UPFL delights

Good times keep rolling roll for the packaged foods industry. Earlier this week, Nestle Pakistan amazed its shareholders with a 33 percent bottom line boost for 1H CY14. Now it’s Unilever Pakistan Foods Ltd’s (KSE: UPFL) turn to charm. The company’s half-yearly financials sent to the KSE yesterday show that UPFL has achieved profit margins that are superior to its closest competitors (Nestle and Engro Foods), on the back of comparatively better margin accretions over previous year.
The 18.5 percent top line expansion shows that the firm’s Knorr and Rafhan product lines have been aggressive in their sales pitch this summer. These two established lines provide UPFL with brands that have kept in touch with the taste buds over the years. If the spicy Knorr ketchups, sauces and masalas heat things up, cool down with Rafhan jellies and pudding. And in simmering heat, there’s always that chilled glass of Energile or Glaxose D, which UPFL positions as energy drinks, to the rescue.
The role of Unilever Food Solutions (UFS)-–an in-house department where teams of professionals work with outside chefs and restaurants to innovate recipes and menus-–is also important in delivering this top line growth. As the eating-out lifestyle is on the rise, UFS seems ideally-positioned to leverage its relationship with dining establishments to deliver volumetric growth for UPFL brands, especially Knorr.
Higher sales were remarkably accompanied by cost savings. In 1H CY14, cost of sales consumed 55.4 percent of sales, a good 264 basis points lower than 1H CY13. This gain eventually translated into a decent year on year improvement in pre-tax margin to 21.4 percent, despite the fact that operating expenditures-–here, a summation of distribution, administration, and other operating expenses-–used up more revenues (23.5%) compared to last year (22.8%).
Thanks to a strong distribution push and cost efficiencies, UPFL eked out Rs150 million’s increment or 32 percent growth in net profits over the same period of last year. The company’s notice mentioned challenging factors like “inflation, fragile security and an uncertain political environment…” But, that’s an environment where all corporates have to operate in. And it is clear that UPFL has been dealing with it quite well. At current pace, expect UPFL to deliver even more attractive profit margins by year end.

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Unilever Pakistan Foods Ltd

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Rs (mn)                1HCY14    1HCY13        Chg

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Sales                   4,106     3,465      18.5%

Cost of sales         (2,275)   (2,012)      13.1%

Gross margin            44.6%     42.0%          -

Dist., admn, &

 other op. expenses     (965)     (789)      22.2%

Finance cost             (21)       (4)     364.0%

Profit after tax          619       469      32.0%

Net margin              15.1%     13.5%          -

EPS - Rs               100.55     76.17      32.0%

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