Unilever: soaring revenues, dwindling profits

The nine-month results of Unilever Pakistan released last Friday were above analysts expectations, although the company witnessed a year-on-year decline in its earnings.
Sales growth of the company swelled by a good 16 percent year-on-year in the nine months ending September. But, despite the vigorous sales growth, the companys profit after tax decreased by 7 percent.
Input costs had been a strain on the company in the quarter gone by. Not only did prices of raw materials, such as tea, increase, but currency depreciation also resulted in higher input costs for the company.
Consequently, the nine-month gross margin declined to 33 percent in 9MCY10, from 36 percent in the year-ago period.
The surge in distribution costs, which jumped by 10 percent to around Rs6.2 billion, was not much of a respite either. This may be attributed to the difficulty in accessing the various flood-affected areas, of which, the worst affected generate around 8 percent of the companys revenues.
Volumetric growth in the companys major sectors, namely home and personal care, ice cream, and spreads was witnessed. Unchecked smuggling of tea, however, continued to hit the beverages category.
Challenging times now lie ahead for the company since rising raw tea prices, and an overall inflationary pressure with a depreciating rupee will continue to exert pressure on the companys input costs.
Further, the prevailing power crisis is also likely to impact distribution - particularly that of the ice cream category. The optimists would hope that Unilevers marketing prowess would help them battle these challenges; but for sure, it won be a very easy feat.

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Unilever Pakistan - P&L

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Rs (mn)                    9M     9MC      %

                         CY10     Y09    Chg

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Sales                  33,009  28,509    16%

Cost of Sales          22,240  18,230    22%

Gross Profit           10,769  10,279     5%

Gross margin               33%     36%   N.A

Distribution costs      6,204   5,630    10%

Admin expenses            886     757    17%

Finance costs             186     367   -49%

Profit after taxation   2,136   2,292    -7%

EPS (Rs)                160.7   172.4

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Source: KSE notice

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