Unilever Pakistan Limited, formerly known as Lever Brothers Pakistan Limited is a subsidiary of Unilever PLC, UK. ULEVER was incorporated in Pakistan in 1948 as Lever Brothers Pakistan Limited and merged with Lipton in 1989 and Brooke Bond in 1997. It became the largest ice cream manufacturers in Pakistan through an amalgamation with Polka in May 1999.
Following these acquisitions, including US-based Bestfoods, Unilever's foods business is the world's third largest after Nestle and Kraft. It is a global leader in culinary foods, ice cream, margarine and tea-based beverages. It is the largest FMCG in Pakistan and is listed on all stock exchanges of the country.
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COMPANY SNAPSHOT
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Name of company UNILEVER PAKISTAN LIMITED
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Nature of Business Fast Moving Consumer Goods
Ticker ULEVER
Net Sales CY '07 Rs 23,331,666,000
Net Sales CY '08 Rs 30,956,839,000
Share price (avg.) Rs 2071
Market Capitalization 30,138,909,336
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ULEVER has adapted Unilever global brands such as Lifebuoy, Lux, Surf and Walls to local consumer needs at affordable prices. Since 1998, ULEVER has been entrusted with the responsibility of developing the Afghanistan business through a dedicated sales and distribution network. A wide-range of products are offered for export. In June 2007, Unilever Overseas Holding Limited, the ultimate parent company, purchased all the shares from the government of Punjab. This has increased Unilever's shareholding in the company from 67.04% to 70.4%.
RECENT PERFORMANCE 2003 Q 2009
Turnover grew by 22% to Rs 28.5 billion in the first nine months of 2009 with a strong volume growth in HPC, ice cream and spreads. GP margin in 9M09 was 36%, in line with the previous year as the cost increases were passed on to the consumers. Distribution expenses increased by 26.3% over the year 2008 due to inflationary pressures. PAT increased by 16.4% to Rs 2.3 billion with an EPS of Rs 172.43.
Home and personal care segment turnover grew by 29% while the beverages volume declined sharply in the face of rampant smuggling through the misuse of Afghanistan Pakistan Transit Trade Agreement. In addition, sharp increase in international tea prices and depreciating of the rupee continue to impact margin. Spreads and ice cream/deserts gave reasonable growth rates.
SEGMENTS AT A GLANCE (FY08) UNILEVER COMPRISES FOUR SEGMENTS:
* Home and Personal Care - represents laundry and a wide range of cleaning, skin care, hair care and oral care products
* Beverages - represents tea
* Ice Cream - represents ice cream
* Other - represents margarine
HOME AND PERSONAL CARE
The HPC continues to be the major driver behind the top and bottom line growth. In FY08, net sales for this high margin segment increased by 42% (on account of both volumetric growth and inflationary impact), thereby increasing its contribution to the top line to around 52% from 52% last year. ULEVER maintains its market leadership in laundry detergent powders, hair and personal wash categories. The star performers were Surf detergent powder, Lifebuoy shampoo and soap. Despite this impressive turnover, the unprecedented inflation in international commodity costs resulted in subdued gross margins. However, optimal advertising and low operating costs led to a profit growth of 38%.
BEVERAGES
Net sales for FY08 grew by 22%. A sharp rise in Kenyan tea prices of around 24% and the currency devaluation resulted in lower than expected gross margins. Lipton Yellow Label continues to grow, amidst cut-throat competition in mature tea market, on the back of various promotional campaigns and trade offers. Brooke Bond Supreme was supported through customer activation strategies, and registered a growth despite facing the issues like continuous pressure from small rural brands and smuggled tea.
ICE CREAM AND SPREADS
Gross sales for Walls in FY07 increased by 9%, well below expectations. In FY07, the monsoon was earlier and more severe, there were acute power shortages in the south and there were delays in completing the factory expansion project, resulting in serious supply disruption in 2Q07. This damaged the trade's confidence and attention to the ice cream sales, which were countered by leasing cold storage facilities in Karachi and Lahore. Hence higher distribution and additional factory costs resulted in lower sector profits and eroded gross margin.
On spreads side, Blue Band Margarine registered a 23% growth on the back of successful brand activation programs. However, the overall margins for the segment remained flat at 40%.
FINANCIAL PERFORMANCE (DECEMBER 2003 - DECEMBER 2007)
Overall, the sales grew an impressive 32.7% (2006: 11.17%) as it built on the growth momentum started in 2005. This growth was particularly impressive considering the recent trends of increasing commodity costs, devaluating rupee, high borrowing costs and increasing power cuts. Sharper focus and increased resource allocation in marketing and customer management were the prime drivers. The sales mix improved with robust growth in Home and personal care. Beverages' sales grew by 22%. Though spreads sales grew by 24.5% it did not meet the expected performance levels.
However, this overall sales growth did not trickle-down to the bottom line mainly due to shielding the customers from the impact of high input and conversion costs. Despite high COGS (increase of 40.5%), overall gross margins improved by around 20% in FY08 on the back of growth in HPC segment, which contributed 66% to the gross profit. ROA showed a decline to due a higher increase in assets base. ROE showed a positive trend on the account of increasing profit after tax. The overall PAT for FY07 increased by a meagre 17.6%, after the meagre growth of 2% in last year. This was due to the volume increase in all segments, especially HPC and tea business.
All liquidity ratios of ULEVER have posted a declining trend over the 6year period. The current ratio has decreased from 1.04 in 2003 to 0.71 in 2008. This shows that company's current liabilities (mainly the short-term borrowings) are rising far more than its also rising current assets, reflecting a decline in the company's ability to pay off its short-term obligations. Quick ratio, a better measure of liquidity followed a trend similar to current ratios, first increasing slightly in 2004 and then declining then onwards. Thus it is deduced that though there is a positive growth in current assets, yet the growth in current liabilities are far more.
Inventory Turnover (ITO) ratio depicts how quickly the company is able to sell-off its inventory. ITO for ULEVER, though has declined during 2004, but has been on a slight rise then onwards. The slight increase is indicative of ULEVER's declining operational efficiency with growth in net sales lagging behind the growth in inventory kept by the company. Especially in FY08 the growth in inventories has been exponential, with a rise of 54.5%. Reasonable ITO shows that ULEVER is able to efficiently turn its inventory into sales.
Days sales outstanding (DSO) shows how quickly the company is able to collect the dues from its debtors. It should be enough for the company to avoid risks of bad debts. The trend-line indicates a sharp decline in this ratio in FY04 after which it's been on a constant rise (slightly) till FY07 due to growth in net sales lagging behind that in trade debts (37% in FY07) indicating that perhaps the company is deliberately pursuing easy credit policy to attract large number of creditors. However in FY08 the DSO fell from 3.69 to 2.66, due to decline in trade debts of 4.3%. This along with the growth in sales has showed that the recent tightening policy of debt collection is not affecting the growth in sales.
Also, the DSO is still very negligible compared to ITO. The operating cycle of ULEVER hence followed the same trend as that of ITO in the respective years. Initially it was much higher than the industry average but later it started declining to converge with the industry trend. TATO of ULEVER has remained flat at 3 over the period under review, reflecting that the company is anticipating any increase in its sales and responding to it in a timely fashion by enhancing its assets base accordingly. It has declined slightly in FY07 and FY08. The sales/equity, on the other shows a rising trend after 2004 on account of declining equity base in the subsequent years. Also sales in FY08 have registered a positive growth which explains the rise in that year.
As far as debt management is concerned, both D/A and D/E ratios after 2004 (the decline in 2004 is because the ULEVER retired significant amounts of debt in that year) show ULEVER's increased reliance on debt financing rather than equity financing. The trend lines in particular, show that D/A (0.63 to 0.80) ratio has remained almost stable over the years where as D/E ratio has increased significantly (1.8 to 4.13) owing to increasing long term debts (as further evident by the long term debt to equity ratio) to finance the expansion.
The TIE ratio for ULEVER has increased in 2004 but again nose-dived in 2005 due to the high interest rates offsetting the increase in EBIT, thus having an adverse impact on ULEVER's interest covering ability. Even though this ability increased in 2006 (owing to comparatively lower finance costs), a massive surge in finance costs (70.64%) vis-a-vis a 3% increase in EBIT, was responsible for a plunge in FY07 TIE ratio. Financial costs also rose sharply in FY08, mainly due to mark-up on short-term borrowings and exchange losses, which caused further decline in TIE. Looking at this, we can that infer that ULEVER's is being adversely affected due to higher mark-ups in high interest rate regime.
The (P/E) ratio shows how much investors are willing to pay per rupee of the reported profits, depends on the company's price per share and its earnings per share (EPS). ULEVER's EPS has been erratic (fluctuating between 120 and 130) till FY07, driven mainly by any changes in the company's profit after tax (as its number of shares have been constant so far in last 5 years). In FY08, the growth in profit after tax caused EPS to cross the 130 mark and went till Rs 149.
The year-end market prices of ULEVER have been increasing over the 5-year period. Consequently, the P/E ratio also followed a rising trend driven by the increases in market price of shares, reflecting the investor's confident in ULEVER. In FY08 the market prices went down due to the ongoing stock crisis in the country, coupled with the global recession. Initially, ULEVER's book value per share was very high however 2004 onwards, the company's Book Value per share plummeted on the account of declining equity base (due to decline in reserves) but it again surged in FY07 and FY08 on the back of higher reserves, compared to no change in number of shares outstanding.
Also the company's DPS followed the same trend as that of Book value per share till 2005. However, unlike book value per share, it showed a slight increase in the FY06. In FY08 it remained at the same level as of FY07. The company has followed the policy of maximum DPO averaging 100% and the dividend yield has been constant at 5-6%over last 5 years. Despite a decline in real payout (with inflation growth surpassing the dividend growth), the major beneficiary of this nominal growth is ULEVER's associated undertaking (Unilever Overseas Holdings Ltd).
Overall both DPS and BPS of ULEVER are greater than the average industry showing that the good return to shareholders is the primary objective of ULEVER. The share price of ULEVER stock has improved. The company has shown a worldwide recovery due to strong marketing and introduction of new products in the second quarter. In Pakistan the stock price in March 2009 was Rs 1725 but in August 2009 the price has jumped up to Rs 2071 per share. The investor expectations look optimistic. The company gave out a dividend of Rs 57 per share in February 2009.
FUTURE OUTLOOK
The Pakistan market has become very lucrative for fast moving consumer goods (FMCGs) businesses and to new entrants, both local and international players, in the wholesale and retail industry due to sustained economic growth, rising rural incomes and changing lifestyles. On the flip side, the market environment remains very competitive and ULEVER continues to invest heavily behind its growing brands. Restoring positive gross margins especially of ice cream business is of key importance in FY09.
ULEVER is concerned about the increasing volume of smuggled teas, rapidly rising input costs and commodity costs, rising power cuts and the impact on profit from the recently imposed tax on turnover. Social disruptions also make markets nervous, disrupt the trade and shakes local consumer and international confidence. Keeping in view, ULEVER's strong competitive edge of continuous innovation, global and local scale delivering cost advantages and deep local roots, has sustained and continued remarkable financial performance of the company. The company has made significant cost cuttings in this time of recession, which has borne fruit.
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UNILEVER PAKISTAN LIMITED (UPL) - FINANCIALS
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Balance Sheet (PKR mn) 2003 2004 2005 2006 2007 2008
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Property, plant and equipment 1,445 1,524 1,761 2,137 3,513 4,428
Other non-current assets 573 615 609 607 479 969
Inventories 2763 1930 1930 2362 2906 4493
Trade debts 470 84 105 175 239 229
Cash and cash equivalents 1,160 759 365 586 188 106
Current assets 4,803 3,753 3,437 3,686 4,092 5,989
Total assets 6,821 5,892 5,807 6,430 8,084 11,386
Ordinary share capital 664 664 664 664 664 664
Preference share capital 5 5 5 5 5 5
Reserves 1,345 1,437 1,178 1,161 1,311 1,547
Total equity 2,014 2,106 1,847 1,830 1,980 2,216
Surplus on revaluation of fixed assets 19 16 16 15 14 13
Non-current liabilities 153 90 369 348 502 687
Current liabilities 4,635 3,680 3,575 4,237 5,588 8,470
Total liabilities 4,788 3,770 3,944 4,585 6,090 9,157
Total equity and liabilities 6,821 5,892 5,807 6,430 8,084 11,386
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Income Statement (PKR mn) 2003 2004 2005 2006 2007 2008
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Net sales 21,472 18,238 17,671 20,988 23,332 30,957
COGS 14,677 12,679 10,817 13,110 14,249 20,021
Gross profit 6,795 5,559 6,854 7,878 9,083 10,936
Operating profit / EBIT 2,600 2,242 2,559 2,561 2,639 3,391
Finance Cost 51 35 77 64 109 466
Profit before tax 2,521 2,167 2,482 2,497 2,529 2,925
Taxation 922 442 880 853 842 940
Profit after tax 1,599 1,725 1,602 1,644 1,687 1,984
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PROFITABILITY RATIOS 2003 2004 2005 2006 2007 2008
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Profit Margin 7.45% 9.46% 9.07% 7.83% 7.23% 6.41%
Gross profit margin 31.65% 30.48% 38.79% 37.54% 38.93% 35.33%
Return on Assets 36.96% 36.78% 42.74% 38.83% 31.28% 25.69%
Return on Equity 79.39% 81.91% 86.74% 89.84% 85.20% 89.53%
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LIQUIDITY RATIOS 2003 2004 2005 2006 2007 2008
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Quick Ratio 0.44 0.50 0.42 0.31 0.21 0.18
Current Ratio 1.04 1.02 0.96 0.87 0.73 0.71
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ASSET MANAGEMENT RATIOS 2003 2004 2005 2006 2007 2008
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Inventory Turnover(Days) 46.32 38.10 39.32 40.51 44.84 52.25
Day Sales Outstanding (Days) 7.88 1.66 2.14 3.00 3.69 2.66
Operating cycle (Days) 54.20 39.75 41.46 43.52 48.54 54.91
Total Asset Turnover 3.15 3.10 3.04 3.26 2.89 2.72
Sales/Equity 10.66 8.66 9.57 11.47 11.78 13.97
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DEBT MANAGEMENT RATIOS 2003 2004 2005 2006 2007 2008
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Debt to Asset 0.70 0.64 0.68 0.71 0.75 0.80
Debt to Equity Ratio 2.38 1.79 2.14 2.51 3.08 4.13
Long Term Debt to Equity(%) 0.08 0.04 0.20 0.19 0.25 0.31
Times Interest Earned 50.98 64.06 33.23 40.02 24.16 7.28
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MARKET RATIOS 2003 2004 2005 2006 2007 2008
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Earnings per share 120.28 129.76 120.51 123.66 126.90 149.24
Price/Earnings Ratio 12.06 11.37 14.73 16.17 17.97 12.11
Dividend per share 126.00 135.02 119.98 122.01 122.99 122.99
Book value per share 151.50 158.42 138.93 137.66 148.94 166.69
No of Shares issued (in thousands) 13294.00 13294.00 13294.00 13294.00 13294.00 13294.00
Market prices(Year End) 1450.00 1475.00 1775.00 2000.00 2280.00 1808.00
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