Unilever Pakistan is the largest and one of the oldest FMCGs working in Pakistan. It is also the biggest multinational operating in Pakistan. Every day millions of people around the world use Unilever products; the Company over the decades has grown to become one of the biggest FMCG producers of the world.
As time passes, lifestyle changes, so do the tastes! Company's achievements lie behind its ability to successfully adapt to these changes and develop products that match the need of the hour. Unilever founding Company started out by making soaps and margarine, soon the demand for its products surged so much that it had to face shortage of raw materials to cater the demand. The Company in its infancy had to face the most difficult time in its history in the form of great depression and world war.
Soon after that as the global economic situation improved Unilever diversified its product range and gained access to new markets. The path to becoming an FMCG giant is followed by both organic growth and acquisitions.
Despite the fact that the average income of Pakistani households is just a fraction of the income in the developed and emerging markets, Pakistan offers a big market and an even greater potential market as it is amongst the most populous countries on earth with more than half of the population below 30. Hence, Unilever like other FMCGs enjoys favourable demographics in Pakistan.
Segment-wise performance From delicious soups to hygienic home cleaning products Unilever has a wide range of products. Broadly Unilever products can be categorised into home and personal care, beverages, ice-creams and spreads.
Home and personal care: Home and personal care products of UPL include Surf Excel, Dove, Rin, Ponds and Fair and Lovely. It won't be wrong to call this segment the cash cow of UPL. With sales close to Rs 21,121 million this segment is the largest contributor to the total revenue generated by UPL; close to 55 percent. Making it even more important is the fact that this segment's contribution to total income is roughly 63 percent.
The segment experienced a sales growth of 17.3 percent in the 9MCY11 over the same period of last year. The handsome growth in this segment owes to the successful campaigns like "Time to shine" for Rin and Fairness meter "Fair and Lovely".
Beverages: Following home and personal care is the beverages segment. The segment's contribution to the total revenue stands at more than 28 percent. This segment is in the spotlight as it saw the largest increase in earnings almost 100 percent in the 9MCY11 over the same period of last year.
The beverages segment of Unilever is dominated by its tea brands. Tea is a very important element of our society as it is the cornerstone of hospitality. Unilever has three main Tea brands Lipton, Brooke Bond Supreme and Pearl Dust which are catering all the segments of the market. Over the years these brands have generated high brand loyalty.
The segment is doing well despite the issues of high government levies and illegal smuggled tea segment. According to an estimate more than 50 percent of the tea consumed in Pakistan is smuggled as the formal sector has to pay heavy taxes (16 percent sales tax and 10 percent import duty) forcing people to opt for the cheaper smuggled tea. The company is lobbying to reduce the levies, pitching India as an example where a mere 4 percent tax is levied on Tea considering it an essential food.
Ice-cream and spreads: Despite emergence of competition in the form of "Omore", the ice-cream segment of the company has experienced double digit growth. In the 9MCY11 the growth rate stood close to 12 percent over the same period of last year. Company's new flavours like Badami, Fruttare, and Zapper, etc, have achieved high acceptability and are doing well.
The spread segment's performance was phenomenal it experienced a growth of around 36 percent. The growth in this sector is owed to the huge success of the campaign which was focusing on the nutrition improving vitamin-rich margarine "Blue Band" for the healthy growth of children. Adding to it the Company is also able to increase its market penetration in this segment by door-to-door sales in new markets.
Overall profitability The year 2011 has been a good year for the FMCG giant. The successful marketing campaigns and new brand launches boosted the sales this year. The sales for 9MCY11 were 15.6 percent above the level the Company had had last year.
The Company despite facing high inflationary pressure due to rise in food commodity and other raw material prices and power shortages was able to control its costs. This led to a slight improvement in the gross margins in the 9MCY11 as compared to previous year.
The organised tea sector is facing a lot of problems on account of the illegal tax evading sector which has easy access to our market. Due to tax evasion they are very price competitive and are in customers' reach, they pose a big threat to the Company and the organised sector in the long term.
The operating expenses jumped by almost 27 percent in 9MCY11 as compared to the same period of last year. The increase in the operating expenses was backed by a large increase in the distribution expenses on account of the surge in fuel prices. The net effect of the unaligned increase in the cost of sales is reflected in the profit after taxation which rose by 20.2 percent in 9MCY11 over the same period of last year.
Solvency and efficiency The short term solvency position of the Company reflected by the current ratio looks slightly deteriorated. As the current liabilities increased this year, the ratio fell from 0.82 in 9MCY10 to 0.71 in 9MCY11. The increase in the current liabilities is backed by the increase in trade and other payables. This increase is justifiable as the Company had to increase the trade and payables to meet the rise in demand.
The effect of increase in short-term liabilities was curtailed slightly as the stock-in-trade and trade debts increased, again the adjustment in the current assets occurred to cater the rise in demand. Almost no change was seen in the long-term debt in 9MCY11, the increase in the total debt to asset and total debt to equity ratios was also due to the increase in the short-term portion of total debt.
In recent times industry has faced issues like supply disruption, power shortages, and inflation mainly due to flooding, surge in oil prices and currency depreciation. However, the Company managed to increase its efficiency. The increase in the fixed asset and the total asset turnover and the decrease in number of days of inventory show that the Company was able to improve its asset utilisation and inventory management and, therefore, the total efficiency.
Outlook The ability to come up with new innovative products and successfully pitching them in front of customers through good marketing campaign are the key players behind UPL's success. Good performance despite the worst law and order and energy situation has strengthened the Company's belief in itself. The energy crises would continue to put pressure on the business activities. However, the population bulge, growing middle class, and rising awareness in the rural areas promise a bright future for UPL in Pakistan.
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Unilever Pakistan Limited
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Rs(mn) 9MCY09 9MCY10 9MCY11
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Sales 28,508 33,009 38,171
Cost of sales 18,229 22,240 25,010
Gross profit 10,279 10,769 13,161
Profitability
Gross profit margin 36% 33% 34%
ROE 70% 60% 97%
ROA 20% 16% 17%
solvency
Current ratio 0.78 0.82 0.71
D/E 2.46 2.78 4.74
D/A 0.71 0.74 0.82
Turnover
Total asset turnover 2.49 2.44 2.51
Fixed asset turnover 4.85 5.43 5.48
Market
EPS (Rs) 172.43 160.66 193.15
Dividend payout ratio 100% 100% _
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Source: company accounts
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