MULTAN CAMPUS

Project Report on Ratio Analysis of Procter & Gamble and Unilever Pakistan

Submitted to:-

MISS BUSHRA GHUFRAN

SUBMITTED BY:-

MAHROOKH IQBAL

PALWASHA KHAN

FAISAL ALTAF

MOHAMMAD FAROOQ

Project Report on Ratio Analysis of Procter & Gamble and Unilever Pakistan

Industry Analysis of FMCG Sector of Pakistan Companies Profile Objective of Analysis and Methodology Financial Analysis Using Ration Analysis

Industry analysis of FMCGS

FMCG Sector of Pakistan

Products which have a quick turnover and relatively low cost are known as Fast Moving consumer Goods (FMCG). FMCG products are those that get replaced within a year or less and the purchase cycle is relatively small as compared to other products and consumer durables. Examples of FMCG products include a wide range of frequently purchased products such as toiletries, soaps, cosmetics, tooth cleaning, shaving detergents as well as some non-durables such as glass ware, bulbs, batteries, paper products and plastic goods.

In Pakistan the industry has evolved to a great extent even in the face of strict completion both in terms of generic unbranded products and in terms of acceptance level among consumers. Such examples are widespread and can be seen across different FMCG categories. Loose Tea vs. Packaged Tea, unbranded bakery items vs. branded confectionery products e.g. biscuits, chips and other snack foods, local milk vendors vs. tetrapak milk brands are just a few examples of categories where FMCG’s have made great in roads in Pakistan. The progress has been slow as compared to regional markets such as India mainly due to macroeconomic environment and the fact that India has a growing middle class which accounts for the large increase in adoption rates for branded packaged products especially in the FMCG category. However the most successful FMCG category in Pakistan to date has been food and beverages as the per Capita spending on food in Pakistan and in other South East Asian countries is relatively higher as compared to other parts of the world. Encouraging demand drivers in Pakistan include growing young population, rapid urbanization and increased penetration of organized retail. The robust profitability of the corporate sector in the year 2010 bears witness to the fact that demand drivers have in fact acted out as perceived initially.

Pakistan is a growing market from FMCG perspective and one of the fastest growing markets after India in south Asia. Pakistan is also included in developing and emerging market where trends are changing and shifting at a high pace. With the inclusion of modern trade like hyper star and metro, thrust to the FMCG product purchase has been magnified by multiple times. Unilever is the largest FMCG in Pakistan and had a turnover of PKR 20 Billion in 2007 v/s PKR 56 Billion in 2011 exhibiting a growth of 180% in terms of turnover in last five years where as Reckitt was a PKR six Billion company in 2007 v/s PKR 10Billion Turnover Company in 2011showing 66% growth in last five years. Another company which was evolved at the local level is Engro Foods, which is operating in diary business, beverages and Ice cream products. Inception of Engro Foods was taken place in 2004 with the launch of dairy milk known as Olpers and in only six months after its launch it becomes PKR one billion brand equity due to quality innovation. Since beginning quality is one of the foundation stone of Engro Foods and it is also enjoying a turnover of approximately PKR 25000 million by year end 2011 . Due to aforementioned opportunities in Pakistan every FMCG company is trying to increase their turnover, revenue and profitability by double or triple times. In order to meet their goal every company is focusing on improving business performance by eliminating organizational fat i.e. unnecessary resource or waste by applying TQM practices and become more and more efficient.

With fierce growth ambition by FMCG sector in growing market of Pakistan and equipping them with more and more advanced quality systems there is a need for establishing a relationship between TQM s and business performance indicators. Very few studies have been conducted comprehensively in Pakistan on role of TQM as effective business performance enabler. In order to cope up with the upcoming challenges every FMCG is heavily relying on TQM applications for improving their financial parameters like revenue and profitability and reducing unnecessary waste. Globally, Total Quality Management (TQM) is a popular concept in the business world. However, in Pakistan, this is still an emerging subject. Since, the competitions are getting tougher for the Pakistani products in the international market; it would become further difficult

to compete in the international market if we ignore the upcoming quality standards which our competitors are practicing. Therefore it is imperative to find the level of effectiveness (effect on revenue, profitability, and reduction of organizational fat) and feasibility of TQM in Pakistan with special reference to the FMCGs. This research study comprises of the objectives to determine how TQM principle contributes in business performance improvement of FMCG industries in Pakistan broadly and how revenue, profitability could be improved and fat could be reduced by implementing TQM. For this purpose the thematic scope of this research is the concept and applications of TQM for effective business performance of FMCG sector of Pakistan. Three companies Unilever Pakistan, Reckitt and Engro foods have been selected for this study as these are leading FMCG companies of Pakistan. The geographical scope is Karachi city which is economic hub of Pakistan.

Contribution to GDP

Pakistan's service sector accounts for about 53.3% of the GDP. The wholesale and retail trade

constitutes about 30% of the service sector contribution to the GDP of Pakistan.

Pakistan is the sixth most populous country in the world with 175 million inhabitants (US

Census Bureau, 2009). The population of Pakistan is predominantly rural (66 per cent) but with

major urban centers such as Karachi and Lahore which are the 13th and 37th most populous

cities in the world, respectively, (Worldatlas, 2009). Owing to economic growth and rising

consumer spending the retail industry has surged; retail sales have risen 68 per cent by value

between 2004 and 2008. As would be expected in a developing economy, grocery sales have

risen at a somewhat slower rate of 60 per cent by value in the same period but remain the most

important component in retail sales .There is concentration at the retail level in some sectors in Pakistan. The FIAS (2005) reported two clothing and footwear chains, Bata and Service, as having over 200 outlets each. Concentration in FMCG and grocery is, however, at a very low level as indicated in the same .

According to International Conference on Business Management report where Agha's is cited as the largest FMCG retailer by turnover yet having only one retail outlet. Whilst the growth of chains is not a major trend, the introduction of a supermarket style format is an important recent feature albeit that these continue to be operated largely as independent stores.

The supermarkets are referred to locally within the trade as ―modern‖ or ―organized‖ retail and

thus differentiated from traditional‖ and, by implication, disorganized stores.

The modern, supermarket format is in its infancy but has been introduced in the major cities of Karachi, Lahore and increasingly in the capital, Islamabad (Farrukh and Dever, 2000).

In late 2006 and in mid-2007, respectively, Makro and Metro entered the Pakistan market

operating a cash and carry format. Makro entered through a joint venture between the House of

Habib and SHV of The Netherlands as Makro Habib Pakistan Ltd. Metro entered without local

collaboration. Lower cost land in city outskirts suffers from poor security, making retailers and

potential customers wary of doing business there. The two businesses differ slightly, however, in

terms of customers served and marketing communications.

The government is acutely conscious of the immense job growth opportunities in retail sector

and has launched aggressive privatization of telecommunications, utilities and banking despite

union unrest.

Like India and China, organized retailing in Pakistan is witnessing a radical transformation. The

increase in the number of retail chains across the country is an indication that organized retailing

FMCG is emerging as an industry and will boom in a big way in a recent future. Pakistan is currently at a stage where customers need variety in products and retail formats.

Pakistan’s retailing industry has the potential to generate $42 billion per year by 2012.

Population growth combined with an increase in disposable incomes is providing the impetus to

this boom. Household groceries and apparel are the drivers in organized retail industry. Food

retail in particular is the sunrise sector. Research reveals that food retail is expected to grow to

grow more over the next five years. This means there is enough space for many big players. A

number of factors such as income growth, changing demographic profile due to more

urbanization, and the socio-economic environment are having its impact on retail scene. Pakistan

retail is currently a virgin territory. This is more important in view of the large number of middle

class population and available high-disposable income in the age group 25-35 years.

Successful Retail Chains like Hyperstar, Metro & Makro has opened the avenues for the

upcoming retailers. In Lahore, large numbers of households do the grocery shopping at

Hyperstar, Jalalsons, Alfatah, HKB, Metro, Makro and CSD. This shows the changing lifestyle

and shopping preferences of the urban population of Pakistan. This retail growth is also

supported by the increasing literacy rate in Pakistan; current urban population is more educated

than their ancestors and has a better understanding of retailer influences on shopping as the

larger retailer give quality assurances to consumers. This practice is very common in rural areas

of India and Pakistan, where everyone purchase from a specified ―Kirana‖ store. Even the food

retail chains like Gourmet and Salt & Pepper have been successful.

With the current prevailing trends in Pakistan retail industry, it is high time for the foreign

Retailers to invest in Pakistan. Even as its efforts to enter the Indian retail market have been

According to 2nd International Conference on Business Management rebuffed by regulatory constraints, Wal-Mart, the world’s largest retailer, neither confirmed nor denied speculation that it was eyeing opportunities in Pakistan.

Wal-Mart has not comment on market entry speculation as yet. The Pakistani retail market,

currently estimated at $42 billion and rapidly growing, is viewed as an attractive opportunity for

foreign investors. Pakistan is a very large and concentrated consumer opportunity. Karachi alone

accounts for 40% of any consumer business.

Personally speaking, Wal-Mart will be very viable in Pakistan, Pakistan is rapidly urbanizing.

Poor infrastructure in rural areas prevents investment. Nevertheless, many consumer goods

companies are actively marketing to rural consumers, creating awareness about branded

products.

Company wise Contribution to Social and Economic change

1. Unilever and Colgate-Palmolive Co. are sending salespeople into rural areas of the world’s sixth most-populous nation, where demand for consumer goods such as Sunsilk shampoo, Pond’s moisturizers and Colgate toothpaste has boosted local units’ revenue at least 15 percent.

2. “The rural push is aimed at the boisterous youth in these areas, who have bountiful cash and resources to increase purchases,” Shazia Syed, vice president for customer development at Unilever Pakistan Ltd., said in an interview. “Rural growth is more than double that of national sales.”

3. Consumer-goods companies forecast growth in Pakistan even as an increase in ethnic violence in Karachi has made 2011 the deadliest in 16 years for the country’s biggest city and financial center.

4. Nestle Pakistan Ltd. is spending 300 million Swiss francs ($326 million) to double dairy output in four years, boosted sales 29 percent to 33 billion rupees ($378 million) in the six months through June. “We have been focusing on rural areas very strongly,” Ian Donald, managing director of Nestle’s Pakistan unit, said in an interview in Lahore. “Our observation is that Pakistan’s rural economy is doing better than urban areas.”

5. Haji Mirbar, who grows cotton on a 5-acre farm with his four brothers, said his family’s income grew fivefold in the year through June, allowing him to buy branded products. He uses Unilever’s Lifebuoy for his open-air baths under a hand pump, instead of the handmade soap he used before. “We had a great year because of cotton prices,” said Mirbar, 28, who lives in a village outside south Pakistan’s Matiari town. “As our income has risen, we want to buy nice things and live like kings.”

6. Sales for the Pakistan unit of Unilever rose 15 percent to 24.8 billion rupees in the first half. Colgate-Palmolive Pakistan Ltd.’s sales increased 29 percent in the six months through June to 7.6 billion rupees, according to data compiled by Bloomberg. “In a generally faltering economy, the double-digit growth in revenue for companies servicing the consumer sector has come almost entirely from the rural areas,” said Sakib Sherani, chief executive officer at Macroeconomic Insights Pvt. in Islamabad and a former economic adviser to Pakistan’s finance ministry.

7. Unilever is pushing beauty products in the countryside through a program called “Guddi Baji,” an Urdu phrase that literally means “doll sister.” It employs “beauty specialists who understand rural women,” providing them with vans filled with samples and equipment, Syed said. Women in villages are also employed as sales representatives, because “rural is the growth engine” for Unilever in Pakistan, she said in an interview in Karachi. While the bulk of spending for rural families goes to food, about 20 percent “is spent on looking beautiful and buying expensive clothes,” Syed said.

8. Colgate-Palmolive, the world’s largest toothpaste maker, aims to address a “huge gap” in sales outside Pakistan’s cities by more than tripling the number of villages where its products, such as Palmolive soap, are sold, from the current 5,000, said Syed Wasif Ali, rural operations manager at the local unit.

9. Its detergents Bonus Tristar and Brite are packed in sachets of 20 grams or less and priced as low as five rupees (6 cents), to boost sales among low-income consumers hurt by the fastest pace of inflation in Asia after Vietnam. Unilever plans to increase the number of villages where its products are sold to almost half of the total 34,000 within three years. Its merchandise, including Dove shampoo, Surf detergent and Brooke Bond Supreme tea, is available in about 11,000 villages now.

10. Pakistan, Asia’s third-largest wheat grower, in 2008 increased wheat prices by more than 50 percent as Prime Minister Yousuf Raza Gilani sought to boost production of the staple.“The injection of purchasing power in the rural sector has been unprecedented,” said Sherani, who added that local prices for rice and sugarcane have also risen.

11. Telenor Pakistan Pvt. is also expanding in Pakistan’s rural areas, which already contribute 60 percent of sales, said Anjum Nida Rahman, corporate communications director for the local unit of the Nordic region’s largest phone company.

SWOT Analysis

Strengths• Operational costs for the FMCG sector in India are relatively low• Presence of established distribution networks in both urban & rural areas• Favorable governmental policies• Low labor costs as compared to other countries

Weaknesses

Lower scope of investing in technology & achieving economies of scale, especially in small sectors

Low exports levels

Opportunities• Largely untapped rural market which can be capitalized due to population’s

changing life style• Rising income levels• Large domestic market

Threats Removal of import restrictions resulting in replacing of domestic brands Tax & regulatory structure

Rural demand is cyclical in nature & also depends upon monsoon

PORTER’S 5 FORCE MODEL• Threat Of New Entrants: MODERATE

– presence of low regulatory barriers– high competitive industries require large investments, so small

players create less impact• Threat Of Substitutes: HIGH

– multiple brands with low product differentiation– new companies compete at prices which increase product substitution

• Bargaining Power Of Suppliers: MODERATE– due to long term relations with suppliers

• Rivalry Among Competitors: HIGH– as more FMCG companies are entering the country

• Bargaining Power Of Customers: LOW– due to high brand loyalty & low switching costs

Company Profile of Proctor and Gamble and UnileverProctor and Gamble

Profile of Procter & Gamble Hygiene and Health Care Ltd.

Procter & Gamble is a Public Based FMCG Company and is in the world due to the two persons and those two great persons are William Procter, a candle maker and James Gamble, a soap maker, who were basically from England and Ireland respectively.

They settled in Cincinnati initially and met when they married sisters. Their father-in-law Alexander Norris had suggested them to become business partners and as a result on 31 st October 1837 Procter & Gamble was born which is a public company.

At the beginning the product was the soap and candle and in 1880s, it began to market a new product, an inexpensive soap that floats in water and it was named as IVORY.

In 1887 the grandson of Procter William Arnett Procter began a profit-sharing program for the company’s workforce by giving a stake in the company and success follows it and the company starts building factories and selling product in other location as the demand also grows in high rate. Today the head quarter of Procter & Gamble is in Downtown Cincinnati, Ohio.

The Headquarter

And it is sharing the market throughout the world with the some leading companies like Unilever, Colgate - Palmolive etc.

In today’s date the President and CEO of P&G is Mr. Bob McDonald. The total revenue of P&G group is US$78.938 billion (2010), Operating income is US$16.021 billion (2010), Net income is US$12.736 billion (2010), Total assets is US$128.127 billion (2010), Total equity is US$61.439 billion (2010), more 250 brands present all over the world and the total number of employees are 127000 again in 2010.

If all P&G brands are combined together than it covers almost 57 percent share of market in the world.

P&G PAKISTAN-A BRIEF HISTORY:

Procter & Gamble started its operations in Pakistan in 1991 with the goal of becoming the finest global local consumer goods company operating in Pakistan. With commitment came growth, and in 1994 we acquired a soap-manufacturing facility, a sprawling 7-acre land at Hub, Balochistan. Over the past nine years, the plant achieved state-of-art manufacturing technologies and quality assurance processes. With a recent strategic investment of 5 million dollars, the bar soap production capacity jumped three-fold. 

As a company we have always believed in the potential Pakistan has as a country and a nation to develop and excel. No wonder P&G Pakistan, within the last 12 years, has reinvested over $100 million in Pakistan and has contributed close to seven billion rupees to the Pakistani government's revenues over the last 5 years in the form of sales tax, customs and excise duties. That is also why Pakistanis hold 99% of the jobs that P&G Pakistan creates in Pakistan. All this makes P&G a more locally involved company than many companies actually headquartered in Pakistan. 

Since the inception of P&G Pakistan, we have always committed ourselves to business growth, consumer satisfaction and community development. Thanks to our committed base of employees, customers, vendors, stakeholders, and above all, consumers, today we are one of the most thriving operations in Pakistan. 

Proctor & Gamble's (PG) Mission Statement

PURPOSE

We will provide branded products and services of superior quality and value that improve the lives of the world's consumers. As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.

VALUES

P&G is its people and the values by which we live.

We attract and recruit the finest people in the world. We build our organization from within, promoting and rewarding people without regard to any difference unrelated to performance. We act on the conviction that the men and women of Procter & Gamble will always be our most important asset.

Leadership

We are all leaders in our area of responsibility, with a deep commitment to deliver leadership results.

We have a clear vision of where we are going. We focus our resources to achieve leadership objectives and strategies. We develop the capability to deliver our strategies and eliminate organizational barriers.

Ownership

We accept personal accountability to meet our business needs, improve our systems, and help others improve their effectiveness.

We all act like owners, treating the Company's assets as our own and behaving with the Company's long-term success in mind.

Integrity

We always try to do the right thing. We are honest and straightforward with each other. We operate within the letter and spirit of the law. We uphold the values and principles of P&G in every action and decision. We are data-based and intellectually honest in advocating proposals, including

recognizing risks.

Passion for Winning

We are determined to be the best at doing what matters most. We have a healthy dissatisfaction with the status quo. We have a compelling desire to improve and to win in the marketplace.

Trust

We respect our P&G colleagues, customers, and consumers, and treat them as we want to be treated.

We have confidence in each other's capabilities and intentions. We believe that people work best when there is a foundation of trust.

OUR PRINCIPLES

We Show Respect for All Individuals

We believe that all individuals can and want to contribute to their fullest potential. We value differences. We inspire and enable people to achieve high expectations, standards, and challenging

goals. We are honest with people about their performance.

The Interests of the Company and the Individual Are Inseparable

We believe that doing what is right for the business with integrity will lead to mutual success for both the Company and the individual. Our quest for mutual success ties us together.

We encourage stock ownership and ownership behavior.

We Are Strategically Focused in Our Work

We operate against clearly articulated and aligned objectives and strategies. We only do work and only ask for work that adds value to the business. We simplify, standardize, and streamline our current work whenever possible.

Innovation Is the Cornerstone of Our Success

We place great value on big, new consumer innovations.

We challenge convention and reinvent the way we do business to better win in the marketplace.

We Are Externally Focused

We develop superior understanding of consumers and their needs. We create and deliver products, packaging, and concepts that build winning brand

equities. We develop close, mutually productive relationships with our customers and our

suppliers. We are good corporate citizens.

We Value Personal Mastery

We believe it is the responsibility of all individuals to continually develop themselves and others.

We encourage and expect outstanding technical mastery and executional excellence.

We Seek to Be the Best

We strive to be the best in all areas of strategic importance to the Company. We benchmark our performance rigorously versus the very best internally and externally. We learn from both our successes and our failures.

Mutual Interdependency Is a Way of Life

We work together with confidence and trust across business units, functions, categories, and geographies.

We take pride in results from reapplying others' ideas. We build superior relationships with all the parties who contribute to fulfilling our

Corporate Purpose, including our customers, suppliers, universities, and governments.

Unilever Pakistan

Background of Unilever Pakistan Ltd Co.

Unilever Pakistan Ltd., a subsidiary of the Unilever Group is operating in Pakistan since 1948. The Company’s main business lines are Soaps and Detergents, Personal Products, Cooking Oils and Fats, Packed Teas, and Ice Creams. Unilever has a long list of brands such as Surf, Vim, Rin, Lifebuoy, Sunlight, Lux, Rexona, Sunsilk, Close-Up, Blue-Band, Dalda, Planta, Lipton’s Yellow Label, Taaza and Richbru, Brook Bond’s Supreme and Kenya Mixture etc. which are common household names in Pakistan.

The Company’s factory at Rahim Yar Khan was one of the first industrial units to be constructed after the creation of Pakistan. As the consumer base expanded over the years and the Company entered into new product lines like Personal Products and Margarine, it invested further in the installation of modern manufacturing facilities including a factory at Karachi. Today, the Company is using latest state-of-the-art technology for producing high quality products.

In 1995, the Company established a new factory near Lahore to manufacture the Wall’s range of ice creams, which have become popular within a short time. In 1996, the present group – Unilever UK acquired the Polka Group that produced ice creams. In 1999, Pakistan industrial promoters (Private) Limited, owners of ‘Polka’ brands of Ice Cream was merged with Lever.

In order to leverage the synergies of Unilever’s international brand strength, market edge and corporate image, Lever Brothers Pakistan Ltd. changed its name to Unilever Pakistan Ltd., in August 2002.

Mission Statement:

We are the leading consumer products company in Pakistan, a multinational with deep roots in the country.

We attract and develop highly talented people, who are excited, empowered and committed to deliver double-digit growth.

We serve the everyday needs of all consumers everywhere for foods, hygiene and beauty through branded products and services that deliver the best quality and value.

We strive to remain an ever simple and enterprising business. We use our superior consumer understanding to produce breakthrough innovations in

brands and channels. Our brands capture the hearts of consumers through outstanding communication. Through managing a responsive supply chain, we maximise value from Suppliers to

Customers. We are exemplary through our commitment to Business Ethics, Safety, Health,

Environment and involvement in the Community.

Vision Statement:

Touching hearts, changing lives.

Introduction - Unilever Pakistan

Incorporated in 1948, we, Unilever Pakistan Limited, are one of the most prominent multinationals in the country today. We are proud of being a part of Pakistan’s history, contributing towards the growth and prosperity of the nation, providing 150 million people with a better future, a better tomorrow. Our passion for understanding people's concerns and desires, our ability to create products that fulfill those needs and our skills in getting those products to market drives our growing success - and has made us one of the world’s leading consumer goods companies.

The present company has come about through the original Lever Brothers merging with Lipton (1988), Brooke Bond (1997), Polka Ice Cream (1998), presently we are operationally merged with Best Foods since 2001. 1982 saw the introduction of personal products and 1994 the setting up of the Wall’s ice-cream business, which was a green field exercise.

Objectives

Top Priority – Fulfilment of customer’s needs:

“Unilever aims to continuously improve the environmental performance of their process and their brands to achieve sustainable profitable growth as their consumer expects them to fulfil their needs with brands that have low environmental impact.”

To be honest, transparent and ethical in our dealings at all times. Our vision, mission, values and code of Business Principles are the principal beliefs of our Company. They must be known, owned and lived by all. We are ambassadors of Unilever Pakistan both inside and outside of the work place. We take pride in always speaking positively of our Company. We take care of our personal image, work environment and assets. We respect individual differences and provide equal opportunity regardless of gender, ethnic or social background. We are all professionals; we will treat each other and our external contacts with respect, regardless of grade or job title.

To win the hearts and minds of consumers. The consumer is the heart and soul of our business. We obsessively search for new ideas by tuning into what they feel, what they want and, what they need. Wherever you are, anyone you meet, is a potential Unilever consumer. Treat them with respect. We ensure superior quality products and services aiming for zero complaints. Everyone is empowered to stop poor quality reaching the consumer. Never lose a consumer. Own the problem, with them back and ensure they feel positively treated.

To deliver what they promise. We are responsible for communicating business objectives to our employees. We all must be clear about business priorities. Never be afraid to ask. We respect time, we do what we say, and we finish what we start enthusiastically to achieve growth.

To become empowered leaders who are inspired by new challenges and have a bias for action. We shall succeed through brilliant teamwork. We support each other to meet Company and individual needs. Self-development is everyone’s responsibility. Performance Development Plan is completed for everyone in our business. We practice open and honest feedback. Each one of us is a leader – we live and lead by example.

To believe in trust, truth and outstanding teamwork. They value a creative and fun environment. We encourage empowerment and risk taking. Everyone will participate in generating new ideas, identifying improvements and be part of the solution. We contribute to a stimulating environment alive with creativity, energy and fun. We celebrate and reward success. We relentlessly simplify our business and processes. We say no to anything not clearly aligned to our strategy.

They care about and actively contribute to the community in which they live. We are good corporate citizens - we care for the environment. We do not waste resources and materials. We help communities through active involvement in projects that improve quality of life. Think safety first. We are responsible for creating a safe, secure and accident free workplace for ourselves and others. We are aware of all emergency procedures and report safety risks immediately.

Market Players

English Biscuit Manufacturers Procter & Gamble Reckitt Benckiser Pakistan Unilever Pakistan Shezan International Pepsi Co Pakistan National Foods United Industries Limited Shan Food Industries

The Main Characteristics of FMCGs are as follows:

Frequently Purchased Non-Durable in nature Low Involvement product Low price High Demand in Market High turnover Distribution Channel is stronger Used directly by the consumer

There is a huge growth potential for all the FMCG companies as the per capita consumption of almost all products in the country is amongst the lowest in the world. Again the demand or prospect could be increased further if these companies can change the consumer's mindset and offer new generation products. Earlier Pakistani consumers were using non-branded apparel, but today, clothes of different brands are available and the same consumers are willing to pay more for branded quality clothes. It's the quality, promotion and innovation of products, which can drive many sectors.

The main segments of the FMCG sector are:

Personal Care : this sector includes products like oral care, hair care, skin care, soaps, cosmetics and toiletries, deodorants, perfumes, etc.

Household Care : This includes the products like laundry soaps, synthetic detergents, dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellants, etc.

Branded and Packaged Food and Beverages : Under this category the products are health beverages, soft drinks, staples/cereals, biscuits, bread, cakes, snack food, chocolates, ice cream, tea, coffee, vegetables, meat, dairy products, bottled water, branded grains, juices etc.

Objective of Analysis and Methodology

OBJECTIVE OF THE STUDY::

The objective of the study is to analyze the financial statements of Procter & Gamble and Unilever. using the technique of ratio analysis so as to determine::

The financial position that is strength and weakness of the firm over the past years.

The performance levels of the firm over the years compared with the industry and its competitor.

The efficiency of management policy framework and its execution levels.

The future prospects of the firm in terms of overall growth in the industry.

METHODOLOGY USED::

(1) Source of data :

The data extracted for the purpose of analysis is from a secondary but reliable source.

(2) Period of analysis :

The period taken into consideration for the purpose financial analysis is from financial years ranging from 2009 to 2010.

Financial Analysis Using Ration Analysiscurrent ratio

Company 2010 2009

Unilever 0.92 0.93

P&G 0.77 0.71

The current ratio is used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The information at the table shows that Unilever and P&G have negative working capital because their current ratios are less than 1. This may happen because customers pay upfront and so rapidly, the businesses have no problems raising cash.

Quick Ratio

Company2010 2009

Unilever0.6 0.6

P&G0.34 0.34

The quick ratio is a more stringent test of liquidity than the current ratio. It is obviously a good position for the firm to be in when the quick ratio is more than 1. It can meet its short-term debt obligations with no stress. But if the quick ratio is less than 1, then the firm would have to sell inventory to meet its obligations. So that’s why both of the companies quick ratio is less then 1, so they are not performing well

Accounts Receivable Turnover

Company2010 2009

Unilever11.70 11.61

P&G13.16 14.81

Account receivable turnover is an accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. In overall, P&G and Unilever have better receivables turnover and they are performing well.

Inventory turnover

COMPANY 2010 2009Unilever 5.85 5.81P&G 12.00 11.00

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. In this industry the companies P&G, is performing better because they have the highest ratios. Unilever shows lower inventory turnover, which may indicate less sales and increase in average inventory compared to the other three companies.

Liabilities-to-equity ratio

COMPANY 2010 2009

Unilever 0.90 0.92

P&G 1.10 1.10Liabilities-to-equity ratio is a measure of a company's financial leverage, which indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. The debt/equity ratio also depends on the industry in which the company operates. The companies resemble almost the same values of debt -to-equity that vary from 0.90-1.1. All the companies operate in capital-intensive industry. This is the reason why the values of the ratio are not so high.

Earnings-per-share ratio

COMPANY 2010 2009UNILEVER 2.02 1.62P&G 3.70 4.19

Earnings per share (EPS) represents the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. In case of these companies, Unilever are companies whose EPS has improved while P&G’s EPS has decreased. As a conclusion from the showed information it can be concluded that Unilever is in the best position, while P&G is in the worst out of the two companies.

Dividend Yield

COMPANY 2010 2009

UNILEVER 3.61 3.15P&G 2.80 2.51

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Unilever and P&G have higher dividend yield BUT UNILEVER is giving more dividends then P&G

Conclusion

From the companies’ financial statements analyses we can conclude the following:

P&G has strong market share, a balanced portfolio of brands, and innovative premium-priced products in both mature and emerging markets. P&G is better than its peers with a 14% cash-conversion ratio, which captures the company’s operational efficiencies. If you are a long-term investor, you should consider buying P&G’s stocks to your portfolio. Its personal care focus, its history of creating new products to meet consumers’ needs, its near 50% dividend payout and its strong cash flow give it a stable outlook and make it a compelling choice for those looking to buy and hold quality stocks.

Unilever is the world's second-largest consumer goods company. The summary investment rationale is Unilever being on the cusp of delivering consistent profit growth - the market has yet to truly recognize - as a result of innovation, re-investment and a strong emerging markets presence. Unilever is the one to consider the first means for investment: people may not make much profit, but it provides with reliability. It is a good company to invest because low risk protects your wealth against inflation.

In overall, we can conclude that the two companies are stable and reliable in the long-run, while they have slight decline in FYE 2010, compared to FYE 2009. Intensified competition in the market means the need for competitive marketing, which has led to an increase in marketing expenditure. At the same time, deterioration of the companies’ financial situation may be caused by the worldwide financial crisis and decrease of consumers’ activity.