Product diversity keeps Unilever afloat

Unilever had a good start this year as healthy volumetric growth in the firms home and personal care, ice cream and spread business pushed first quarter sales higher by 16 percent to Rs10.2 billion.
Home and personal care sales performed well on the back of strong demand for Surf, Lifebuoy and Sunsilk. With a diversified sales mix in frozen desert sector and huge advertisements, ice cream segment achieved impressive sales. Likewise, the firms spread business saw double digit growth as sales managers took their products into new towns.
On the contrary, the companys beverage business didn perform well, owing to unabated smuggling of tea in the country.
Firms in tea business are paying an average 39 percent to the government in the form of sales tax and custom duty, whereas illegal importers incur just Rs10-22 per kg in bringing tea to local markets. This makes branded tea products expensive, compared to unbranded loose tea.
Moreover, the weakening of rupee also increased cost of imports. Rising input costs along with high tea cost reduced Unilevers gross profit margin by 250 basis points to 31 percent compared to the year ago period.
Efficient working capital management, however, reduced the firms financial charges by nearly half to Rs45 million, whereas distribution cost surged in line with the increase in topline revenue.
Still, while the firms bottomline managed to increase by a meager 4 percent, net margins dropped to 5.7 percent against 6.3 percent in the same period last year.
Looking ahead, two forces will help Unilever realize increase in volumetric sales; a) growing youth population, as nearly one third of the countrys population is below age 14, and b) increasing appetite for packaged and branded products.

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Unilever

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Rs (mn)             1QCY10    1QCY09    % chg

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Sales               10,254     8,860      16%

Cost of sales        7,088     5,904      20%

Gross profit         3,166     2,956       7%

GPM                   30.9%     33.4%     -7%

Distribution cost    1,945     1,715      13%

Admin exp              257       266      -3%

Finance cost            45       108     -58%

PAT                    581       559       4%

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Source: KSE Announcement