OCTOBER 2022

Youth Financial Analysis

Competition 2022

UNILEVER
ANALYSIS
PRESENTED BY
Hoang Nguyen Nhat Phuong
Le Huong Giang HOLD CALL
Table of Contents

Basic Infotmation
1 Overview
Last Closed Price: US$44.71
GICS sector: Consumer Staples
Sub-industry: Household & Personal Products 2 Company Strategies
Stock name: ULVR
3 Executive Board

Key Financials
4 ESG in Equity Analysis

5 ESG links to financial

performance

6 Financial Report

7 Financial Analysis

8 Investment Thesis
1 year price VS Relative Index

9 Investment Catalysts

10 Investment Risks

11 Valuation

YFAC 2022 | PAGE 2

 Giants in Retail Industry
$27B
Amazon
Amazon.com is an e-commerce retailer that sells a
$35B broad range of products and services globally primarily
through its websites.
Walmart
$1.6T
Walmart engages in both the retail and wholesale
business, selling an assortment of merchandise and
$143B
services worldwide at stores and online at everyday
low prices.
Costco Wholesale
Costco operates membership retail warehouses
primarily in North America and in selected locations in
$285B Asia and Latin America.
Walgreens Boots Alliance
$366B Walgreens Boots Alliance provides drug store services
primarily in the U.S. and Europe.
The Kroger
Kroger operates supermarkets, multi-department
stores, jewelry stores, and convenience stores in the
U.S.
Market Cap of FMCG
The Home Depot
Home Depot operates hardware stores that specialize
in the sale of building materials and home
improvement products.

Future Trends of Retail Industry

Omnichannel Sustainability
Omnichannel, which means combining Customers are demanding more
multiple channels to market, sell, buy and transparency from brands and encouraging
deliver good, will become the dominant retailers to be more sustainable. As a result,
strategy for brands. By 2025, 31% of online it becomes obligation for brands to
commerce will be fulfilled by omnichannel incorporate ethical principles into their
in the U.S., up from 22% in 2020. products and operations.

Customer loyalty programmes Online shopping

Customer loyalty programmes can help to E-commerce is gaining popularity with sales
increase customer retention rates and keep are growing by 15 percent every year. It
customers coming back to businesses. benefits customers and brands in general.
Additionally, they can encourage customers While consumers have more choices and
to spend more per transaction, and they can convenience, companies can reach global
also help you to attract new customers market, boost their profit margins and easily
through word-of-mouth and referrals. track consumer behaviour and preferences.
YFAC 2022 | PAGE 3
 Company Overview
Unilever PLC. (UNLVR) is a British multinational
consumer goods company whose products include
food, condiments, ice cream, cleaning agents, beauty
products, and personal care. Unilever is the largest
producer of soap in the world, its products are
available in around 190 countries.

It has three operating segments:

Figure 1.1: Unilever's Revenue Beauty and Personal care

The company's beauty and personal care segment,

which takes up around 40% of Unilever’s revenue,
comprised sales of the following products: skin
cleansing, such as soap; hair care, including
shampoo, conditioner, and other styling products;
skin care, such as face, hand, and body moisturizers;
and deodorants.

Food & Refreshment

The company's food & refreshment segment, which

takes up around 38% of Unilever’s revenue,
comprised sales of the following products: ice cream;
Figure 1.2: Unilever's total turnover by segments savoury, such as soups, bouillons, and seasonings;
dressings, including mayonnaise and ketchup; and
tea.

Homecare

The homecare segment, which takes up around 15%

of Unilever’s revenue, comprised sales of the
following products: washing powders and liquids,
rinse conditioners, and a range of various other
cleaning products.
Source: Company Reports

Figure 1.3: Unilever's total turnover by regions

YFAC 2022 | PAGE 4

 Company Strategies

Sustainability: Unilever worked on the longer-term

Environmental non-profit CDP gave Unilever a triple ‘A’ score
implications of global trends for its business. The
adoption of the Sustainable Living Plan and
Climate Transition Action Plan has been a game-
A A A changer. Unilever shows its deep understanding of
sustainability and accepted it as a cultural
transformation journey by integrating the USLP
targets into its core working practices and
Climate Forests Water
procedures.

The integration of global strategies with the local

community: this combination aims to attract
consumers who are attracted to the famous
products; however, it can hold on to its local
essence. A prime example is Hindustan Unilever, a
subsidiary of Unilever in India, which has
established itself as one of the most loved brands
by the Indian audience. The success of HUL comes
from its association with middle-class values and
old-fashioned essence. Although it has been
changing with time simultaneously, HUL’s
philosophy has remained rooted in the purpose
and values of the consumers.

Building a customer-centric business strategy:

Unilever has been able to establish itself as the
most significant FMCG due to its direct-to-
consumer business model, i.e. by extensively
understanding the needs of the consumers.
Unilever also started its marketing campaign by
forming a relationship between the consumer and
the brand.

Research & Development: Unilever understood

changing needs of the consumers and
implemented them in their development. In 2021,
Unilever spent up to 900M on R&D.

Source: finbox.com

Growth Strategy: Double the size of business

whilst reducing environmental footprint &
increasing positive social impact.

YFAC 2022 | PAGE 5

 Executive Board

Alan Jope is the Chief Executive Officer (CEO) of

Unilever and a member of the board of directors of
Unilever, where he had worked for over 30 years.

In 1985, he joined Unilever as a graduate marketing

trainee. By 2014, he was President of Unilever's
Personal Care business, the largest division at
Unilever. Under his term as the CEO, Unilever was
recognized as one of the leading companies in many
aspects.

His leadership strategy promotes the values of either a person or an organization. Alan Jope’s focus on
building a sustainable company has resulted in increasing employee engagement (in 54 of the 75
markets where it tracks staff engagement, sustainability is the main reason people choose to join the
business, equivalent to 72%) as well as trust from investors who are looking for firms with impact. With
the ESG trends go further into the future, it is expected that the reign of Alan Jope at Unilever will be a
drive to its dominant success.

Graeme Pitkethly is the Chief Financial Officer of Unilever

and a member of the board of Unilever. Before this, he
held several senior financial and commercial roles within
Unilever, including Senior Vice President of Finance for
Global Markets, Global Head of M&A, Head of Treasury,
Pensions, and Tax, and Chief Financial Officer of Unilever
Indonesia.

Graeme brings considerable internal & external experience

to the role having spent the earlier part of his career in senior corporate finance roles in the
telecommunications industry and at PricewaterhouseCoopers.

Conny Braams is the Chief Digital & Commercial Officer

since April 2022. Externally, she has been recognized as
one of the World’s ost Influential CMOs by Forbes and
Global Marketer of the Year 2021 by the World Federation
of Advertisers.
She’s featured in Volkskrant Top 200 Most Influential
People, Campaign’s Power 100, Campaign CMO50,
Marketing Week’s Top 100 Marketers, and Provoke’s
Influence 100. She was also named Adformatie Person of
the Year in 2019 and Top Female Executive in the
Netherlands in 2006.

YFAC 2022 | PAGE 6

 ESG in Equity Analysis

In 2022, for the 12th consecutive year, Unilever

achieved the top spot in the GlobeScan
SustainAbility Leaders Survey, voted by more
than 700 sustainability experts from 73
countries. The result shows that Unilever has
done a great job in integrating sustainability into
their business strategy.

Environement
Source: GlobeScan Sustainability Leaders Survey 2022

Unilever’s environmental solid profile is sustained

through the ambitious targets outlined in the
In 2020, greenhouse gas reduced by 10% versus 2010. Unilever Compass and Climate Transition Action
Plan. Unilever remains on track to meet its 2025
In 2020, 51.9% of total energy use are renewable
target of using only reusable, recyclable, or
resources.
compostable plastic packaging and net-zero
100% of all grid electricity used was generated from
renewable resources.
emissions across its entire value chain by 2039.
Furthermore, we view Unilever's actions to halve
Experimenting on hydrogen as new fuel food waste by 2025 as defined under its Future
Foods initiative as positive.

Like other consumer goods companies exposed to

Since 2008, Unilever have reduced: water risks, Unilever has assessed its exposure
and implemented water-management measures
along its value chain. Unilever’s most material
77%
47% water risks derive from its agricultural supply chain
96% CO2 and water consumed within the use phase of home
water
care, personal care, and beauty products. We view
waste Unilever’s long-term target to implement water
stewardship programs in water-stressed regions as
best practices.

Unilever is highly exposed to biodiversity risks as

In 2015, Unilever lauched a crowdsourcing one of the world’s largest buyers of agricultural
platform to get people collaborate and aid its commodities in the FMCG sector, including palm
sustainability efforts
oil, soy, and black tea. Despite falling short of its
2020 target to source 100% of agricultural crops
In 2022, Unilever adopts Premise’s digital sustainably, Unilever remains committed to
crowdsourcing platform, furthering
achieving this target and a deforestation-free
sustainable and transparent supply of palm
oil supply chain by 2023. Unilever is also working to
empower farmers and smallholders to protect and
regenerate their land.

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 Social

Unilever’s strong customer engagement reflects its

Commit to commitment to developing purpose-led brands that
promote
healthy body
adapt to the evolving preferences of its global,
image culturally diverse consumer base. Unilever benefits
from its 37 people data centers that track
consumers' evolving preferences for sustainable,
Reached over 1.3B people, 625M through on-ground
programmes and 715M through TV commercials.
inclusive brands. This has aided Unilever's
acquisitions and progress in enhancing its portfolio
Reached a billion people in programme promote
with plant-based and nutritious foods ahead of
handwashing in 2018 and millions in accessing to toilet.
peers. Unilever also commited to improve health and
Dove and Vaseline reached millions in self-
esteem education and skin healing scheme. well-being of 1 billion people around the world.

In 2020, Unilever helped improve agricultural We believe Unilever’s commitment to developing

practices and income of:
socially responsible purpose-led brands supports
strong community relations. Unilever is committed
to improving the livelihoods of smallscale farmers,
832,000†
83 million† retailers, and women in its supply chain,
smallholder,
small-scale demonstrated by its target of enhancing agricultural
farmers
retailers practices and providing training opportunities to
stakeholders (People and Nature Policy).

Unilever demonstrates a solid commitment to

reduce workers’ rights and boster fairness in workplace
70% across its value chain. Unilever is also in the process
accidents of ensuring fair wages and gender metrics across the
compared supply chain. It also targets improving employees'
2008 helath and reducing workplace accidents.
50/50 male/female in 2020

Unilever has a strong track record in operational

and product safety across its product lines and is
expanding its portfolio toward better nutrition.
Unilever has a robust safety policy covering its
workforce and contractors and ensures all 140 food
production sites are certified for continuous
improvement.
Aiming for 70% of food porfolio meet
WHO standards (61% in 2020)

YFAC 2022 | PAGE 8

 Governance

Unilever’s board consists of highly diverse

members, in terms of experience, gender, and
nationality, and it has a high degree of
independence. The structure reflects the
company’s effort in glocalizing customer’s
experience and building purpose-led brands by
utilizing the board members' adept expertise.

We view Unilever as having a strong corporate

purpose centered around its communities and the
environment that is consistently reinforced and
communicated to all stakeholders. The company
expresses its commitment to long-term responsible
business with targets aligned to the UN's
Sustainability Development Goals. The company’s
code of business principles and code policies
defines its expectations for all employees and
suppliers, and actively provides regular training.

Unilever has comprehensive disclosure covering

various financial and non-financial metrics. This
Transparency Structure
also includes detailed policies, recognized
standards, and independent assurances along with
disclosure of material issues, which we view as
Tax Strategy above average for the industry. The non-financial
data are regularly audited and have not resulted in
any major restatements, which we view as a sign of
Tax Accountability sound accounting practices. The company has
rulings & Governance
made a statement on the need for fair taxation.

Unilever Tax Principles

Approved by Board's Audit Committee

YFAC 2022 | PAGE 9

 Unilever climate transition action plan at a glance

YFAC 2022 | PAGE 10

 ESG links to financial performance

Sustainability is the best way to create long-term,

sustainable value for stakeholders, customers, and
Sustainability was a driver of superior
consumers. We will demonstrate the impact of
financial performance and lower risk.
social-engagement policies and activities on the
Unilever CEO - Alan Jope financial performance of the company over the past
10 years.

Top-line growth

Today, customers prioritize brands that are deeply

intertwined with environmental, social, and
governance (ESG) concerns. Especially young
people, the most potential shopping forces,
consider ESG policy a priority when they make
shopping decisions. It has shown that they are
willing to pay extra or even rebrand if the brands
align with their shared values and provide high-
quality products.

As a leading brand in applying ESG to business

Source: Unilever Sustainable Living Plan strategies, Unilever has an excellent opportunity to
attract a large number of potential customers,
thereby enhancing turnover.

When Unilever developed Sunlight, a brand of

dishwashing liquid that used much less water than
its other brands, sales of Sunlight and Unilever's
other water-saving products proceeded to outpace
category growth by more than 20 percent in a
number of water-scarce markets.

Recently, Omo laundry capsules 3-in-1 are a

breakthrough in innovation with plant-based
ingredients and plastic-free packets, which were
quickly out of stock on key websites including
Amazon and Costco. They are a new effort by
Unilever to go green and have garnered positive
customer feedback.

YFAC 2022 | PAGE 11

 Operational Costs Reduction

Executing ESG effectively can help combat rising

operating expenses such as raw-material costs and
the true cost of water or carbon. In this case,
reducing energy, water, plastic use and waste in
factories has enabled Unilever to take over millions
of euros out of its system. The company has also
reduced risk at a time of volatility in food
commodity prices by increasing its purchases of
agricultural raw materials from sustainable sources.
The transition to renewable energy allows Unilever
to reduce coal and fossil fuel costs under great
inflation resulting from the Russia-Ukraine war.

According to the publication of the Anglo-Dutch

multinational’s ‘The full Year 2020 Results &
Strategic Refresh’, Unilever has saved over $1.5
billion in costs since 2008 by sourcing more
sustainably. If Unilever is still on track to its
Sustainability Plan, it will generate further cost
benefits over time.

Avoid regulatory, legal interventions

Energy taxes
Pollution and reource use taxes Strength in ESG helps reduce companies' risk of
Transport taxes adverse government action. It can also engender
government support. Now, with better awareness of
the consequences of multinational corporations’
operations, governments around the world have set
tax policies on emissions, waste, the use of plastics,
and deforestation. For example, in Europe, where
Unilever's headquarters are located, there are hefty
environmental taxes, especially taxes on energy use
that have deteriorated climate change. Besides, the
IMF has proposed that the countries that emit the
most greenhouse gases establish a tax on CO2
emissions.
Source: Eurostat

YFAC 2022 | PAGE 12

 According to this organization, this rate would have
to be USD 75/ 68 Euros per ton in 2030. Looking at
the chart, Unilever’s profits at stake are about 25 to
30 percent.

With proactive policies since 2010 to reduce

greenhouse gas emissions, CO2, plastic packaging,
and deforestation, Unilever can avoid losing money
for taxation, thereby increasing net income.

In addition, Unilever can earn subsidies and

government support. This could be seen by the
sponsor of the UK government for Unilever to
research alternative hydrogen energy.

Source: McKinsey 2019

Productivity uplift

Unilever highly focuses on human's rights, salary,

So far, Unilever has: well-being, working environment and equality in
opportunities.
Ensured that direct employees were paid at or above a
certified living wage (Framework for Fair Compensation). Therefore, it is undoubted that Unilever workers'
Implemented Lamplighter employee program aims to satisfaction is high, with 75% satisfied with their
improve the nutrition, fitness and mental resilience of benefits. It has also shown that positive social
employees.
impact correlates with higher job satisfaction and
Reduced the Total Recordable Frequency Rate (TRFR) for field experiments suggest that when companies
accidents in factories and offices by 50% versus 2008 in
“give back,” employees react with enthusiasm. As
2020.
Achieved gender balance in management and enabled
satisfaction is positively correlated with shareholder
women to expand their opportunities across value chain. returns, we expect that Unilever has been greatly
benefiting from workers’ productivity.

satisfied with their Benefits

invested in Unilever

Source: Comparably

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Financial Analysis

Operations

From the provided charts, it can be seen that the

revenue rose frequently, reaching 52,444 in 2021
despite the unstable political and social
environment resulting from the Covid-19 pandemic.
This is a positive impact of 1.3% from acquisitions
and disposals and a negative impact of 2.4% from
currency-related items.

The pandemic has had an ongoing impact on the

operating environment. It has affected all the
biggest markets of Unilever including North
America, China, India, South East Asia, and Europe.
Regardless of the low potential over the last years,
Unilever witnessed the fastest underlying sales
growth in nine years - 4.5% with 2.9% price and 1.6%
volume in 2021. Instead of relying on the traditional
selling technique, they are shifted their focus to
online selling platforms, leading to a growth of 44%
in e-commerce. Now, it represents 13% of Unilever’s
turnover, which is believed to soar in the upcoming
years. Furthermore, this increase might be the
foreseeable result of Unilever's strong focus on ESG
for over a decade.

For Unilever Company, the net profit had witnessed

an upward trend in 2021. As can be seen, the
organization had managed to reach a decent
improvement regardless of a harsh time for the
business world.

Looking at Unilever’s financial report, we believe

that the biggest problem facing the company now is
its high level of debt.

YFAC 2022 | PAGE 17

 The parameter of the current ratio is applied to
assess the capabilities of the organization in the
aspect of the provision of current assets to cover
current liabilities. From this perspective, the value
of the current ratio for the Unilever Company had
decreased over the five-year period, indicating
possible troubles in meeting its short-term
obligations.

The Debt to Equity and Debt to Assets Ratios are

applied to demonstrate the debt dependency of
Parameter D/E D/A business. The parameter changed from 2.35 in 2018
to 1,76 in 2021. As can be seen, the company was
2018 2,35 0,41 more capable to cover total debts with equity
capital over the years. The parameter that is of
2019 2,14 0,43 higher importance for the understanding of the
debt management effectiveness of the business
model at Unilever Company is the parameter of the
2020 1,79 0,39
debt to assets ratio. The table shows a decrease in
the debt to asset ratio from, 0,41 in 2018 to 0,39 in
2021 1,76 0,39
2021, indicating an effective financial strategy to
reduce debts.
Source: YahooFinance

Yet, Unilever’s liquidity and solvency ratios are low

due to long-term investment in renewing the
workforce and supply chain, which we expect to
generate future benefits.

Looking at the company's balance sheet in 2022,

Unilever's net debt to EBITDA ratio of about 2.4
suggests only moderate use of debt. And its
commanding EBIT of 27.4 times its interest expense,
implies the debt load is not a lethal issue for the
company. Unilever grew its EBIT by 7.8% in the last
year. Then Unilever is completely able to control its
debt.

YFAC 2022 | PAGE 18

 Compare

In terms of P/E, all three companies are expensive.

The main problem is that they are considered safe
havens with decent yields. This characteristic is
extremely valuable in a low-yield environment.
Unilever is the cheapest in terms of P/E (20,9).
Nestlé is the most expensive based on a P/E ratio in
2021.

If we take into account potential growth, Unilever

might become the most expensive with a PEG of
Source: Yahoo Finance 15,2 and -1,0 in 2019, and 2020 (no data in 2021),
while P&G (middle) is the cheapest in the 2 most
recent years. Looking at a simple valuation such as
the price to book, Unilever was the most expensive
of the three until last year when P&G took over with
7,2, while Nestlé (left) is the cheapest.
Current Yield vs Market
6%

4%
The ROCE ratio of Unilever was the lowest
compared to the other two. This could be well-
explained by the fast-growing debt which even
outruns the increase in revenue and net income,
2%

leading to the fluctuation in ROCE as can be seen

0%
Current Dividend Yield Market Bottom 25% Market Top 25% Industry Average Forecast In 3 Years
from the chart. Besides, there is another factor that
might worry investors which is the unstable
Source: SimplyWallst
dividend growth.

Although ULVR's dividend payments have increased

over the past 10 years, they have also been volatile
throughout this period of time. Besides, ULVR's
dividend (3.58%) is higher than the bottom 25% of
dividend payers in the UK market (2%), but that is
not worth to one of the top companies in the
industry.

Therefore, we state that Unilever is now more

undervalued than its peers, despite its healthier
EV/EBITDA ratio and the potential future growth
that we are going to address later in this report.

YFAC 2022 | PAGE 19

 Forecast

The stock has been heading straight down for over a

year. This underperformance could be triggered by
the decision of Ben & Jerry's subsidiary to suspend
ice cream sales and, especially the commodity
inflation which has been worsened by the Russian
invasion of Ukraine.

However, we believe that Unilever has an effective

business strategy to overcome this short-term crisis
and attain positive growth in the future.

During the inflation crisis, Unilever has done a great

job of passing through price increases, allowing the
company’s margin profile to be still on track for fast-
growing.

While margins are highly likely to take a decent hit

from this period due to the lag effect of price
increases, consumers are accepting the price
increases that the company is passing along quite well
with total volume only dropping by a meager 1% to
date.

The fact is companies that achieve the most massive

growth are not due to price increases in the middle of
the crisis. The spike started right after the crisis
subsidies, however, the commodities’ prices remained
Source: Datastream Macroeconomic Analysis
as they were during the crisis for a quite longer.
However, consumers would unreluctantly accept
those prices, which is evidenced by the chart below.
What is shown on the top table is return data from 1
year before peak inflation and on the bottom table is
one year after peak inflation. What the chart shows is
that during the last 3 inflation cycles, consumer
staples have rather significantly outperformed one
year after peak inflation.

Therefore, as Unilever has proven the ability to raise

prices competitively on the way up so far during this
cycle, which is the hard part, and with their substantial
brand equity, we have high expectations of their ability
to keep prices elevated once the cycle is over, leading
to sustained margin expansion.

YFAC 2022 | PAGE 20

 In addition, we assume that the market seems to have
overly punished Unilever due to its European
headquarters regarding the Ukraine war and
economic fallout. Nevertheless, Unilever is a global
company with its main operations that take place
outside Europe (only 20% are conducted in this
continent).

The vast majority of sales for Unilever are focused

outside of Europe with Asia being the crown jewel of
the portfolio. Unilever, though based in London,
appears to have a lower European sales exposure than
even Procter & Gamble (PG), the American-based
behemoth, which counts on Europe for roughly 22% of
total sales.

Recently, Unilever also underwent a reorganization plan

which allowed the company to eliminate 1,500 roles
globally and focus on 5 main groups including
Beauty&Wellbeing, Personal Care, Home Care,
Nutrition, and Ice Cream. We believe this change would
enable Unielve to be more responsive to consumer and
channel trends. Besides, this restructuring positions
Unilever to be able to sell off slower-growing
businesses, like ice cream in the future. Divestitures
might help Unilever to focus on more potential
businesses and innovation, allowing continued growth
in the total revenue and EPS.

With the reinvestment and restructuring plan coupled

with our assessment of Unilever's strong profitability
following unprecedented inflation, we are confident in
Unilever’s future growth.

We predict that revenue in 2022 will increase by 11.3%,

reaching a maximum of 69.9B in the next 5 years. EPS
would witness steady growth over the same period,
possibly reaching 3.41 by 2026.

Source: stockanalys.com

YFAC 2022 | PAGE 21

 Investment Risk

Geopolitical tension between Russia &

Ukraine leads to global inflation

Russia’s invasion of Ukraine and its implications

are increasing the probability of negative tail
risks, many of which are interlinked. Widening
geopolitical turmoil could further destabilize
global economic activity and, in the longer term,
cause global trade, investment, and financial
networks to fragment. Rising price pressures
could require substantially more monetary
tightening than currently expected. The
situation could worsen in a variety of ways,
including through the spread of hostilities over a
larger geographical area.

It could also take the form of widespread state-

Comparing factors between each year sponsored cyberattacks on public infrastructure
or financial systems, which could disrupt
telecommunications, power grids, water supply,
oil and gas pipelines, transportation networks,
and critical manufacturing sectors. Food
shortages could weigh heavily on the most
vulnerable and spark social unrest.

The existing refugee crisis could worsen. Global

refugee levels were already historically high in
recent years. The invasion of Ukraine—a country
with more than twice the population of the
Source: Forbes
Syrian Arab Republic (44 million versus 18
million)—has already caused nearly 7 million
more to seek safety abroad.

The sudden arrival of a large number of

newcomers in host countries will put pressure
on public finances and the delivery of basic
services. This could slow output and income
growth and add to inflation pressures.

YFAC 2022 | PAGE 22

Supply chain adaptation to the new
customer behavior

For discretionary retailers, the headwinds are

especially strong given considerable
uncertainty driven by competitive dynamics,
concerns over consumer confidence, and
heightened demand for last-mile delivery. It’s
increasingly clear the pandemic has materially
changed US consumer behavior, perhaps
permanently, with many retailers looking to
alter their supply chains to compete in the
next normal.

Consumer behaviors are also reported as

becoming more mindful about how they’re
spending, looking for more ways to save
money when shopping, and taking steps to be
more disciplined in their choices.

Retailers have been planning for changes in

consumers’ expectations and online behavior,
but they’ve generally assumed these changes
would occur over a fairly long period of time.
But COVID-19 has accelerated these changes
almost overnight, leaving most retailers’
supply chains unprepared to respond.

Even many retailers that had been making

incremental moves toward transformation
have not been able to cope with the halt in-
store traffic, demand for digital, and shocks to
the supply chain. No matter who the retailer
is, one cannot overstate the damage done
when stores are closed for months at a time.
Each regular customer represents a
relationship that took years to develop and
nurture; losing that continuity is a risk to any
retailer’s position in the marketplace.

YFAC 2022 | PAGE 23

 According to industry publication Supply
Chain Dive, 98% of retail executives
reported supply chain issues in 2021. Of the
same cohort of executives, 59% said their
product price or shipping costs would
increase for consumers. Most troubling for
retailers, 6% of executives said they were
taking a margin hit in order to keep prices
level for shoppers.

It’s not only shipping that is troubling

retailers today. A labor shortage leaves
retailers with no choice but to make some
hard decisions about their operations. Many
stores, especially smaller retailers, were
forced to close stores, adjust open hours,
send apology emails to customers for
disruptions in service and expectations, and
more.

It is clear that supply chain disruptions have

caused significant trouble, especially for the
industry of retail. However, as it is a
universal risk, developing a supply chain
resilience strategy would be a chance to
outperform competition within the industry.

High rivalry potential arise

Competition in the retail sector is at an all-

time high. Some of the big names rivaling
Unilever in the industry are Proctor &
Gamble, Johnson & Johnson, and Nestle.
They are always in the race of improving the
quality of their goods, create new products
that are in line with customers changing
tastes, and reinforce a good brand image in
contemporary society.
Source: Yahoo Finance
Furthermore, the retail industry is highly
competitive, with few barriers to entry,
therefore, competition comes from new
private-labeled brands in emerging markets
should be taken into consideration to
setting out the company strategy.

YFAC 2022 | PAGE 24

 Not only watching out for competitors and
new entrants but Unilever must beware of
Amazon, one of the biggest success stories in
e-commerce history. According to a 2019
consumer behavior study, 74% of consumers
turn to Amazon when they need to purchase a
product. Such is its dominance that even
some of the biggest retailers are struggling to
compete in the digital landscape.

Retailers face an even stiffer threat as

Amazon expands into brick-and-mortar
spaces. Lately, the company has been
opening several grocery stores in major U.S.
cities. Additionally, Amazon has acquired
Whole Foods Market for $13.4 billion back in
2018. This move gave them access to over
retail 460 stores, making Amazon a
heavyweight in the space almost instantly.

Investment Catalyst

Consumers and investors shift to

environmental-aware company
Mitigating climate change continues to
ESG-mandated Non-ESG mandated
require urgent multilateral action. Yet the
$150 war in Ukraine and soaring energy prices
have put pressure on governments to turn
to fossil fuels such as coal as a stopgap
measure. Policymakers and regulators
should make sure that any such measures
$100
are temporary and cover only energy
shortfalls—and do not increase emissions
overall—and facilitate investment in
renewables that will reduce emissions.
$50
Credible and comprehensive climate
policies to increase the green energy supply
should be accelerated urgently. The energy
crisis also illustrates how a policy of clean,
$0 green energy independence can be
2016 2018 2020 2021 2022 Q1
compatible with countries’ national
Source: Proportion of ESG-mandated data through 2021 security objectives. Fiscal policy should
from Global Sustainable Investment Alliance, in Billions

YFAC 2022 | PAGE 25

 smooth the transition for households and firms
that bear the brunt of the transition costs. The
recently introduced IMF Resilience and
Sustainability Trust can also help countries build
resilience to longer-term structural challenges,
including climate change and pandemic
preparedness.

In response to this, investors have also shifted

their attention to the new ESG investing. Over
$500 billion flowed into ESG-integrated funds in
2021, contributing to a 55% growth in assets
under management in ESG-integrated products.
72 Thus, a growing population of younger shoppers
71
is wielding influence on consumer spending—a
69 population that prioritizes brands that embed
50 53 social and environmental responsibility in their
55
everyday business model. Millennials now
46 represent $600 billion in spending power, while
39
27 Gen Z chips in another $140 billion. According to
19 a global research report, created by Deloitte in
2020, environmental activism has reached an
inflection point, as consumers increasingly
demand change from business leaders and
corporations. It is shown that 40% of the general
public say they are more likely to be actively
involved in social issues, and many are changing
their buying patterns or encouraging others to do
the same.

In 2020, Unilever announced a wide range of

sustainability commitments and targets that the
company will pursue over the next several years,
in an effort to fight climate change, protect and
regenerate nature, and preserve resources for
future generations. The new measures cover a
broad range of environmental and sustainability
practices, including GHG emissions, water
preservation, deforestation, and biodiversity, as
well as social goals relating to farmers,
smallholders and other supply chain partners,
among others.

YFAC 2022 | PAGE 26

 The customer experience imperative

Technology has disrupted almost every

industry worldwide, and the retail sector is no
different. E-commerce is often what retailers
Financial performance (total shareholder returns) of think of first when discussing the impact of
CX leaders vs laggards
71 technology on shopping and retail. However,
technologies such as AI, computer vision and
IoT have changed every part of the shopping
experience from browsing to checkout. These
46 changes have been driven, at least in part, by
the rise of e-commerce and the demands of an
increasingly discerning consumer base.
72

Before discussing the technologies that have

driven innovation in retail, it is important to
understand how typical shoppers have evolved
55
over the past decade. The rise of e-commerce
has highlighted the extent to which customers
value convenience and choice. Despite this,
Source: Forrester customer experience performance index physical retail has thrived and continues to
defy predictions of “the death of brick-and-
Customer experience (CX) leaders are more resilient
mortar stores,” spurred by a rising share of e-
during recessionary periods, experiencing shallower
commerce sales in the retail space. This has
troughs and quicker recovery.
encouraged physical retailers to adopt new
3x higher returns from CX leaders vs laggards technology at a much faster pace than they did
previously.

Customers, particularly millennials and

Generation Z, have indicated that customer
experience matters above other things in retail.
While the extent to which this is true changes
from grocery stores to apparel retailers, retail
brands that provide positive customer
experiences have been shown to make three
times as much as companies that fail to do the
same. E-commerce sales in apparel,
department stores, and beauty products have
increased by nearly ten percentage points, on
average, since the onset of the pandemic. In

YFAC 2022 | PAGE 27

grocery, e-commerce penetration, which has
risen from 2 to 3 percent before the crisis to 8
to 10 percent during its peak, is expected to
settle at twice the previous “normal” level, 5 to
7 percent, by year’s end.

It puts forth an exceptional opportunity for

large companies as they possess the financial
ability to adapt to this advanced technology.

Unilever’s ecommerce sales grew by 61% in its

latest financial year as shoppers turned online
to buy its hygiene and ‘at home’ food brands
during Covid-19 lockdowns. Ecommerce and
digitisation are now one of Unilever’s five
strategic choices. It plans to “position our
business for success in the channels of the
future, focusing particularly on ecommerce and
digitising the distributed trade, underpinned by
advanced shopper insight as the consumer and
customer landscape continues to evolve.”

Investment Thesis
Stagflation gives rise to the retail
industry
It is no surprise that stagflation is expected in
the year 2022. The root cause of this lies in the
monetary system - employment is slowing
down while inflation is showing no traits of
deceleration. The tighter interest rate that FED
presented at a recent media conference can
prevent people from excessively buying;
however, as president Vladimir Putin continues
to march into Ukraine, the price of daily goods
is still unreasonably priced for low and middle-
income earners. As in the Forbes forecast,
stagflation will be likely to continue throughout
2022 and get roaring in 2023.

In reaction to this, many brands started to

open discount campaigns in order to gain
market share. Therefore, consumers, with the
reason of stocking up for future recession and
buying at lower prices, go on rampant shopping

YFAC 2022 | PAGE 28

in the year 2022. The retail industry has seen a
series of special retail earnings reports.
Dillard’s, for example, earned $9.81 per share
when Wall Street only expected $5.82, helping
send its stock up 10% Thursday. Unilever also
follows the same pattern as those of the retail
industry.

It is believed that its growth is secured after

the turbulent time.

Unilever is ahead of its industry in attracting

ESG investors

Investment management firms globally are

responding to the growing investor interest in
ESG-aligned products by rebranding existing
funds and by launching new ones that target
specific sustainability objectives. In 2021,
exchange-traded funds (ETFs) and mutual
funds that are managed with ESG
characteristics or objectives similar to the
principles of Article 8 or Article 9 grew over
35% from the prior year to set a new record
with over 1,600 new launches spread across
48 jurisdictions (apart from the United States

In 2021, exchange-traded funds (ETFs) and

mutual funds that are managed with ESG
characteristics or objectives similar to the
principles of Article 8 or Article 9 grew over
35% from the prior year to set a new record
with over 1,600 new launches spread across
48 jurisdictions (apart from the United States),
making up about 12% of all fund launches. In
the United States, fund managers launched
149 mutual funds and ETFs with ESG
characteristics or objectives in 2021,
comprising about 22% of all fund launches.
The one-year growth rate of ESG fund
launches in the United States is more than
twice that of funds without, 80% versus 34%,
respectively. In the United States, fund
managers launched 149 mutual funds and
ETFs with ESG characteristics or objectives in
2021, comprising about 22% of all fund
launches. The one-year growth rate of ESG
fund launches in the United States is more
than twice that of funds without, 80% versus
34%, respectively.

YFAC 2022 | PAGE 29

 Valuation

For current shareholders, we believe selling

now would not be the best option in regard to
the long-term perspective as it is quite likely
that the damage the company suffered was due
to absorb from inflation, cancel culture rage,
and geopolitics is largely already behind them.

Going forward, the setup for Unilever is quite

ideal if they continue to push through price
increases with minimal volume losses, as they
have so far been able to achieve during the
current cycle. Once inflation begins to recede,
the company can embark on a rather long cycle
Source: Ychart of sustained margin expansion leading to total
return outperformance.

Unilever is currently trading at historically low

valuations and offering a 4.34% dividend yield
which is the highest that it has been in over 10
years.

Furthermore, Unilever has so far paid special

attention to environmental and social issues
and concretizes that concern with long-term
strategies and huge investment in ambitious
plans such as attaining net zero by 2039.
Unilever clearly understands how important
ESG is in achieving its target of doubling
business size. As such, we believe that Unilever,
given the growing interest in such principles
from users and investors, can further establish
its position in years to come.

In conclusion, we state that Unilever is now

undervalued and embraces a lucrative
opportunity to buy at the current price of
$44.26.

YFAC 2022 | PAGE 30

References

1. Abha Bhattarai, “Macy’s offers corporate workers a ‘valuable opportunity:

In-store shifts,” Washington Post, November 17, 2021.

2. Suzanne Kapner, “The great shopping reset: How the pandemic helped fix
the retail industry,” Wall Street Journal, November 19, 2021.

3. Witold Henisz, “Five ways that ESG creates value”, McKinsey Quarterly,
November 2019.

4. Alex Edmans, “Does the stock market fully value intangibles? Employee
satisfaction and equity prices”, Journal of Financial Economics, September
2011, Volume 101, Number 3, pp. 621–40, sciencedirect.com.

5. Kashish Moolchandani, “Business Strategies that set FMCG giant “Unilever” a

class apart”, The Strategy Story, May 2021.

YFAC 2022 | PAGE 31