UPFL: Slim profit growth

Unilever Pakistan Foods (UPFL) had a rough first quarter this year, with 1QCY15 bottom line growing merely 1 percent year-on-year – if you can call it growth that is.
The firm’s top line clocked-in at Rs 2.1 billion, a growth of 9.5 percent, which is decent but not as impressive as the one announced by Engro Foods yesterday. The company’s profitability margins weakened during the period, with gross margins easing by 100 basis points and net profit margin falling by 110 basis points over the period.
The distribution, administration and other expenses rose by 13 percent year-on-year for the quarter ending March 2014. As a percentage of sales, these expenses grew from 20.7 percent in 1QCY14 to 21.4 percent in 1QCY15.
While detailed information was not available with the results, the firm’s annual report for the year ending December 2014 provides a clue. The annual report had suggested that Unilever has been trying to build its key brands. The firm had also invested substantially in advertising and promotion budget in CY14; and it seems that the company followed the same strategy in 1QCY15.
To what extent do Unilever’s shareholders seem confident about the firm’s brand building efforts? Well, the 2.36 percent decline in the firm’s stock yesterday – against a broader market that was up by 1.1 percent – shows that its shareholders either aren’t very forward looking or don’t have a lot of confidence on the firm’s costly brand building exercises.

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UNILEVER PAKISTAN FOODS LTD

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Rs (mn)                     1QCY14   1QCY15      chg

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Sales                        1,951    2,136     9.5%

Cost of Sales                1,132    1,262    11.5%

Gross Profit                   819      875     6.8%

Dist/Admin/other expenses      405      458    13.0%

Operating Income                14       17    21.9%

Finance Cost                     5        9    92.8%

Profit before tax              423      425     0.3%

Tax                            130      128    -1.7%

Profit after Tax               293      297     1.1%

EPS                          47.68    48.19

Gross profit margin           42.0%    41.0%

Net profit margin               15%      14%

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Source: KSE notice

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