Digit 09   [MANAGERIAL OPTIONS IMPLICATION              MANAGERIAL OPTIONS                 IMPLICATIONNAME;SAIRA ARSHADTUT...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONTable of contents:    1 Comparison with standard techniques    2 Valuation      ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONMANAGERIAL OPTIONS:Management flexibility to make future decisions that affect a...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONgreater the uncertainty, the greater the chance that an option will be exercised...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONthe right — but not the obligation — to undertake some business decision; typica...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION     certainty equivalents, or applying (subjective) "haircuts" to the forecast ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION     First, you must figure out the full range of possible values for the underl...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION  o    spot price: the starting or current value of the project is required: thi...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION       o    the option to abandon the project (also an American put);       o   ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION     When the Real Option can be modelled using a partial differential equation,...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONIn overview:  1. The business must be positioned such that it has appropriate in...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONThe difficulties:  1. As above, data issues arise as far as estimating key model...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION            managements actions actually change the risk characteristics of the ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION            portfolio will be identical in the future, they may be equated today...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONthe gap between how the stock market prices some businesses and the "intrinsic v...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONWhat UniLever is?Unilever is dedicated to meeting the everyday needs of people e...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONbrands to meet the needs of our consumers tomorrow. , feel and smellgreat.UniLev...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONUnilever’s research and development teams help to anticipate and meet consumer n...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONThey also have a Unilever Intranet, which helps them to manage innovation and be...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONUniLever has set up of an expert external advisory board. Its task is to advise ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONcommunicate the benefits of their brands, UniLever uses a variety of media, not ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION7: Through managing a responsive supply chain we maximize value from supplier to...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONPROXIMITY TO MARKETSThe site of R.Y. Khan Plant was chosen in 1948. The main rea...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONHistoryUnileverUnilever was formed in 1930 when the Dutch Margarine Company Marg...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONLever Brothers Pakistan Limited (Rahim Yar Khan Factory)The factory site was sel...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONand understanding consumers’ lifestyles, habits and attitudes and creatively ada...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONTPMTotal productive maintenance is global standard of efficient production, whic...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONObjective: To use cleaning to identify abnormalities and areas for improvement. ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONManagerial Hierarchy of Lever Brothers Pakistan Limited (Rahim Yar Khan Factory)...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONStaff of material store is as follows.Assistant Manager Mr.Jaffar MedhiJoiner Ma...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONMaterial Store Department consists of two hangers and one perfume store. Total a...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONweigh bridge is 80 tons. There are two operators on the weigh bridge.The Functio...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONThe part of weigh bridge slip which is filled by the operator on receive contain...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONFORECASTINGDemand Forecasting“A forecast is the prediction of future events used...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONTime SeriesDemand for the future periods is also determined by the time series m...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONAnother issue of capacity strategy is when to expand and by how much there are t...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION92/L/30193/L/30694/L/308.Working capital:To know the financial position of the b...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONThis report is received from R.F. Engineering Department. It shows the detail of...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION· The developing and the strengthening of partnership with external and internal...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONSTAGESRAW MATERIAL:When raw material is received the quality of raw material is ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONOn the other hand if the lot is accepted then it is remarked as GRL (good receiv...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONSales Rs.000s                                     1         9,642,559 10,790,801...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONEXPANSION PROGRAMMES:They are now deciding to add more products in their product...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONbeginning of last year, we finished the year with two-thirds growing share, reve...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONWe have had good years before and then under delivered thereafter. We are well a...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONMarket development continues to be an equally big opportunity in both developed ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONvision, and so are the key retailers who increasingly see this as a critical are...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONbaseline year.Cash flows:Another important factor (not detailed in above table b...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONStock Chart.RECOMMENDATION:I recommend them that they should have to be flexible...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION.So in the conclusion I want to appreciate them about other planning and financi...
Digit 09   [MANAGERIAL OPTIONS IMPLICATIONOpportunities    Capturing food industry by acquiring Raffan Best Foods    Wide ...
Digit 09   [MANAGERIAL OPTIONS IMPLICATION52   Financial management 562                         Roll #AH 531929
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  1. 1. Digit 09 [MANAGERIAL OPTIONS IMPLICATION MANAGERIAL OPTIONS IMPLICATIONNAME;SAIRA ARSHADTUTOR:M.YAMIN SATTIROLL NUMBER;AH5315371SUBJECT:FINANCIAL MANGEMENT 1 Financial management 562 Roll #AH 531929
  2. 2. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONTable of contents: 1 Comparison with standard techniques 2 Valuation o 2.1 Valuation inputs o 2.2 Valuation methods 3 Limitations o 3.1 Organizational considerations o 3.2 Technical considerations 4 HistoryCase studyUnileverRecommendationConclusionSWOT analysisReferences 2 Financial management 562 Roll #AH 531929
  3. 3. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONMANAGERIAL OPTIONS:Management flexibility to make future decisions that affect a projects expected cash flows, life, orfuture acceptance.Managerial options — Valuation implicationsUp to now, we have assumed that cash flows in a capital budgeting project occurred out to somehorizon and then were discounted to obtain their present value. However, investment projects are notnecessarily set in stone once they are accepted. Managers, can, and often do, make changes thataffect subsequent cash flows and/or the life of the project. Slavish devotion to traditional discountedcash flow (DCF) methods often ignores future managerial flexibility that is, the flexibility to alterold decisions when conditions change.Valuation implicationsThe presence of managerial, or real, options enhances the worth of an investment project. The worthof a project can be viewed as its net present value, calculated in the traditional way, together with thevalue of any option(s).Project worth = NPV + Option(s) value ——–Equation 1The greater the number of options and the uncertainty surrounding their uses, the greater the secondterm in equation 1, and the greater the project€™s worth. For now, it is sufficient to say that the 3 Financial management 562 Roll #AH 531929
  4. 4. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONgreater the uncertainty, the greater the chance that an option will be exercised, and hence, the greaterthe optional€™s value.The types of managerial options available include,1. Option to expand (or contract) — An important option is one that allows the firm to expandproduction if conditions become favorable and to contract production if conditions becomeunfavorable.2. Option to abandon — if a project has abandonment value, this effectively represents a put optionto the project€™s owner.3. Option to postpone — For some projects there is the option to wait and thereby to obtain newinformation.Sometimes these options are treated informally as qualitative factors when judging the worth of aproject. The treatment given to these options may consist of no more than the recognition that “ifsuch and such occurs, we will have the opportunity to do this and thatâ€?.Managerial options are difficult to value than are financial options; you will find that the formulasfor financial options taken up. Often do not work when applied to managerial options. Rather, wemust resort to less precise approaches such as decision trees (i.e. diagrams of decision problems) andsimulations.Real options valuation, also often termed Real options analysis, (ROV or ROA)applies option valuation techniques to capital budgeting decisions. A real option itself, is 4 Financial management 562 Roll #AH 531929
  5. 5. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONthe right — but not the obligation — to undertake some business decision; typically theoption to make, abandon, expand, or contract a capital investment. For example, theopportunity to invest in the expansion of a firms factory, or alternatively to sell thefactory, is a real call or put option, respectively.Real Options, as a discipline, extends from its application in Corporate Finance, todecision making under uncertainty in general, adapting the techniques developed forfinancial options to "real-life" decisions. For example, R&D managers can use RealOptions Valuation to help them determine where to best invest their money in research; anon business example might be the decision to join the work force, or rather, to forgoseveral years of income to attend graduate school. It thus forces decision makers to beexplicit about the assumptions underlying their projections, and for this reason ROV isincreasingly employed as a tool in business strategy formulation.Comparison with standard techniquesROV is often contrasted with more standard techniques of capital budgeting, such asdiscounted cash flow (DCF) analysis / net present value (NPV). Using a DCF model, only the most likely or representative outcomes are modelled, and the "flexibility" available to management is "ignored"; see Valuing flexibility under Corporate finance. The NPV framework (implicitly) assumes that management is "passive" with regard to their Capital Investment once committed. Analysts usually account for this uncertainty by adjusting the discount rate (e.g. by increasing the cost of capital) or the cash flows (using 5 Financial management 562 Roll #AH 531929
  6. 6. Digit 09 [MANAGERIAL OPTIONS IMPLICATION certainty equivalents, or applying (subjective) "haircuts" to the forecast numbers). These methods normally do not properly account for changes in risk over a projects lifecycle and fail to appropriately adapt the risk adjustment. By contrast, ROV assumes that management is "active" and can modify the project as necessary. ROV models consider "all" future outcomes and managements response to these contingent scenarios. Because management responds to each outcome - i.e. the options are exercised - the possibility of a (large) negative outcome is reduced (or even eliminated), and /or greater profit is achieved. Risk is therefore reduced or "eliminated" under ROV, and uncertainty is accounted for using the techniques applied to financial options. Here the approach is to risk-adjust the probabilities - as opposed to the discount rate, as for NPV - and the cash flows can then be discounted at the risk-free rate. This technique is known as the certainty-equivalent or martingale approach, and uses a Risk-neutral measure. For technical considerations here, see below.Given these different treatments, the real options value of a project is typically higherthan the NPV - and the difference will be most marked in projects with major flexibility,contingency, and volatility. (As for financial options higher volatility of the underlyingleads to higher value).[edit] ValuationFrom the above it is clear that there is an analog between the modelling of real optionsand financial options: 6 Financial management 562 Roll #AH 531929
  7. 7. Digit 09 [MANAGERIAL OPTIONS IMPLICATION First, you must figure out the full range of possible values for the underlying asset....“ This involves estimating what the assets value would be if it existed today and forecasting to see the full set of possible future values... [These] calculations provide you with numbers for all the possible future values of the option at the various points where a decision is needed on whether to continue with the project... ”However, ROV is distinguished from these approaches in that it takes into accountuncertainty about the future evolution of the parameters that determine the value of theproject, and managements ability to respond to the evolution of these parameters. It isthe combined effect of these that makes ROV technically more challenging than itsalternatives. When valuing the real option, the analyst must consider the inputs to thevaluation, the valuation method employed, and whether any technical limitations mayapply.] Valuation inputsGiven the similarity in valuation approach, the inputs required for modeling the realoption correspond, generically, to those required for a financial option valuation. Thespecific application, though, is as follows: The options underlying is the project in question - it is modelled in terms of: 7 Financial management 562 Roll #AH 531929
  8. 8. Digit 09 [MANAGERIAL OPTIONS IMPLICATION o spot price: the starting or current value of the project is required: this is usually based on managements "best guess" as to the gross value of the projects cash flows and resultant NPV; o volatility: uncertainty as to the change in value over time is required:  the volatility in project value is generally used, usually derived via monte carlo simulation; sometimes the volatility of the first periods cash flows are preferred; project NPV is often difficult to estimate, and some analysts therefore substitute a listed security as a proxy, using either the volatility of the price of the security (historical volatility), or, if options exist on this security, their implied volatility.See further under Corporate finance for a discussion relating to the estimation of NPV andproject volatility.Option characteristics: o Strike price: this corresponds to the investment outlays, typically the prospective costs of the project. In general, management would proceed (i.e. the option would be in the money) given that the present value of expected cash flows exceeds this amount; o Option term: the time during which management may decide to act, or not act, corresponds to the life of the option. Examples include the time to expiry of a patent, or of the mineral rights for a new mine. See Option time value.Option style. Managements ability to respond to changes in value is modeled at eachdecision point as a series of options: o the option to contract the project (an American styled put option); 8 Financial management 562 Roll #AH 531929
  9. 9. Digit 09 [MANAGERIAL OPTIONS IMPLICATION o the option to abandon the project (also an American put); o the option to expand or extend the project (both American styled call options); o switching options, composite options or rainbow options which may also apply to the project.Valuation methodsThe valuation methods usually employed, likewise, are adapted from techniquesdeveloped for valuing financial options. Note though that, in general, while most "real"problems allow for American style exercise at any point (many points) in the projects lifeand are impacted by multiple underlying variables, the standard methods are limitedeither with regard to dimensionality, to early exercise, or to both. In selecting a model,therefore, analysts must make a trade off between these considerations; see Option(finance): Model implementation. The model must also be flexible enough to allow forthe relevant decision rule to be coded appropriately at each decision point. The most commonly employed are Closed form solutions—often modifications to Black Scholes—and binomial lattices. The latter are probably more widely used due to their flexibility, particularly given that most real options are American styled, although cannot readily handle high dimensional problems. Specialized Monte Carlo Methods have also been developed and are increasingly applied particularly to high dimensional problems, although for American styled real options, this application is somewhat more complex. 9 Financial management 562 Roll #AH 531929
  10. 10. Digit 09 [MANAGERIAL OPTIONS IMPLICATION When the Real Option can be modelled using a partial differential equation, then Finite difference methods for option pricing are sometimes applied. Although many of the early ROV articles discussed this method, its use is relatively uncommon today—particularly amongst practitioners—due to the required mathematical sophistication; these too cannot readily be used for high dimensional problems.Various other methods, aimed mainly at practitioners, have been developed for realoption valuation. These typically use cash-flow scenarios for the projection of the futurepay-off distribution, and are not based on restricting assumptions similar to those thatunderlie the closed form (or even numeric) solutions discussed.] LimitationsThe relevance of Real options, even as a thought framework, may be limited due toorganizational and / or technical considerations. When the framework is employed,therefore, the analyst must first ensure that ROV is relevant to the project in question.These considerations are as below.Organizational considerationsReal options are ―particularly important for businesses with a few key characteristics‖,and may be less relevant otherwise. At the same time the market in question must be onewhere "change is most evident", and the "source, trends and evolution" in productdemand and supply, create the volatility and contingencies discussed above. 10 Financial management 562 Roll #AH 531929
  11. 11. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONIn overview: 1. The business must be positioned such that it has appropriate information flow, and opportunities to act. This will often be a market leader and / or a firm enjoying economies of scale and scope. 2. Management must understand options, be able to identify and create them, and appropriately exercise them. (This contrasts with business leaders focused on maintaining the status quo and / or near-term accounting earnings.) 3. The financial position of the business must be such that it has the ability to fund the project as required (i.e. issue shares, absorb further debt and / or use internally generated cash flow); see Financial statement analysis. Management must also have appropriate access to this capital.Technical considerationsLimitations as to the use of these models arise due to the contrast between Real Optionsand financial options, for which these were originally developed. The main difference isthat the underlying is often not tradable - e.g. the factory owner cannot easily sell thefactory upon which he has the option. Additionally, the real option itself may also not betrade able - e.g. the factory owner cannot sell the right to extend his factory to anotherparty, only he can make this decision (some real options, however, can be sold, e.g.,ownership of a vacant lot of land is a real option to develop that land in the future). Evenwhere a market exists - for the underlying or for the option - in most cases there is limited(or no) market liquidity. 11 Financial management 562 Roll #AH 531929
  12. 12. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONThe difficulties: 1. As above, data issues arise as far as estimating key model inputs. Here, since the value or price of the underlying cannot be (directly) observed, there will always be some (much) uncertainty as to its value (i.e. spot price) and volatility (further complicated by uncertainty as to managements actions in the future). 2. It is often difficult to capture the rules relating to exercise, and consequent actions by management: Some real options are proprietary (owned or exercisable by a single individual or a company) while others are shared (can be exercised by many parties). Further, a project may have a portfolio of embedded real options, some of which may be mutually exclusive. 3. Theoretical difficulties, which are more serious, may also arise.[19] Option pricing models are built on rational pricing logic. Here, essentially: (a) it is presupposed that one can create a "hedged portfolio" comprising one option and "delta" shares of the underlying. (b) Arbitrage arguments then allow for the options price to be estimated today; see Rational pricing: Delta hedging. (c) When hedging of this sort is possible, since delta hedging and risk neutral pricing are mathematically identical, then risk neutral valuation may be applied, as is the case with most option pricing models. (d) Under ROV however, the option and (usually) its underlying are clearly not traded, and forming a hedging portfolio would be difficult, if not impossible. Standard option models: (a) Assume that the risk characteristics of the underlying do not change over the life of the option, usually expressed via a constant volatility assumption. (b) Hence a standard, risk free rate may be applied as the discount rate at each decision point, allowing for risk neutral valuation. Under ROV, however: (a) 12 Financial management 562 Roll #AH 531929
  13. 13. Digit 09 [MANAGERIAL OPTIONS IMPLICATION managements actions actually change the risk characteristics of the project in question, and hence (b) the Required rate of return could differ depending on what state was realized, and a premium over risk free would be required, invalidating (technically) the risk neutrality assumption.These issues are addressed via several interrelated assumptions: 1. As discussed above, the data issues are usually addressed using a simulation of the project, or a listed proxy. Various new methods - see for example those described above - also address these issues. 2. Specific exercise rules can often be accommodated by coding these in a bespoke binomial tree;. 3. The theoretical issues: To use standard option pricing models here, despite the difficulties relating to rational pricing, practitioners adopt the "fiction" that the real option and the underlying project are both traded (the so called, Marketed Asset Disclaimer (MAD) approach). Although this is a strong assumption, it is pointed out that, interestingly, a similar fiction in fact underpins standard NPV / DCF valuation (and using simulation as above). To address the fact that changing characteristics invalidate the use of a constant discount rate, some practitioners use the "replicating portfolio approach", as opposed to Risk neutral valuation, and modify their models correspondingly. Under this approach, we "replicate" the cash flows on the option by holding a risk free bond and the underlying in the correct proportions. Then, since the value of the option and the 13 Financial management 562 Roll #AH 531929
  14. 14. Digit 09 [MANAGERIAL OPTIONS IMPLICATION portfolio will be identical in the future, they may be equated today, and no discounting is required.HistoryWhereas business managers have been making capital investment decisions for centuries,the term "real option" is relatively new, and was coined by Professor Stewart Myers ofthe MIT Sloan School of Management in 1977. It is interesting to note though, that in1930, Irving Fisher wrote explicitly of the "options" available to a business owner (TheTheory of Interest, II.VIII). The description of such opportunities as "real options",however, followed on the development of analytical techniques for financial options,such as Black–Scholes in 1973. As such, the term "real option" is closely tied to theseoption methods.Real options are today an active field of academic research. Professor Lenos Trigeorgis(University of Cyprus) has been a leading name for many years, publishing severalinfluential books and academic articles. Other pioneering academics in the field includeProfessors Eduardo Schwartz and Michael Brennan (UCLA Anderson). An academicconference on real options is organized yearly (Annual International Conference on RealOptions).Amongst others, the concept was "popularized" by Michael J. Mauboussin, then chiefU.S. investment strategist for Credit Suisse First Boston.[8] He uses real options to explain 14 Financial management 562 Roll #AH 531929
  15. 15. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONthe gap between how the stock market prices some businesses and the "intrinsic value"for those businesses. Trigeorgis also has broadened exposure to real options throughlayman articles in publications such as The Wall Street Journal.[7] This popularization issuch that ROV is now a standard offering in postgraduate finance degrees, and often,even in MBA curricula at many Business Schools.Recently, real options have been employed in business strategy, both for valuationpurposes and as a conceptual framework.[3][4] The idea of treating strategic investments asoptions was popularized by Timothy Luehrman in two HBR articles: "In financial terms,a business strategy is much more like a series of options, than a series of static cashflows". Investment opportunities are plotted in an "option space" with dimensions"volatility" & value-to-cost .unilever 15 Financial management 562 Roll #AH 531929
  16. 16. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONWhat UniLever is?Unilever is dedicated to meeting the everyday needs of people everywhere. Around the worldUniLever foods and home and personal care brands are chosen by many millions of individualconsumers each day. Earning their trust, anticipating their aspirations and meeting their dailyneeds are the tasks of UniLever local companies. They bring to the service of their consumers thebest in brands and both UniLever’s international and local expertise.For more than 70 years Unilever has been providing consumers with quality products and services.UniLever has a portfolio of global, regional and local brands. Some, such as Bertolli, Dove,Hellmann’s, Lipton, Lux, Magnum, Omo and Vaseline, are popular around the world. Others are thefirst choice for consumers in particular countries. As traditional structures and lifestyles around theworld are being rapidly transformed, Unilever continues to respond to consumers’ present needsand, at the same time, to anticipate their future ones. Our strength lies in the deep understandingwe have of local culture and markets. Unilever’s strategy is to focus research and development andmarketing on our top performing brands, that is, those that are most in demand from consumers.Through our extensive knowledge of trends identified today, we will continue to develop our 16 Financial management 562 Roll #AH 531929
  17. 17. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONbrands to meet the needs of our consumers tomorrow. , feel and smellgreat.UniLever products are at home everywhere: favorites with consumersthroughout the world, from the emerging markets of Asia and LatinAmerica to the developed economies of Western Europe and NorthAmerica.UniLever meets the needs of consumers around the world, in both newand established markets. Consumers vary from country to country in theirpreferences and habits and UniLever adapt many of its brands to suit localtastes. For example, among UniLever’s many teas, it produces around 20 separate brands of blacktea specifically tailored for consumption in over 20 different countries and UniLever is constantlysharpening the flavors to suit all its local markets. In some societies, consumers have traditionallywashed up by sponging ash, sand or detergent onto their dishes, before rinsing. Learning fromthese established practices, we developed our Vim dish wash bar, to bring improved cleaning toexisting washing routines. Shopping habits also vary and the availability of our brands is a keyconcern of local managers. UniLever adapt the distribution of its brands to suit local realities. InEurope, customers benefit from swifter, easier dispatch through online ordering of frozen foods.While, in Tanzania, UniLever has piloted bicycle delivery of products to villages inaccessible tomotor transport. Building on a presence that in places stretches back nearly a century, it keepsclosely in tune with local consumers. UniLever is, in every sense, a multi-local multinational. 17 Financial management 562 Roll #AH 531929
  18. 18. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONUnilever’s research and development teams help to anticipate and meet consumer needs.UniLever’s research and development expertise allows to anticipate the evolving needs ofconsumers and to create the innovations to meet them. Internet technology is improving the wayUniLever share best practice and innovation around the world.UniLever’s R&D activity is focused on six major laboratories and a network of innovation centersaround the world. Recent successes have demonstrated UniLever’s practical ability to respond toconsumers and bring innovations to the marketplace. They include laundry tablets, which it hasrolled out in more than 30 countries; Lipton Cold Brew tea bags, which take away the need to boilwater when making ice tea; and its cholesterol-owering spreads, which have been widely rolled outunder the Take Control, Becel and Flora brands. UniLever continues to look for new innovationopportunities. For instance, UniLever research into the human genome means they can nowdecode the make-up of skin. This can reveal such secrets as an individual’s tendency for dryness ortheir skin protein mix. Such knowledge forms the foundation for new, more personal products.UniLever’s global IT system helps them to share information around the business and to use theirscale and scope to meet consumer needs and reduce their costs. UniLever drives to provide bettervalue for customers and consumers, they have always valued the sharing of information acrossproduct sectors and geographical locations. IT has boosted this knowledge-sharing culture, allowingus to make the most of the vast amount of Information held by our people around the world.UniLever’s computer networks provide over 90,000 employees worldwide with common tools forsharing information –allowing them to deal with millions of electronic messages every working day. 18 Financial management 562 Roll #AH 531929
  19. 19. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONThey also have a Unilever Intranet, which helps them to manage innovation and best practicearound the world. Global teams, for example, pool information, marketing success stories andknowledge via dedicated sites, making this knowledge available to UniLever’s people locally,wherever they are.UniLever is committed to doing business in a responsible and sustainable way. In partnership withorganizations around the world, UniLever works to reduce their impact on the environment and toact as a responsible corporate citizen.Unilever believes in sustainable development – meeting the needs of the present withoutcompromising resources for future generations. This commitment begins and ends with theirconsumers. UniLever believes that by constantly evolving to meet their changing needs, they cancontinue to develop their business in both a profitable and an environmentally sustainable way. Inworking towards sustainable development, they focus on three areas that are directly relevant totheir business. These are fish conservation, clean water stewardship and sustainable agriculture. Anexample of their work in the area of fish conservation is the Fish Sustainability Initiative, which aimsto meet their objective of sourcing all supplies from sustainable fisheries by 2005. Filegro, anAlaskan salmon-based dish, was our first product to come from a sustainable fishery, as certified bythe Marine Stewardship Council. In clean water stewardship, as in other areas, UniLever joins withpartners to achieve maximum impact. For example, through their sponsorship of the Global NatureFund’s Living Lakes initiative, they work with a network of private and government organizations tohelp communities better manage their local lakes and wetlands. In sustainable agriculture, 19 Financial management 562 Roll #AH 531929
  20. 20. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONUniLever has set up of an expert external advisory board. Its task is to advise and inform itsbusiness and suppliers on new sustainability standards.Unilever’s commitment to corporate social responsibility is an integral part of their operatingtradition. It is outlined in their Corporate Purpose and in their Code of Business Principles. It findspractical expression in the worldwide standards they have set their selves: to ensure the health andsafety of Unilever people at work, to secure the quality and safety of products and to minimize theenvironmental impact of their operations. UniLever aims to be as professional in their managementof its social responsibilities as they are in any other area of business. UniLever recognize the needto be explicit about what their social commitment means in practice: to articulate their policies,and to demonstrate its performance. UniLever reports on their approach and progress in its SocialReview. Unilever has a tradition of support for the local community wherever it operates, inparticular in the areas of education, environment and health. For example, in India access to oralcare is limited, with few dentists per head of population. In 2000, UniLever’s oral health andhygiene education programmed brought advice and care to over 2.5 million schoolchildren. InChina, Unilever has sponsored Qinghai province’s first Art Hope School. In a region where few canafford the cost of basic schooling, it offers the opportunity of a general education and free tuitionin traditional dance, music and modern art.Internet technology is providing a two-way communication channel, helping UniLever to get toknow its consumers better.Competition in markets is intense. To further develop their relationships with consumers and 20 Financial management 562 Roll #AH 531929
  21. 21. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONcommunicate the benefits of their brands, UniLever uses a variety of media, not only highlycreative television advertising campaigns but also new one-to-one communication via the internet.UniLever brand communication has always made the news. In the 1950s, they produced the firstever television commercial in the UK. As the 21st century began, they screened the UK’s firstinteractive TV commercials, marketing their Colman’s and Olivio brands.Lever Brothers Pakistan LimitedLever Brothers Pakistan Limited is largest fast moving consumer Products Company in Pakistan.Lever Brothers Pakistan Limited is a part of UniLever- a global company. Lever Brothers PakistanLimited is producing more than 50 brands in Pakistan.Mission Statements1: We are the leading consumer product company in Pakistan, a multinational with deep root incountry.2: We attract and develop high talented people who are excited, empowered and committed todeliver double digit growth.3: We serve every day needs of all consumers every where for food, hygiene and beauty throughbrands products and service that deliver the best quality and value.4: We strive to remain and every simple and enterprising business.5: We use our superior consumer understanding to products breakthrough innovation in brand andchannel.6: Our brands capture the hearts of consumer through outstanding communication. 21 Financial management 562 Roll #AH 531929
  22. 22. Digit 09 [MANAGERIAL OPTIONS IMPLICATION7: Through managing a responsive supply chain we maximize value from supplier to customer.8: We are exemplary through our commitment to business ethics, safety, health, environment andinvolvement in the communityLOCATIONLocation is the process of determining a geographical site for a firm’s operation. Organizationsmust weigh many factors when assessing the desirability of a particular site that can beProximity to customersProximity to suppliersLabor costsTransportation costLBPL Rahim Yar Khan Factory is situated in the middle of the city. It was established in 1948. Themain reason for choosing this location for the factory was: The land for the factory was donated by the NAWAB of the Bahawalpur State. It was the ideal location to cover the Indo-Pak border areas. It was the central location of Pakistan so it was a convenient location from the distribution point of view. Availability of the cotton seeds because south Punjab is cotton area. Government tax free area Availability of inexpensive labor 22 Financial management 562 Roll #AH 531929
  23. 23. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONPROXIMITY TO MARKETSThe site of R.Y. Khan Plant was chosen in 1948. The main reason was its central location. Thislocation is the middle of Lahore and Karachi that were the main markets at that time. So thecompany can easily cover whole market fro Karachi to Lahore.PROXIMITY TO SUPPLIERS AND RESOURCESAt that time the company was only producing oil for which cotton area was suitable. This site wassuitable for processing the raw material that was cotton and R.Y. Khan was main cotton area.TAXES AND REAL ESTATE COSTIt was the tax-free area. The land was gifted by the ABBASI family, so there was no real estate cost.TRANSPORTATION COSTSTransportation cost is also a major determinant, which directs the location decision. Transportationcost is a major factor not only in terms of the raw material but also in terms of raw material. As R.YKhan is situated at the center of Pakistan, the movement of finished goods cost minimum hereacross Pakistan. R.Y. Khan Railway Station is situated along with the factory so transportationthrough rail is very easy.AVAILABILITY OF UTILITIESThe factory is facilitated with electricity, natural gas and telephone. 23 Financial management 562 Roll #AH 531929
  24. 24. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONHistoryUnileverUnilever was formed in 1930 when the Dutch Margarine Company Margarine Unie merged withBritish soap maker Lever Brothers. Both companies were competing for the same raw materials,both were involved in large-scale marketing of household products and both used similardistribution channels. Between them, they had operations in over 40 countries.Margarine Unie grew through mergers with other margarine companies in the 1920s. LeverBrothers was founded in 1885 by William Hesketh Lever. Lever established soap factories aroundthe world. In 1917, he began to diversify into foods, acquiring fish, ice cream and canned foodsbusinesses.In the Thirties, Unilever introduced improved technology to the business. The business grew andnew ventures were launched in Latin America. The entrepreneurial spirit of the founders and theircaring approach to their employees and their communities remain at the heart of Unileversbusiness today.Unilever NV and Unilever PLC are the parent companies of what is today one of the largestconsumer goods businesses in the world. Since 1930, the two companies have operated as one,linked by a series of agreements and shareholders that participate in the prosperity of the wholebusiness. Unilevers corporate centers are London and Rotterdam 24 Financial management 562 Roll #AH 531929
  25. 25. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONLever Brothers Pakistan Limited (Rahim Yar Khan Factory)The factory site was selected in 1946. The construction of the factory started in 1949. First of allfactory started the production of the Edible Oil by establishing the Edible Fats Plant in 1952. Thefactory started the production of soap n soapry unit in 1954. Then the company expand thebusiness by establishing the Animal Feed Plant in 1960. Companydecided to enhance the product range and establish the Personal Product Plant in 1981. Non SoapDetergent (NSD) based on sulphonic acid, instead of conventional manufacturing of soap base onTallow, started in 1983. Then the company decided to expansion in soapry plant in 1991. Companyinstalled sulphonation in 1992.Management Activities in Lever Brothers Pakistan LimitedPath to GrowthIntroduced in 2000, path to growth is UniLever’s corporate strategic agenda which aims to doublethe size of the business in seven years and to grow profits faster than the competition, therebyensuring that we are the leaders in similar type companies in providing top value to ourshareholders.Six Strategic ThrustsThe six strategic thrusts that make up the path to growth are1. Reconnect with ConsumerBy having real insights into consumer needs, preferences and future needs. This means knowing 25 Financial management 562 Roll #AH 531929
  26. 26. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONand understanding consumers’ lifestyles, habits and attitudes and creatively adapting brands totheir changing needs.2. Brand FocusGrow their leading international brands by concentrating our resources behind them while stillsupporting ‘golden’ regional brands and local jewels. Innovation will be the keystone to ensuringour brands are attuned to consumers’ future needs.3. Pioneer New ChannelsWiden their means of ‘going to market’ i.e. reaching consumers and customers. This meansdeveloping new channels such as direct selling, home-vending, fashion outlets, travel, food serviceand out-of home.4. World Class Supply ChainTo close the gap to global world class within three years by establishing brand synergies, superiorlogistics and supply chain and by establishing a world program.5. SimplifyEverything that they do by reducing complexity, duplication and by making the best use of I.T. toprovide high quality information once.6. Enterprise CultureBy creating a culture which shapes the mindset and actions among all employees towards winningin the market-place by building an organization fit for growth. 26 Financial management 562 Roll #AH 531929
  27. 27. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONTPMTotal productive maintenance is global standard of efficient production, which cuts waste, savemoney and make factories safer places to work. It gives machine operators the knowledge andconfidence to investigate and eliminate root causes of machine error or breakdown as well as thechance to work in teams with managers to achieve improvements on product lines.UniLever started introducing TPM sometimes known as Total Perfect Management or Total PeopleMotivation in Japan in 1989 ahead of global roll-out program. Today, around 200 sites are usingTPM techniques. The level one ‘excellent’ award applies simply to the factory floor, ‘consistentlyexcellent’ is for sustained performance and the ‘special’ award, much harder to achieve, alsoincludes innovation, manufacturing, sourcing and distribution.5 S’s of Workplace Organization.The 5 S’s are a group of techniques to promote workplace organization, ensure adherence tostandards and foster the spirit of continues improvement.The 1st S: SortObjective: To get rid of unwanted items. Decide what is needed to be kept, and what is not neededand to be discarded.The 2nd S: Set Location and LimitsObjective: To locate a specific place for specific items of a specific quantity, where needed.Determine addresses for materials and equipment. Put them in that place and keep them there.The 3rd S: Shine and Sweep 27 Financial management 562 Roll #AH 531929
  28. 28. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONObjective: To use cleaning to identify abnormalities and areas for improvement. Clean theworkplace and at the same time visually sweep for abnormalities or out or control conditions.The 4th S: StandardizeObjective: To consolidate the first 3 S’s by establishing standard procedures. Determine the bestwork practices and find ways of ensuring everyone does it the same “best” way.The 5th S: SustainObjective: To sustain improvements and make further improvements by encouraging effective useof the ‘Check-Act-Plan-Do’ cycles. Keep all current improvements in place and develop anenvironment for future improvements. 28 Financial management 562 Roll #AH 531929
  29. 29. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONManagerial Hierarchy of Lever Brothers Pakistan Limited (Rahim Yar Khan Factory)Operations of Lever Brothers Pakistan Limited (Rahim Yar Khan Factory)Material StoreMaterial store is a place where raw material is store. My period of internship is spent inmaterial store, where I learn the different function of material store and stockmaintenance. The management structure of material store is as follows: 29 Financial management 562 Roll #AH 531929
  30. 30. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONStaff of material store is as follows.Assistant Manager Mr.Jaffar MedhiJoiner Manager (Oil & Fat) Mr.RazaJoiner Manager (Raw and Packing) EmptySOA (On receipt of material) Mr.HashimSOA (On issue of material) Mr.AsgarMr.Hashim is working on the seat of joiner manager (Raw and Packing) on temporarybasis. 30 Financial management 562 Roll #AH 531929
  31. 31. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONMaterial Store Department consists of two hangers and one perfume store. Total areaof each hanger is 256 x 107 feet. Material store has an over flow depot outside thefactory.Material Store Department handles near about 650 items of raw material.Function of Material Store:Two main functions of material stores are1. Receipt of Material2. Issue of Material1. Material Receipt Process:Material store receive two type of materialOil and Fat, DFA, Liquid CausticPacking and Raw MaterialThe process of receiving these materials is different from each other. We will discussthese processes one by one.(a). Receipt of Oil and Fat, DFA, Liquid Caustic:The process of receiving Oil and Fat includes following steps.Step 1: Weigh Bridge:First step in material receipt system is weigh bridge where vehicles reach. Capacity of 31 Financial management 562 Roll #AH 531929
  32. 32. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONweigh bridge is 80 tons. There are two operators on the weigh bridge.The Function of weigh bridge in goods receipt process is as follows.Truck or other type of vehicle driver come on weigh bridge and gives truck invoice toweigh bridge operator which is issue by the supplier of material. The weigh bridgeoperator check the type of material load on truck and note the truck number and itstiming of arrival. If material is packing and raw then it is sent to material store forunloading. If material is Oil and Fat tankers are sent to sampling point. Lab assistanttakes sample from tanker. Operator of weigh bride makes a sample chit and then thischit is sent with sample of material to lab for inspection. Sample chit consists of date,sample no, indent no, supplier name, quality, quantity, and truck no. The operator isinformed by telephone from lab that sample is ok. Then operator on weigh bridge takethe first weight of loaded tanker and feed data in system with the help of softwareWeighbridge which includes serial number, supplier name, truck number, materialname, sample no and first weight. Print of this data is attached to truck invoice. Thenoperator makes a weigh bridge slip and give it to driver and send driver to unloadingpoint. Weigh bridge slip contains date, party name, truck no, material name, andsignature of weigh bridge operator. One portion of weigh bridge slip is filled by theoperator on weigh bridge and other part is filled by the operator on receipt on material. 32 Financial management 562 Roll #AH 531929
  33. 33. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONThe part of weigh bridge slip which is filled by the operator on receive contains received,material name, truck no, and tank no where material is unloaded.After unloading tankers come back to weigh bridge. Driver gives back the weigh bridgeslip to operator and unloaded tankers are weighted. The operator feed this weight inWeighbridge software and calculates net weight. Then print of data is attached to truckinvoice. Operator checks the difference between net weight and weight written on truckinvoice. If it is minor difference than it is ignored. If it is major difference than it ismentioned on truck goods receipt which operator makes after second weight. Twocopies of TGR are given to driver and two for office. Truck good receipt containsfollowing data. Supplier name, date of receipt, city name, date of sending, quantity,packing type, description of goods and truck no.Operator feed this data is daily sheet, which is made in excel. Daily sheet contains dataabout date of receipt, arrival time, truck no, TGR no, indent no, item code, supplier,commodity, sample no, dispatch weight, received weight, difference, out time, systemposted(yes/no), remarks, weigh bridge operator. After it, the operator feed this data inMFG Pro. 33 Financial management 562 Roll #AH 531929
  34. 34. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONFORECASTINGDemand Forecasting“A forecast is the prediction of future events used for the planning purposes”.Forecasting TechniquesThere the three forecasting techniques are available for the purpose of the forecasting of thedemand, which are as under. Judgmental Method. Causal Method. Time Series Method.The usage of these techniques depends upon the availability of the data about the past.Forecasting at LBPLThe forecasting technique, which is being followed by LBPL, is the qualitative technique.Sales Force EstimateSales force estimate of forecasts compiled by the members of the company’s sales force (theirdealers in each region) about the future demand of the product. They are using this techniquebecause they believe that their estimates are correct since the dealers are much near to themarket. Marketing Department is actually involved much in forecasting. They observe the trend ofthe market and they set their target of sale then they tell to the production that what is their targetthen production department make productions according to the target set by marketingdepartment. 34 Financial management 562 Roll #AH 531929
  35. 35. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONTime SeriesDemand for the future periods is also determined by the time series method. Historical data aboutthe past demand is the basis for the time series. The data is used for the demand projection for thecoming periods.Marketing ResearchMarketing research is also conducted by the firm. Data obtained is used to determine the customerdemand pattern, and trends.Effective CapacityIt is the maximum output that a process or firm can economically sustain under normal conditions.When operating close to peak capacity, a firm can make minimal profits or even lose moneydespite high sales levels.Operations manager must examine the three dimensions of capacity before making capacitydecisions: Sizing capacity cushions Timing and sizing expansion Linking capacity and other operating decisionsThe capacity cushion is the amount of reserve capacity that a firm maintains to handle suddenincreases in demand or temporary loses of production capacity it measures the amount by whichthe average utilization falls below 100 percent.CAPACITY CUSHION = 100% - UTILIZATION RATE (%) 35 Financial management 562 Roll #AH 531929
  36. 36. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONAnother issue of capacity strategy is when to expand and by how much there are two extremestrategies:The Expansionist Strategy, which involves large infrequent jumps in capacity. In this strategyorganization remains ahead-of-demand.The Wait and See Strategy could be to follow the leader, expanding when others do. Managementmay choose one of these two strategies or one of closely linked to strategies operate betweenthese extremes. Capacity decision should be considered throughout the organization. Whenmanagers make decisions about location, resource flexibility and inventory, they must consider theimpact on capacity cushions.Capacity cushion buffer the organization against uncertainty as do resource flexibility, inventoryand longer customer lead times. If a system is well balanced and a change is made in some otherdecision area, then the capacity cushion may need changes to compensate.The categories and sizes of the soaps manufactured at RF are given below:Hard SoapLIFEBUOY( Red & White) 140gms.n a year four Times capitalization procedure is completed. At The end of each quartercapitalization of Capital Proposal is done by the Capital Proposal Account Department.For various head of accounts, Company has mentioned various numbers of CapitalProposal just like as91/L/101 36 Financial management 562 Roll #AH 531929
  37. 37. Digit 09 [MANAGERIAL OPTIONS IMPLICATION92/L/30193/L/30694/L/308.Working capital:To know the financial position of the business each month of the financial year ―workingCapital report‖ is prepared. With the help of Working Capital Report, company knowshow much capital is circulated in business. And also know that how many accountsreceivable, accounts payable and inventories exist.Two copies of Working Capital report are prepared. One is sent to head office monthlybasis while second is for office use.Over Head Expenditure report:To control the repair expenses of the factory ―Over Head Expenditure Report‖ isprepared on monthly basis. All locations mentioned in workshop, for example WorkerAdministration Department, for their salary, traveling expense, building of the workshopadministration department all revenue expenditures are Called overhead Expenditurereport.After obtaining this report one JV Is passed by Accounts Department according tovarious a/c # and locations.Month End Work Order report: 37 Financial management 562 Roll #AH 531929
  38. 38. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONThis report is received from R.F. Engineering Department. It shows the detail of thatwork done on repair and maintenance, in other words those expenses which incurred onrepairs and maintenance up to at the end of each month. This final report is send byEngineering Department to Accounts department. Against this report AccountsDepartment prepares two JVs; one for Capital Proposal Administration Department whilesecond against various locations.ReconciliationReconciliation functions are also performed in financial section. FollowingReconciliation Statements are prepared in this department. Reconciliation Statement Between Wall’s Ice cream and Rahim Yar Khan Factory Reconciliation Statement Between Engineering stores & Payment section Reconciliation Statement between Karachi Tea Factory (KTF) Reconciliation Statement between Karachi edible oil The & Ghee Factory Reconciliation Statement between Head office and R.FReconciliation Statement between Brook Bond And R.FOBJECTIVES· OFI – Opportunity For Improvement· Always looking for improvement.· The continuous improvement of all services through total involvement of all employees. 38 Financial management 562 Roll #AH 531929
  39. 39. Digit 09 [MANAGERIAL OPTIONS IMPLICATION· The developing and the strengthening of partnership with external and internal customers andsuppliers.· Providing innovative and higher quality products and services to achieve total customersatisfaction by understanding their requirements and anticipating their future expectations orneeds.FUNCTIONS· Monitoring annual targets for quality improvements in all areas.· Creating a culture of customer focus striving to become the lowest cost producer through agreedannual cost reduction program.· Value people by understanding and drawing upon their strength i.e. abilities and knowledge andmake efforts for their training and development. 39 Financial management 562 Roll #AH 531929
  40. 40. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONSTAGESRAW MATERIAL:When raw material is received the quality of raw material is inspected according to the standards.According to these standards if the personnel of receiving department will inspect according to thestandards. If there are a lot of 500 and they choose 13 samples from the whole lot then they selectthe sample from the upper and lower and right and left side of the whole packet. It means thatthey select the sample by way of diversifying the area. If the 2 units of the sample are rejected thenthe whole lot will be rejected and if the lot is rejected then they call back the vendors and vendorcheck that lot again. If the lot is very much needed by the production department then they place awritten request. The 100% inspection is done on it. In this case, they call the vendors or theirinspectors and they check it on 100% basis. But this happens in very rare cases. 40 Financial management 562 Roll #AH 531929
  41. 41. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONOn the other hand if the lot is accepted then it is remarked as GRL (good received lot) and sent tothe store. While four copies of GRL are made and sent to the following four departments:1. Purchase Department2. Quality Control Department3. Store4. For computer entryFinancial analysis:Financial HighlightsSix months ending Reference 30.6.01 31.12.00 30.6.00 31.12.99 30.6.99 41 Financial management 562 Roll #AH 531929
  42. 42. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONSales Rs.000s 1 9,642,559 10,790,801 9,717,415 9,426,775 9,939,479Profit after tax Rs.000 2 623,270 843,209 495,905 415,168 348,792Dividends Rs.000 3 498,520 1,103,869 438,698 332,586 332,347Shareholders equity (or Net assets) Rs.000 4 1,383,352 1,258,602 1,517,879 1,538,483 1,451,690Number of shares 000s 5 13,294 13,294 13,294 13,294 13,294Key Financial BenchmarksSales per share (Rs) 6=1/5 725.33 811.70 730.96 709.10 747.67Net profit margin (%) 7=1/2 6.46% 7.81% 5.10% 4.40% 3.51%Eps (Rs) 8=2/5 46.88 63.43 37.30 31.23 26.24Dividend per share (Rs) 9=3/5 37.50 83.00 33.00 25.00 25.00Dividend payout (%) 10=3/2 79.98% 130.91% 88.46% 80.11% 95.29%Book-value per share (Rs) 11=4/5 104.06 94.67 114.18 115.73 109.20Return on equity (%) 12=2/4 45.06% 67.00% 32.67% 26.99% 24.03% 42 Financial management 562 Roll #AH 531929
  43. 43. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONEXPANSION PROGRAMMES:They are now deciding to add more products in their product list for expansion as below:Ketchup and other processed food Soups Sauces Frozen food Beans Pasta meals and pasta sauces Infant foodUnilever abandoned short term market for long term viability:After a difficult start in the first quarter of 2009, with volume sales down 1.8%, we acceleratedvolume growth continuously, culminating in a 5% growth over the October-December quarter: wellahead of global market growth. From one-third of our total business growing share at the 43 Financial management 562 Roll #AH 531929
  44. 44. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONbeginning of last year, we finished the year with two-thirds growing share, reversing a 10 yeardeclining trend. Growth was broad based with all regions growing volume market share, especiallystrong was the Asia region under Harish Manwanis leadership. Even some of the toughergeographies grew market share, like Western Europe, under Doug Baillies leadership, and Japan.Currently, all of the 11 major categories in which we compete are growing again, as are all of ourMulti Country Operations and 12 of our top 13 brands. At the same time we improved operatingmargin by 20 basis points and cash flow byover €1.4 billion, reflecting strong savings programmers, accelerated restructuring and tight controlof working capital. More importantly, we were able to achieve these results whilst investing arecord €400 million more behind our brands in advertising and promotion to support theincreased stream of innovation. These results have allowed us to significantly strengthen ourbalance sheet which should be reassuring to all of us in these challenging times. Not surprisinglythese were good results – and the shareholders thought so as well. Our share price was up morethan 50% over the 12 months to the end of April, and Total Shareholder Return (TSR) was in the toptercile of our peer group. Around €20 billion was added to our overall market capitalization which, for respective, is equal tothe total market capitalization of some of our competitors.Managing the short term alone is not enough: 44 Financial management 562 Roll #AH 531929
  45. 45. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONWe have had good years before and then under delivered thereafter. We are well aware of theneed to create sustainable top and bottom line growth, which is why we launched what we call theCompass in 2009.The Compass is an energizing vision and strategy to bring the company back to sustainable growth.It puts growth, based on a passion for the consumer and customer, firmly back on the agenda. Weappreciate the input and support of the Board as we developed the new strategy.Years of restructuring and savings have undoubtedly changed and improved the business.However, it is clear that you cannot save your way to prosperity. Responsible, profitable growth isat the root of long term value creation.The vision we set ourselves is to double the business and outperform market growth, whilst at thesame time reducing our overall environmental impact. With our portfolio significantly streamlinedover the past few years and the divestiture of many non strategic businesses, we have started tore-ignite growth across the board.Most of this will come from emerging markets behind the growth in population – two billion overthe next 40 years – and from improvements in living standards. We have strong positions in manydeveloping markets to capitalize on this trend, but still need to close the gap – especially in Chinaand Russia – where we are behind. 45 Financial management 562 Roll #AH 531929
  46. 46. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONMarket development continues to be an equally big opportunity in both developed and developingmarkets. For example, just bringing the consumption of shampoo in D&E markets to the level ofdeveloped markets would add €2.7 billion to our business. And, as living standards improve anddemands for better hygiene grow, we also see a €1 billion opportunity to build our household carebusiness in the emerging world.We have the opportunity to globalize more fully our portfolio, introducing our brands into moreand more countries. Products like Ponds or Lipton are currently sold in only 47 and 71 countriesrespectively. Filling these gaps is a big opportunity.Sustainability:Achieving the growth objectives while decoupling growth from environmental impact is a bold butchallenging vision. Not many companies have yet taken it on. But I believe it is the only viablevision, one that builds on Unilevers long-term heritage and achievement.According to the World Wildlife Fund – WWF – if everyone consumed at the levels of the British orthe Dutch then we would need the resources of three planets.We cannot go on borrowing or stealing from future generations. International institutions andgovernments have increasingly failed us. Consumers are taking charge and, more and more, willreward those brands and companies that not only deliver good quality products at affordableprices, but do so in a responsible way. Not surprisingly, our employees are very energized by this 46 Financial management 562 Roll #AH 531929
  47. 47. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONvision, and so are the key retailers who increasingly see this as a critical area of focus. And, I amhappy to say, more and more of the financial community are showing an interest in fast growingethical funds.Being the number one company on the Dow Jones Sustainability Index for our industry for elevenconsecutive years and our strong record of reducing waste, and using less water and CO2, gives usthe confidence that we can deliver. We have, for example, already moved Lipton to Rainforestcertified tea and are actively committed to sourcing only sustainable palm oil by 2015.Growing sustainably goes beyond material use. It also includes an ethical supply chain and laborpractices. We are setting high standards here in many places and I am glad that we have foundsolutions in the last year for even our most challenging situations, such as in Pakistan and India. Butthe Compass vision and strategy does more. It also aligns the organization around a few keypriorities we all need to deliver to win.Postponed or Sustainable work:In 2010, Unilever Pakistan signed the Green Office agreement with WWF which aims to reducecarbon emissions and eliminate waste at the head office. Previously initiatives such as theoptimization of cooling temperature, replacement of halogen lamps with energy savers, awarenessdrives and encouraging inter employee energy saving contacts has resulted in a decreases of 50Tons of CO2 footprint reduction, with an overall 16% reduction as measured from 2007, the 47 Financial management 562 Roll #AH 531929
  48. 48. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONbaseline year.Cash flows:Another important factor (not detailed in above table because of space limitations) is that thecompany has recorded significant cash earnings after a long time, which is good news for itsshareholders. As a result, the overdrawn balance has gone down by Rs. 166 m, from Rs. 194 in2H00 to Rs. 28 m in 1H01, which is no mean achievement. The half-yearly accounts of 2001 alsoshow that Rs. 1 billion is payable by the company in the next twelve months, which will be a drainon its cash resources but given the ability of the company to borrow funds at reasonable financialcharge from elsewhere, this too will pass. The company as a fast mover of consumer goods needsto carry heavy inventory but gladly it has been able to control its inventory, and receivablesproperly. The role of creditors as a source of financing is also significant. Creditors etc haveballoned considerably by Rs. 719 m from Rs. 2,353m at 2H00 to Rs. 3,072 m in 1H01. Creditors etcare almost 150% of the net assets and it sure is an indication of over-trading. The level of creditorsetc needs to be bought down 48 Financial management 562 Roll #AH 531929
  49. 49. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONStock Chart.RECOMMENDATION:I recommend them that they should have to be flexible in their cash flows and about the expansionand future planning of their organization .They must have to be clear about their future planningand its implication in their routine life of their organization because their flexibility gives a waythem to the successful future plans.Conclusion :In unilever every thing is preplanned and there is a very little scope of flexibility of future planningso they have to take care of their planning and also have to be very much concerned about it too 49 Financial management 562 Roll #AH 531929
  50. 50. Digit 09 [MANAGERIAL OPTIONS IMPLICATION.So in the conclusion I want to appreciate them about other planning and financial assessment andalso about their all departments to be so efficient .SWOT AnalysisStrengths Largest producing company of consumer products in Pakistan Enjoying economies of scale Good will in the market Strong financial position Some of its brands have become the generic name for those products as Dalda in ghee & surf in detergents Market leader in tea industry with Lipton & Brook Bond Capture 70 percent market share of ice cream industry Highly sales brands in skin care i.e. Ponds and Fair & Lovely Have Strong distribution channel in Pakistan Wide product line in home washWeakness High rates of skin care products Ratio of success of new product is low Huge inventory stocks of raw material and finished goods Few new products are introduce in the market 50 Financial management 562 Roll #AH 531929
  51. 51. Digit 09 [MANAGERIAL OPTIONS IMPLICATIONOpportunities Capturing food industry by acquiring Raffan Best Foods Wide scope of confectionery business for LBPL LBPL is looking to acquire Tapal teaThreats Facing tough competition in Ghee and Cooking Oil Facing tough competition in ice cream. LBPL is facing a very tough competition in personal care and detergents by P&G There is very tough competition in detergents and soap markets High inflation rate is increasing the cost of imported raw material day by dayRefferences:InternetUnilever 51 Financial management 562 Roll #AH 531929
  52. 52. Digit 09 [MANAGERIAL OPTIONS IMPLICATION52 Financial management 562 Roll #AH 531929

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