Unilever international finance and accounting - Essay Example

UNILEVER INTRODUCTION: Unilever, United Kingdom, has just dropped Boursin as one of its business entities. Unilever ia a global business focusing on personal care, food and other consumer products. It has entrenched itself in the home as one of the trusted and reliable but reasonably priced products in the market today. Unilever has always been a staunch follower of all social responsibility laws. The social responsibility laws focus on many issues (Sluyterman 2005, 12). Further, one such issue is the payment of minimum salaries to its workers. Another such issue is the implementation of work conditions where environmental laws are taken into consideration. Another issue of social responsibility it the company's role of uplifting the lives of people in its community, the customers of Unilever and the world as a whole. In this regard, companies like Unilever are required to produce products that are not harmful to the customers and the environment (Dingman 2008). Unilever is an institution today because it had gone through many years of trials and errors with the aim of making profits without sacrificing its social responsibility to the community and other stakeholders. The following paragraphs explain Unilever's important place in the business world in terms of making profits, divestment of segments and its social responsibility. BODY: I. Research the firm since 2003 to provide critical review of the financial performance of the business during the period. Unilever (United Kingdom) is one of the country units of Unilever world. The company has been producing popular household brands that are needed by homes, offices and work places around the United Kingdom alone. The company is an institution in the field of food, home and personal care products. Unilever (United Kingdom) has under its big belt over thirty five brands that include Cornetto, Bertolli, Cif, and Sunsilk. In the area of highest country revenue, the United Kingdom is next only to the United States. The company has started smoothly the rough working conditions in order to streamline its operations. One such financially correct move was to cut its managerial positions by half during the year. Reference: www.finance.google.com/financecid=5763516 Further, the company has also innovated its company -wide sales and marketing operational strategy. The company has reduced operating expense in its United Kingdom branch by relocating its three departments to one single location. This financially rewarding move is currently the right time for the company continue its retrenchment of more than three hundred twenty line and staff employees until the year 2009. Its office is located in St. James Road, Kingston -Upon-Thames, KTI 2BA, GBR. Reference: www.finance.google.com/financecid=5763516 Unilever company is a financially stable company. The Income statement of Unilever UK for the year 2006 shows that the company generated in billions of pounds of revenues to the tue of 26,714. This shows a two percent decrease from the prior year revenues. The 2005 revenues generated 27,304.4.This represented a decrease of four percent over the prior year revenues. The 2004 revenues generated only 28,584.1. The 2006 cost of sales amounted to 13,540.3. This shows a four percent decline over the cost of goods sold of the prior year. The prior year cost of goods sold is 14,037.6. This is definitely two percent lower than the prior year cost of sales. The prior year sales amounted to 14,309.8. The company also generated gross profit of 13,173.7 for the year 2006. This is a seven percent decrease from the prior year gross profit. The prior year gross profit only reached of 14,274.4. Also, the gross profit ratio for the year 2006 is high at forty nine percent (13,171.7 /26,714). The gross profit ratio for the year 2005 is lower than the 2006 data at forty eight &59/100 percent (13,266.8 /27,304.4). The gross profit ratio for the year 2004 is high at fifty percent (14,274.43,171.7 /28,584.1). The company's operating income for the year 2006 is 3,644.3.This is ten percent higher than the operating income of the prior year. The prior year 2005 operating income is 3,311.2. This is also forty one percent higher than the prior operating income. The prior year operating income was only 2,355.90. The operating income for the year 2006 was twelve percent of the revenues. The 2005 operating margin ratio representing 12.1 percent of the same year's revenue was lower than the 2006 percentage. The 2004 operating margin ratio was eighty and 20/100 percent. This is definitely lower than the 2005 operating margin ratio. The net income generated by the company in 2006 amounted to 3,197.6. This is sixty -three percent higher than the net income generated for the prior year. The net income generated by the company in 2005 amounted to 1,965. This is three percent higher than the net income generated for the prior year. The net income generated by the company in 2004 amounted to 1,902. In addition, the net margin ratio for the year 2006 is twelve percent of the total revenues. This is sixty seven percent higher than the net profit ratio of the prior year. The net profit margin for 2005 is seven and 20/100 percent. This is clearly higher than the prior year net profit margin. The prior year 2004 net profit margin is six and 70/100 percent. The net income after tax for the year 2006 is 3,197.6 which is higher than the prior year net income after tax deduction. The prior year net income is 1,965. This is higher than the prior year net income after tax by three percent. The prior year 2004 net income after tax deduction is only 1,902. The net profit margin ratio for the year 2006 was twelve percent. This is definitely higher than the prior year net profit margin ratio. The prior year net profit margin was seven and 20/100 percent. This is higher than the net profit margin ratio for the prior year. The net profit margin ratio for the year 2004 is only six and 70/100 percent. Reference: www-2.hoovers.com/unilever-plc/--ID__55275,period__A--/freeuk-co-fin-income.xhtml Plus, the Income statement data above shows that the company has been doing good for the past three years. The bottom line of any business enterprise is to make profits Using this as a benchmark, the company did well. For, the company was able to generate net profits for the past three years. Next, the company has been doing well for the past three years based on the net profit margin ratio. Clearly the net profits stated above of sixty seven percent for the year 2006, seven and 20/100 percent for the year 2005, and six and 70/100 for the year 2004 is proof enough that the company was successful in the launching and maintaining its marketing plans in the entire United Kingdom market segment. And, one major reason for the success of the Unilever company in the United Kingdom can be answered by Maslow. Maslow theorized that Maslow stated that man's three basic needs are food, clothing and shelter. Man needs to eat an average of three full meals a day to survive. Man must prioritise filling his empty stomach with energy giving carbohydrates, vegetables, essential minerals and vitamins so he or she can work well in the office, study well his or her class lessons or stroll around the part. A person needs the clothes to protect himself or herself from skin cancer -causing hot rays of the sun during the summer months. Man also needs clothes to protect himself from the insect bites, dog bites, snake bites and other dangers while he or she is walking in public places(Combs 1999, 1). Unilever satisfies man's basic need for food as well as man's higher need for acceptance. People would love to mingle with someone who smells good, and is neat and clean. II. Evaluation of Unilever major acquisitions, divestments and cross border mergers since 2003 Unilever had pushed through with its divestment of Boursin to the company Le Groupe Bel. Unilever was able to rake in European $ 400 million for this business transaction in the year 2007. Keesvan der Graaf, the president of Unilever (Europe) stated that "Boursin has been a great brand for Unilever with a tremendous product offering and some memorable advertising. Having taking the decision to focus or portfolio on priorities outside the cheese category. I am confident we have found a new owner that will offer further growth and brand development opportunities for Boursin as part of their dedicated and focused cheese business". In response, Gerard Boivin, the chief executive officer of Le Groupe Bel answered why the company was interest to invest in the cheese producing company "We are delighted with the acquisition of an iconic brand like Boursin, which is a great addition to our very successful cheese portfolio. We are extremely optimistic about our ability to grow both sales and market share" . Reference: http://www.unilever.co.uk/ourcompany/newsandmedia/pressreleases/boursin-071107.asp Furthermore, more than one hundred fifty employees from the Boursin company were retained by company's new owner. The new owners of Boursin is Le Groupe Bel in compliance with the divestment agreement between Unilever and Le Groupe Bel. Unilever agreed to the divestment of Boursin despite forecast estimates where Boursin could earn as much as EUR 100 million. These fearless sales projections show that half of the projected sales will come from clients in France. The other half of the sales projections is estimated to come from the other member states of the European Union, United States and the Asian countries. Reference: http://www.unilever.co.uk/ourcompany/newsandmedia/pressreleases/boursin-071107.asp In addition, It is common for corporations to invest in one another company. Normally, companies prefer to merge or combine with companies with the same line of business as the parent company. Here, Unilever invested its scarce resources to a cheese producing company because cheese is a food item. The addition of Boursin cheese company blended well with the other Unilever products. However, the officers and the other line and staff personnel in Unilever are just persons. The officers of Unilever felt that their focus on the other Unilever products was being diverted to Boursin. Thus the officers believed that it was strategically right to divest themselves of the Boursin cheese company in order to pool their minds and bodies to the increase of the sales of the other equally profitable Unilever products. Normally, divestments, mergers and consolidations may result to the retrenchment of some or all of the acquired company's employees. Reference: http://www.unilever.co.uk/ourcompany/newsandmedia/pressreleases/boursin-071107.asp And, the United Kingdom food industry can be described as "food retailer buyers, particularly in the United Kingdom, have access to vast amounts of information to the point where 'a situation of information overload seems to exist.... As sense making is difficult, buyers chose to be very selective. Most retail buyers are buying many products and operating in a pressured work environment with little time available to evaluate in a formal way detailed and subtle criteria.' Decision-making by retail buyers can be seen as a process of minimising perceived risk" (Knight, Holdsworth, and Mather 2007). This quote shows that selling products in the United Kingdom should be focus improving and maintaining the quality of the products being sold and the quality of service. Companies like Unilever continue to sell high quality products in order to take a larger portion of the food market segment here in the the United Kingdom. The advent of the internet and information technology has ushered in a more complex and demanding customer centered food industry. Unilever has been very successful in the strategic marketing of its other very profitable products like Cornetto, Bertolli and Sunsilk shampoo. Reference: http://www.unilever.co.uk/ourcompany/newsandmedia/pressreleases/boursin-071107.asp Also, one very good reason for the company to divest itself from Boursin is to increase over -all profits. One way of increasing profits is to reduce operating expenses. The cost cutting strategy of Unilever has catapulted its profits behind such food giants Knorr, Persil and Ben & Jerry's ice cream. This cost cutting measure has created a remarkable increase in its sales during the last five years. Some of the products that are well -loved by consumers include Hellann's mayonnaise and lynx deodorant which garnered a 6.1 percent increase in the fourth quarter revenues well passed its projected sales forecasts. The United Kingdom territory of Unilever was able to increase its sales in 2008. This was done at the expense of Boursin cheese. Unilever chief executive Patrick Cescau felt that they had to ditch Boursin Cheese in order to reduce its expenses and increase over -all Unilever profits in United Kingdom (Covin, and Miles 2007). Plus, the ditching of Boursin Cheese was estimated to achieve a fifteen percent margin towards the year 2010. Mr. Cescau believes that this is part of the over -all plan to save an estimated two billion sterling pounds for the past three year. The Boursin divestment conforms with Unilever's strategy stating "We also have a new strategy directing more resources to high growth regionsand high growth categories.' But he would not be drawn on whether Unileverwould need to shed more than the 20,000 jobs already stated, or the progress ofthe auction of the group's detergents division in North American"("Unilever Enjoys Needed Sales" 2008, 92). Unilever's Cescau is currently working to increase its declining sales in the United States. Currently, the United States has been hit by a depression or economic downturn for the past few years. This is the reverse to the Unilever sales increase in sales in Europe. Two of the secrets of Unilever, aside from divesting slow -earning companies like Boursin, are product innovation and quality improvement. Futhermore, Unilever evidently complies with theory that "Entry to the European Union automatically implies acceptance of the concept lying at the roots of its 'economic constitution': the developing of competition by means of widespread liberalization processes in the industrial sectors"(Petretto 1998, 99). III. Appraisal the financial statements of Unilever with relevance and impact of International Accounting Standards or corporate governance policies or environment /social responsibility report. Companies established in the United Kingdom were characterised as "In earlier times managers, in most cases, had only to concern themselves with the economic results of their decisions. Today managers must also consider and weigh the legal, ethical, moral, and social impact and repercussions of each of their decisions.(Anderson 1989, 15)". Today, many companies like Unilever are socially responsible because they comply with international laws relating to the environment, labour, product quality and product standards. These same companies also implement moral and ethical standards and procedures in their day to day manufacturing, marketing, accounting and promotional activities. Many of these companies, especially Unilever, give free streamers to schools and many non -profit and charitable organisations that need donations (Anderson 1989, 16). Also, Unilever has been faithfully complying with its corporate social responsibility. In terms of the definition, "Corporate Social Responsibility is a term describing a company's obligations to be accountable to all of its stakeholders in all its operations and activities. Socially responsible companies consider the full scope of their impact on communities and the environment when making decisions, balancing the needs of stakeholders with their need to make a profit"(Doane 2005;1). Gone are the day when the company will concentrate their scarce resources and liabilities to increasing revenues at the expense of the environment or the community. The United Kingdom has come up with statutes that penalize companies that throw their factory wastes into the pristine rivers located near the company's manufacturing sites. A number of United Kingdom Statutes now ban corporations that do not set up smoke stacks so that polluted smoke from factories exit these exhaust fives more than fifteen feet high. Social responsibility also entails implementing all the laws of the land in other fields (Cohen 2003, 3). Further, one such field is that companies, like Unilever, must pay their employees a minimum wage. Also, companies must implement all the labor statutes so that they will not be penalized by the government. In terms of products, the companies must not make products that will cause harm to the consumers. In terms of Unilever, the company has been known to produce products that do generally do not cause to the customers. In terms of shampoos, the Unilever products have proven themselves through the years to improve the hair condition of the Unilever shampoo users(Cartwright 1999, 126). Also, "There are four key drivers that would impel a company to adopt a CSR programme: managing risk and reputation; protecting human capital assets; responding to consumer demands; and avoiding regulation. All of these are normal pressures that the market brings to bear in any new business strategy" (Doane 2005;1). Unilever has proven itself in the realm of managing risks and protecting its reputation. Unilever has proven itself as a protector of human assets by giving its employees minimum or even above minimum wages. Unilever has successfully complied with its clients' needs for a shampoo that improves the hair condition. Unilever has always complied with all statutes relating to their work environment. As proof, Unilever has been awarded the Association of Certified Accountants award for the company's environment report (Doane 2005). Finally, Unilever incorporates in its financial statements (Income statement) the a certain amount of cash outflow to pay comply with its corporate and social responsibility. CONCLUSION: Unilever (United Kingdom) is one of the country units of Unilever world. The company has been the household name in homes, offices and work places around the United Kingdom alone. The company is an institution in the field of food, home and personal care products. Unilever has been doing good based on the three year income statements ending on year 2006. The main goal of any business enterprise, especially Unilever, is to make profits. Unilever has been doing well for the past three years because it generated gross profits. Clearly the net profits stated above of sixty seven percent for the year 2006, seven and 20/100 percent for the year 2005, and six and 70/100 for the year 2004 are proof enough that the company was successful in the launching and maintaining its marketing plans in the entire United Kingdom market segment. Also, Unilever has seriously complying with its corporate social responsibility. Unilever implements its profit - goaled business operations keeping in mind that it has to fulfill its responsibility to its stakeholders to care for the environment and the community. In fact, Unilever has been awarded the Association of Certified Accountants award for the company's environment report Works Cited Anderson, Jerry W. 1989. Corporate Social Responsibility: Guidelines for Top Management. New York: Quorum Books. Cartwright, Peter. 1999. Consumer Protection and the Criminal Law: Law, Theory, and Policy in the UK. Cambridge, England: Cambridge University Press. Cohen, Jonathan. 2003. "1 Socially Responsible Business". In A Future for Everyone: Innovative Social Responsibility and Community Partnerships, ed. Maurrasse, David and Cynthia Jones:3-20. New York: Routledge. Covin, Jeffrey G., and Morgan P. Miles. 2007. Strategic Use of Corporate Venturing. Entrepreneurship: Theory and Practice 31, no. 2: 183+. Dingman, Jim. 2008. Nanotechnology: Its Impact on Food Safety. 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