United Brands Limited (PSX: UBDL) was incorporated in Pakistan in 1965 as Batlay Match Industries Limited. The company rebranded itself as UDL Industries Limited in 1987 and consequently as United Brands Limited in 2006. UBDL is a subsidiary of International Brands Limited. The company is engaged in the trading and distribution of consumer goods and allied products. Its portfolio includes baby products, beverages, cereals, deodorants, dairy products, confectionaries, etc.
Pattern of Shareholding
As of June 30, 2024, UBDL has a total of 91.8 million shares outstanding which are held by 1096 shareholders. International Brands Limited, the parent company of UBDL has the highest stake of 96.08 percent in the company followed by the local general public holding 3.26 percent shares. The remaining ownership is distributed among other categories of shareholders.
Financial Performance (2019-24)
Except for a marginal rise in 2019, UBDL’s net sales have been ticking down over the period under consideration. The company posted net profit only in 2021. Its gross margin which was hovering slightly above 25 percent until 2020 fell below 15 percent for the next three years. In 2024, UBDL’s gross margin considerably strengthened. The company’s operating margin slumped to negative in 2019 then recovered in 2020 and 2021 only to fall again into the negative territory in the subsequent years (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.
In 2019, UBDL’s topline grew by 7 percent year-on-year which was primarily the result of service income generated from warehousing and transportation services provided by the company. During the year, UBDL discontinued the brands Mars, Wrigley, Haleeb Foods, Heinz, IFFCO, and Johnson & Johnson from its portfolio. Cost of sales hiked by 8.14 percent year-on-year which was the effect of Pak Rupee depreciation, higher utility cost, fuel price hike as well as an increase in global commodity prices. Gross profit grew by 4.54 percent year-on-year in 2019; however, GP margin tumbled from 26 percent in 2018 to 25.4 percent in 2019. Operating expenses spiked by 21.54 percent year-on-year in 2019 on account of higher bond charges, advertisement & promotion expenses, and freight and vehicle running expenses incurred during the year. Payroll expense also hiked in 2019 although UBDL streamlined its workforce from 520 employees in 2018 to 206 employees in 2019. Other expenses registered an overwhelming increase of 943 percent in 2019 on account of loss incurred on discontinuation of business arrangements particularly with Johnson & Johnson. This resulted in an operating loss of Rs.47.10 million in 2019 versus an operating profit of Rs.253 million recorded in 2018. Finance costs escalated by 155.87 percent in 2019 on account of increased borrowings and higher discount rates. Larger debt as well as reduced equity due to higher accumulated losses culminated in a gearing ratio of 80 percent in 2019 versus a gearing ratio of 42 percent posted in 2018. UBDL incurred 1782.36 percent higher net loss to the tune of Rs.549.91 million in 2019 which translated into loss per share of Rs.5.99 versus loss per share of Rs.0.56 registered in 2018.
In 2020, UBDL’s net revenue slid by 19.22 percent year-on-year. UBDL discontinued some more imported business lines and transferred its transportation and warehousing business to IBL Logistics (Private) Limited, a subsidiary company. The impact of COVID-19 also came into effect and took its toll on the demand for the company’s products. Cost of sales plunged by 19.36 percent year-on-year due to a decline in the company’s goods business as well as the discontinuation of its services business. Gross profit also shrank by 18.79 percent year-on-year in 2020 while GP margin stayed afloat. Operating expenses declined by 17.27 percent year-on-year primarily due to lower advertisement & promotion expenses, curtailed freight charges, and no demurrages incurred during the year. Payroll expenses also declined as the number of employees fell to 160 in 2020. During the year, the company booked a loss allowance worth Rs.27.13 million on trade receivables, up 5305.18 percent year-on-year on account of the deteriorating economic backdrop due to COVID-19. During the year, UBDL also booked provision worth Rs.138 million on damaged and expired items of Johnson & Johnson and Kellogg’s, however, unlike last year, there was no loss incurred on the discontinuation of business arrangements. This resulted in a slide of 35.89 percent in other expenses in 2020. Other income rose by 2427.33 percent in 2020 on account of scrap sales and group relief under which UBDL surrendered its taxable loss worth Rs.53.25 million to its associated company, The Searle Company Limited. As a consequence, the company was able to report an operating profit of Rs.9.87 million in 2020 with an OP margin of 0.3 percent. Finance costs tumbled by 57.62 percent in 2020 on account of lesser borrowings as well as exchange gains earned during the year. Although the company’s outstanding debt contracted in 2020, thinner equity due to escalating accumulated loss translated into a gearing ratio of 93 percent in 2020. UBDL sustained a net loss of Rs.255.68 million in 2020, down 53.51 percent year-on-year with a loss per share of Rs.2.79.
UBDL’s net revenue further shrank by 21.92 percent in 2021. This was on account of the discontinuation of certain business arrangements and the change of business model from imported products to local products which have lower margins. This resulted in a considerable 55.54 percent decline in its gross profit with GP margin drastically falling to 14.5 percent in 2021. Operating expenses dived down by 53.51 percent year-on-year in 2021 as the company no longer had to incur international freight charges because it switched to local accounts. Advertisement and promotion expenses also massively fell during the year owing to a decline in amortization of short-term prepayments of marketing for Red Bull products. Lower provisioning for expired and damaged products squeezed other expenses by 68.15 percent in 2021. Other income buttressed the financial performance of UBDL as it climbed up by 88.35 percent in 2021 on the back of higher scrap sales as well as exchange gain. UBDL’s operating profit picked up by 802.48 percent in 2021 with OP margin rebounding to 3.5 percent. Finance costs plummeted by 66.86 percent in 2021 due to monetary easing and lowered external borrowings. The gearing ratio fell to 80 percent in 2021. UBDL was able to post a net profit of Rs.3.73 million in 2021 with an EPS of Rs.0.04 and an NP margin of 0.1 percent.
In 2022, UBDL’s net revenue ticked down by 7.58 percent year-on-year due to the discontinuation of Hayat Kimya’s business. Shrinkage of business operations also squeezed the cost by 7.61 percent in 2022 resulting in 7.42 percent thinner gross profit recorded in 2022. However, the GP margin stayed at 14.6 percent. Operating expenses inched up by 5.43 percent year-on-year in 2022 due to higher payroll expenses, vehicle running expenses, advertisement expenses, and freight charges on account of higher inflation and POL product prices. Other expenses slid by 73.29 percent in 2022 due to lower provisioning for expired and damaged stock. Other income also eroded by 86.82 percent year-on-year in 2022 due to lower scrap sales, no group relief, no exchange gain, and severance payments made during the year. UBDL registered an operating loss of Rs.8.56 million in 2022. The company was able to trim down its finance cost by 19.30 percent in 2022 despite monetary tightening due to reduced borrowings, however, negative equity of Rs.10.56 million squeezed the company’s capital, and hence gearing ratio magnified to 107 percent in 2022. UBDL posted a net loss of Rs. 65.62 million in 2022 with a loss per share of Rs.0.71.
UBDL’s topline registered a drastic 42.88 percent downfall in 2023. Import restrictions imposed by the government to keep a check on the dwindling foreign exchange reserves of the country tremendously affected the remaining imported business lines of the company particularly Ovaltine, Kellogg’s, and Pringles. While service revenue increased due to the addition of the new brand “Mondelez” in the transportation business and the increase in routes to the Lahore beverage business, however, it couldn’t produce much of a difference in UBDL’s topline. Gross profit shrank by 41.71 percent year-on-year in 2023 while GP margin slightly improved to clock in at 14.9 percent in 2023. Operating expenses slumped by 35 percent year-on-year in 2023 on account of cost control initiatives to minimize the impact of high inflation and fuel charges. Other expenses magnified by 103.44 percent in 2023 due to higher provisioning for expired and damaged stock pertaining to Johnson & Johnson, Kellogg’s, and Ovaltine. Other income improved by 25.67 percent in 2023 on account of insurance claims. UBDL registered a 366.76 percent higher operating loss of Rs.39.94 million in 2023. To add to the ado, finance costs mounted by 44.98 percent in 2023 on account of higher discount rates and exchange loss. The gearing ratio surged to 321 percent in 2023. The company posted a net loss of Rs.98.28 million in 2023, up 49.76 percent year-on-year. This translated into a loss per share of Rs.1.07 in 2023.
In 2024, UBDL recorded 16.85 percent erosion in its net sales. Import restrictions set by the government made the company take a strategic exit from its distribution lines including Kellogg’s, Ovaltine, and Pringles. The cost of sales also dropped by 19.37 percent in 2024 owing to adjusted business scale and cost control measures put in place by the management. While gross profit shrank by 2.43 percent in absolute terms in 2024, GP margin significantly improved to clock in at 17.4 percent. Operating expenses nosedived by 5.12 percent in 2024 predominantly due to reduced freight and cartage, vehicle running & maintenance charges as well and payroll expenses. The company further downsized its workforce from 230 employees in 2023 to 158 employees in 2024. Other expenses plunged by 92.18 percent in 2024 due to fewer provisions booked for expired and damaged stock. Other income also slid by 15.48 percent in 2024 as no insurance claims and scrap sales were made during the year. The company recorded an operating loss of Rs.13.69 million in 2024, down 65.71 percent year-on-year. Finance cost plummeted by 31.96 percent in 2024 due to a considerable decline in outstanding short-term borrowings as well as lesser exchange loss incurred during the year. Negative capital of the company owing to surging accumulated losses resulted in a gearing ratio of -0.16 percent in 2024. UBDL recorded a net loss of Rs.58.99 million in 2024, down 39.98 percent year-on-year. This culminated in a loss per share of Rs.0.64.
Future Outlook
While import restrictions have been eased, the shrunken pockets of consumers on account of high inflation have shifted their focus from imported to local products. The company has also aptly modified its sales mix in favor of local products; however, these products have lower margins. Furthermore, fluctuating pricing tariffs, increased taxation particularly on non-essential items, and higher utility and labor costs pose dire challenges to the company. The company should add more local accounts to its portfolio and expand its services business to improve its financial performance and drive its equity into positive territory by squeezing its accumulated losses.
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