Half year financial results of the Dutch food giant were announced last week too little reason of jubilation for its shareholders. The food company recorded a 12 percent growth in its top-line on a year on year basis for the period ending June 2018.
As per company sources, both Knorr and Rafhan portfolios registered growth in off-take during the six- month period under review. Recall that for first quarter ending March, the company had recorded a cumulative top-line growth of 16.6 percent with highest ever gross margin of 47.6 percent. UPFL’s management had expected the strong performance to continue during the second quarter on the back of Ramadan and Eid spending.
While sales have continued to inch forward, and double-digit top-line growth is in no way lackluster by most other industries’ standards, but considering company’s performance in recent years, the slowdown in second quarter is an indicator of times to come.
After a period of consumer-spending driven boom, the macro economic conditions are signaling that tough economic times lie ahead for the industry. The FMCG sector has witnessed phenomenal growth with mushrooming of local competition to Unilever in the last decade. While strong brand equity and investment in advertisement and promotion has sustained company’s leadership position, double-digit growth in market share has become a memory of yesteryears.
This is understandable for a company in the mature phase, which has not expanded its product lineup or added new to brands portfolio in sometime. Nevertheless, purely on financial basis, the performance remains strong as all indicators of profitability noted year on year double-digit growth compared to half year period last year.
Based on last quarter’s position, company’s financial position also remains strong as it has negligible long-term liabilities, with trade and operating period’s payable constituting almost 85 percent of total liabilities.
While current ratio has historically remained out of order due to poor liquidity, the cash cycle is highly tilted in company’s favor as payable days have gone up to 6 months in recent years, whereas debtor turnover has remained consistent at 10 days. This is a strong reflection of company’s bargaining power with suppliers and distributors due its market leadership and strong sponsor profile.
The company announced an interim dividend of Rs44 as against Rs122 announced during same period last year. While the payout ratio has recorded decline, this may be a temporary blip as management continues to remain hopeful of a bounce-back in second-half. Fingers crossed!
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