UNILEVER PAKISTAN LIMITED – Analysis of Financial Statements Financial Year 2004 – 1Q Financial Year 2011

Unilever Pakistan Limited formerly known as Lever Brothers Pakistan Limited (LBPL) 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.

Nature of Business Fast Moving Consumer Goods
Net Sales CY ’09 Rs 38,187,582,000
Net Sales CY’10 Rs 44,671,507,00
Share price (avg.) – year end Rs.4360
Market Capitalization – year end Rs 57964 million

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 07, Unilever Overseas Holding Limited, the ultimate parent company, purchased all the shares held by the Government of Punjab. This has increased Unilever’s shareholding in the Company from 67.04% to 70.4%.


During the first quarter that ended April 2011, the company witnessed a 54% growth in the profit after tax as compared to 1Q10. The company registered more than 18% increase in sales. The Home and Personal Care segment registered an increase of 23% in the sales. The beverages segment’s sales increased by 11%, ice cream by 19% and spread’s sales increased by 37% during 1Q11 as compared to the corresponding period last year.

The beverages segment had to face the same problem of smuggling and counterfeiting. Despite this, it continued to grow and kept increasing the company’s earnings.

Ice cream segment also continued to grow with increased innovation and introduction of new products such as ‘Mango Ice Cream’ and ‘2 in 1 Chocolate Caramel’ which further increased the profitability of the segment and hence the company.

The net profit margin increased from 8.7% in 1Q10 to 11% in 1Q11 due to the increased sales of the company. The decrease of more than 55% in the finance cost was also one of the reasons for the increased profitability of the company. The PAT increased from Rs 896 million in 1Q10 to Rs 1350 million in 1Q11. The gross profit margin also increased by 7.7% in the given period. Although there was an increase of more than 14% in the COGS of the company, the increase in sales of more than 18% offset the increase in COGS resulting in an increase of 27.85% in the gross profit of the company during 1Q11.

The return on assets and return on equity also increased significantly due to the increased profitability of the company. The ROA increased from 4.5% in 1Q10 to 5.5% in 1Q11, an increase of 27%; whereas ROE registered an increase of 152% rising from 15% in 1Q10 to 38% in 1Q11.


The liquidity of the company saw a decline as indicated by a decline in both the current and quick ratio of the company.

The quick ratio declined from 0.35 in 1Q10 to 0.34 in 1Q11, a decrease of 3.8%; whereas the current ratio declined from 0.94 to 0.79 in 1Q11, a decrease of more than 16%.

The current assets of the company increased by 36% whereas the current liabilities grew by almost 62%. The decrease in the quick ratio can be attributed to 24% increase in the inventories of the company as compared to 1Q10. The major increase in the current liabilities is because of the significant increase in dividend payable and trade and other payable. The decrease in the liquidity of the company is further supported by the increase in inventory turnover days, day sales outstanding and the operating cycle of the company. These are discussed in detail in the coming section.


Inventory Turnover (ITO) ratio depicts how quickly the company is able to sell off its inventory. The ITO for Unilever Pakistan increased from 164 days in 1Q10 to 171 days in 1Q11. The increased ratio indicates that the company was unable to sell off its inventory in a short period of time resulting in increased amount of inventories and hence the reduced liquidity. This is further supported by the increase in days sales outstanding (DSO) which 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 DSO increased from 19 days in 1Q10 to 21 days in 1Q11 which is also indicated by the rising trade debts of the company (29% increase as compared to 1Q10).

The operating cycle of the company also followed the trend of ITO and DSO and increased from 183 days to 192 days in 1Q11 indicating that the company had to face problems in converting its sales into cash.

The Total Asset Turnover also shrank, declining from 0.8 in 1Q10 to 0.75 in 1Q11. This decline can be attributed to the high growth of assets (26.5%) of the company as compared to the sales (18.68%). The Sales to Equity ratio, however, increased by 94% from 2.65 in 1Q10 to 5.13 in 1Q11 as the total equity declined by 39% due to the decrease in reserves of the company.


As far as the debt management of the company is concerned, both D/A and D/E rose in the first quarter of 2011 as compared to the corresponding period of last year. The D/A ratio increased from 0.7 to 0.85, an increase of 22% indicating that the percentage of debt as compared to the assets increased in the given period. The total debts of the company rose by 55% whereas the total assets of the company grew by 26.5%. The D/E ratio also increased by 153% rising from 2.3 in 1Q10 to 5.8 in 1Q11. This indicates that the company’s debt is rising faster than the equity, which is alarming for the company.

The long-term debt to equity ratio also increased by 58% rising from 0.26 to 0.41 in 1Q11 indicating that the company preferred long-term debt for financing rather than equity.

The Times Interest Earned ratio increased by a great 228% signifying the rise in company’s profitability and a significant decline in the finance cost of the company. The TIE ratio improved from 21 times in 1Q10 to 68 times in 1Q11. The EBIT increased by 45.45% whereas the finance cost decreased by 55.6% resulting in an increase in the given ratio.


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). The P/E ratio of the company decreased by 7.7%. The EPS improved significantly by 54% as it rose from Rs 43.7 in 1Q10 to Rs 67.6 in 1Q11 showing the increase in the profits of the company.

The end-of-quarter market prices of the company’s share also increased from Rs 3468.52 at the end of 1Q10 to Rs 4940.67 at the end of 1Q11 showing the continuous improvement in the company’s performance and the growing confidence of the investors in the company.


Unilever comprises of 4 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

The graph above shows the sector wise percentage of the gross sales. Home care and personal care had the most sales with 55%, beverages coming next with 30%. Ice cream had a share of 12% in the total shares and spreads with 3%.


The home and personal care business sales grew by more than 15% on account of robust performance in the key categories. In three years, the cumulative growth if this business stands at 110%. Due to the volume lost because of the floods and increase in material costs, the gross margin declined slightly. However, the decline was partly offset by effective advertising and lower operating costs and hence the company registered a gross margin of 16.1% in the year 2010.

The graph on the right shows the net sales and the profit through the years for home and personal care business.


Sales growth was 13.5%, which was mainly price-led. Free availability of smuggled tea through Afghan trade remained a point of concern for all local branded players. Gross margins were under pressure during the year as tea prices hit record high due to increase in global demand, stagnant supply and currency devaluation.


Despite severe power shortages in the summer season, Wall’s delivered a growth of 33.3% in 2010 all from volume. This growth was achieved by bringing in new flavours such as “Badami” and “Cornetto double chocolate” which attracted the consumers most. The cumulative growth over the last three years has been 80%. The spreads also witnessed a growth of 20.2% mainly because of volume that it sold. The graph below shows the sales and profit margin through the years of the ice cream segment of Unilever Pakistan.


Pakistan faced multiple challenges during 2010. Low GDP growth, double-digit inflation, deteriorating security environment, continuing devaluation of the Rupee and debilitating power cuts along with gas load shedding impacted business in general. The ever-worsening security conditions of the country also had a great impact on the businesses. Furthermore, the devastating floods that started in mid-July wreaked havoc in the country and affected all kinds of businesses. In addition to the generally difficult operating environment that impacted all businesses in 2010, rampant smuggling of tea affected the growth and profitability of the business. Despite this, the company delivered a 7.10% high profit after tax, which is low as compared to the growth of 54% in FY’09, on the back of 17% growth in sales (FY09: 23.4%).

Despite high COGS, overall gross profit improved by around 9.31%. The gross margin level dropped a little from 35% in FY09 to 32.6% in FY10. Return on Asset showed a decrease from 40% in FY09 to 35% in FY10 whereas return on equity decreased from 93% to 92% in FY10. Overall PAT increased from Rs 3056 million in FY09 to Rs 3273 million n FY10, an increase of 7.1%.

The current ratio was on a decline since 2003 till 2008 but it picked up in 2009. However, it remained the same in FY10 at 0.83 with no improvement. Short-term borrowings decreased from Rs 3233 million in FY08 to Rs 1038 million in FY09. Quick ratio, a better measure of liquidity followed a trend similar to current ratio, declining till FY08 and an increase in FY09. The ratio also witnessed an increase in FY10 as it went up to 0.36 from 0.28 in FY09. Till FY08, there was a positive growth in current assets but the growth in current liabilities was far more. In FY09, the current assets increased but the decline in current liabilities was large enough to improve the overall liquidity ratios. However, in FY10, both the current assets and the current liabilities went up. The increase however was almost the same with current assets up by 25.63% and current liabilities by 26.36%. This is the reason why the current ratio was same for both the years.

Inventory Turnover (ITO) ratio depicts how quickly the company is able to sell off its inventory. ITO had been on a slight rise from FY06 to FY08. 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 FY’08 the growth in inventories has been exponential, with a rise of 54.5%. However, ITO decreased from 58 days in FY09 to 46 days in FY’10. Stock in trade increased from Rs 3649 million in FY09 to Rs 3811 million. The decrease in ITO shows that ULEVER is able to efficiently turn its inventory into sales.

Day 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. DSO has slightly been improving over the years. It showed an increase in FY09 from 3 to 4 days. It remained the same, 4 days in FY10 too. 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.

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 hand, shows a rising trend after 2004 on account of declining equity base in the subsequent years. However in FY09, equity base increased due to the increase in reserves resulting in a decline in sales/equity ratio. In FY10, however, it increased to 12.55 due to 17% increase in sales as compared to 7% increase in equity.

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 for the last four years has remained almost stable over the years whereas 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. However, the situation reversed in FY09. Long-term debt to equity ratio was maintained at a level of 0.31 whereas debt to equity declined from 4.13 to 2.47 in FY09 resulting from a decline in current liabilities (mainly short-term borrowings). In FY10, both the ratios increased very slightly but more or less remained the same.

The TIE ratio has decreased from a level of 107 times in FY04 to only 20 times in FY09. Even though this ability increased in 2006 (owing to comparatively lower finance costs), a massive surge in finance costs (70.64%) vis-à-vis a 3% increase in EBIT, was responsible for a plunge in FY07 TIE ratio. Finance costs also rose sharply in FY08, mainly due to markup on short-term borrowings and exchange loss, which caused further decline in TIE. This ratio slightly improved in FY09 due to lower finance costs. There was a decrease in bank charges, exchange losses and the interest on short-term loans. In FY10, the ratio increased to 34 times from 20 times in FY09 because of 55% decrease in finance cost of the company. The short-term borrowings also witnessed a nosedive as it decreased by 72%. The finance cost also decreased by almost 56%. The main reasons for the decrease were 42% decrease in mark-up of short-term borrowings as the amount of borrowing and the rate (KIBOR) were also less. There was also a86% decline in the exchange loss, which caused the finance cost of the company to decline.

The (P/E) ratio shows that 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 company’s profit after tax (as its number of shares have been constant so far). In FY08, the growth in profit after tax caused EPS to cross the 130 mark and went till Rs 149. This figure further increased to Rs 230 in FY09, an increase of 54%. In FY10, the EPS increased to Rs246, an increase of 7%. This increase was due to the 7% increase in the net profit of the company. The P/E ratio also increased to 18 in FY10 from 10 in FY09.

The year-end market prices of ULEVER have been increasing till FY07. 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. The market price improved in FY09 to Rs 2300 (FY08: Rs 1808). The market price further improved to Rs 4360, an improvement of 89.6%. The huge improvement in the market price shows that UNILEVER was performing well and investors had confidence in the shares.

The book value per share of the company increased slightly from Rs 248 in FY09 to Rs 269 in FY10. There was no change in the number of shares or the share capital but reserves increased from Rs 2622 million in FY09 to Rs, 2891 million mainly because of the increase in unappropriated profits. Dividend per share also increased from Rs 229 in FY09 to Rs 246 in FY10. Total profit distributed by way of dividend amounts to 99.9% (FY09: 99.6%).


After some respite, there is a growing fear that with the surge in price of oil, sugar, tea and other food items, inflation will increase. Continuing rupee devaluation, down trading of consumers due to lower disposable income and increase in acts of terrorism will put pressure on business performance. The destruction caused by the floods is also going to show its impact in the coming year.

Also, smuggling of black tea through Afghan transit trade is an on-going threat to the tea category. Counterfeiting of the popular brands continues to impact results generally. With no reprieve in the ongoing power crisis, the ice cream and spreads businesses are likely to come under pressure.

Unilever, however, performed quite well during the last year. For example, even due to load shedding, the ice cream sector’s sales increased. Seeing it performance, it is expected to perform well in the coming years as well.

2004 2005 2006 2007 2008 2009 2010
Current Ratio times 1 1 0.9 0.7 0.7 0.8 0.83
Quick Ratio times 0.5 0.5 0.4 0.2 0.2 0.3 0.36
Asset Management
Inventory Turnover days 64 59 54 63 64 58 34.15
Debtors Turnover days 6 2 2 3 3 4 4.21
Operating Cycle days 70 61 56 66 67 62 38.37
Total Asset Turnover times 3 3 3 3 3 3 3.31
Sales/Equity times 8.66 9.57 11.47 11.78 13.97 11.60 12.55
Gross Profit Margin % 30 38 37 39 35 35 32.63
Net Profit Margin % 9 9 8 7 6 8 7.33
Return on Assets % 37 43 39 31 26 27 35.40
Return on Equity % 82 87 90 85 90 93 91.94
Debt Management
Debt/Asset times 0.64 0.68 0.71 0.75 0.80 0.71 0.74
Debt/Equity times 1.79 2.14 2.51 3.08 4.13 2.47 2.79
Long-term Debt/Equity times 0.04 0.20 0.19 0.25 0.31 0.31 0.27
Times Interest Earned times 107 141 223 84 18 20 34.00
Market Value
Earnings per share Rs 130 121 124 127 149 230 246.00
Price/Earnings ratio times 11 15 16 18 12 10 18.00
Dividend per share Rs 135 120 122 123 123 229 246.00
Book Value per share Rs 158 139 138 149 167 248 269.00
Number of shares issued No. in ‘000 13,294 13,294 13,294 13,294 13,294 13,294 13294
Market Price – year end Rs 1,475 1,775 2,000 2,280 1,808 2,300 4360.00


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