Unilevers dividend payout good but sounds alerts

The countrys largest FMCG firm, Unilever Pakistan announced its half year 2009 results on Friday showing an earnings slide of 4 percent, mainly due to high distribution cost despite a reasonable increase in revenues during the period. Unilever reported earnings of Rs92.27/share, largely in line with consensus estimates; however, dividend announcement came as a pleasant surprise to the shareholders.
The firm declared half year dividend of Rs92/share translating into 100 percent payout, which deviates from the companys historical practice of payout ranging between 65-70 percent.
Unilevers revenues performance was in line with last year headline line inflation. However, volumetric growth remained lacklustre owing to a drop in real income of middle and lower middle market segment. This is more visible in the last quarter performance where revenues increased by just 13 percent.
The company managed to improve its gross margins, although by just one percentage point, despite 25 percent currency devaluation which made tea leaves and other raw material imports costlier. However, low commodity prices in the international market more than offset the impact of rupee devaluation in real terms.
Inflation which helped the firms revenues grow, however, spoiled the overall party as companys distribution charges went alarmingly high and eroded the bottom line. The massive jump mainly came on the back of a 27 percent increase in transportation fuel charges during the period. With the consumer segment likely to be more immune to slowdown relative to other sectors of the economy, owing to favourable demographics of country, Unilever would still be able to weather the Storm.
However, the future of Unilever may not be as bright as its past as a dark cloud of uncertainty looms over the economy. The drop in real per capita income is now being realised and starting to show on general consumption patterns. Moreover, commodity prices have started their slow ride north, which could be tough on companys gross margins in the near term.
There is also an increased competition into the high margin and high contributing business of ice cream which is showing signs of getting even more intense. Unilevers high payout may also be an indicator of the companys future strategic plans where it might be happy to settle for relatively lower profits than yesteryears without getting into new markets or products.

=======================================================================

UNILEVER P&L

=======================================================================

R5 (mn)             2Q CY O9  2Q CY 08  % chg  1H CY 09  1H CY 08  %chg

=======================================================================

Sales                  9,120     8,103    13%    17,980    14,832   21%

Cost of Sales          5,640     5,223     8%    11,544     9,582   20%

Gross profit           3,480     2,880    21%     6,436     5,250   23%

Gross margins (%)        38%       36%     7%       36%       35%    1%

Distribution cost      2,101     1,579    33%     3,816     2,824   35%

PAT                      667       762   -12%     1,227     1,281   -4%

EPS (Rs)               50.20     57.31   -12%     92.27     96.34   -4%

-----------------------------------------------------------------------

EPS (Rs)                                          92.00     66.00   39%

-----------------------------------------------------------------------

Source: company reports

=======================================================================