt/default.stm [Accessed on
14.03.2011]

CNNMoney.com (2010), Fortune Global 500,


http://money.cnn.com/magazines/fortune/global500/2010/snapshots/6127.html [Accessed
on 10.03.2011]

Damodaran (2010),’Country default spreads and Risk premiums’.


http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
[Accessed on 14.03.2011]

Ft.com (2011), Unilever PLC, http://markets.ft.com/tearsheets/performance.asp?


s=uk:ULVR [Accessed on 11.03.2011]

Global Market Information Database [ND],


https://www.portal.euromonitor.com/Portal/Magazines/Companies.aspx [Accessed on
13.03.2011]

HMRC.gov.uk (ND), Corporation Tax Rates, http://www.hmrc.gov.uk/rates/corp.htm


[Accessed on 10.03.2011]

LondonStockExchange, (2011), Unilever PLC,


http://www.londonstockexchange.com/exchange/prices-and-
markets/stocks/summary/company-summary.html?
fourWayKey=GB00B10RZP78GBGBXSET1 [13.03.2011]

Reuters.com[ND] http://www.reuters.com/finance/stocks/financialHighlights?
symbol=UL.N [13.03.2011]

Unilever.com
http://www.unilever.com/investorrelations/annual_reports/AnnualReportandAccounts201
0/Winningthroughcontinuousimprovement.aspx [07.03.2011]
Appendix:
Appendix 1: Currency Conversions
International Currency
1 USD 2006 2007 2008 2009 2010
1 GBP 0.367 0.514 0.492 0.716 0.657
1 Euro 0.82 0.75 0.634 0.77 0.73

Appendix 2: Historic Long-Term Debts as percentage of total revenue


of Unilever
Unilever 2010 2009 2008 2007 2006
Revenue € 44262 39823 40523 40187 39642
million)
Long Term 8003 8823 7289 5851 6183
debts € million)
% of revenue 18.08097239 22.15554 17.98732 14.55943 15.59709
Average 17.67607103

Appendix 3: Historic Annual Incremental of Revenue of Unilever


Unilever 2010 2009 2008 2007 2006
Revenue € million 44262 39823 40523 40187 39642
% increase 4.1% -1.7% .8% 1.4% 3.23%

Appendix 4: Historic Annual Increment of Operating Margin of Unilever


Unilever 2010 2009 2008 2007 2006
Operating Margin as (%) 14.3 12.6 17.7 13.1 13.6

Appendix 5: Historic Depreciation of Unilever


Unilever 2010 2009 2008
Depreciation % 3.43 3.81 3.78
Average Depreciation for 3 years 3.68

Appendix 6: Historic interest paid as percentage of Profit After Tax of


Unilever.
In € m 2010 2009 2008 2007 2006
Profit After
tax 4598 3659 5285 4136 5015

Interest paid 354 289 258 248 270


% of Interest 7.699 7.898333 4.881741 5.996132 5.383848
Avg Interest 6.37

Appendix 7: Historic capital expenditure of as percentage of revenue.


2010 2009 2008 2007 2006
Revenue € million 44262 39823 40523 40187 39642

Capital Expenditure € million 1701 1258 1099 983 934


Capital Expenditure as %
Revenue 3.843026 3.158978 2.71204 2.446065 2.356087
Average 2.90323916

Appendix 8: Historic change in working capital.


Working
capital as %
Sales Current Current Working of total
Unilever Revenue Assets Liabilities Capital revenue
2006 39642 9501 11516 -2015 5.082992785
2007 40187 9928 10924 -996 2.478413417
2008 40523 11175 11970 -795 1.961848827
2009 39823 10811 12881 -2070 5.198001155
2010 44262 12484 12483 1 0.002259274
Average 2.943799382

Appendix 9: Historic free cash flow of Unilever.


Free Cash Flow in
million GBP
2006 4222
2007 3769
2008 3236
2009 4941
2010 3365
Average for 5 390
years 6.6