Corporate results: Unilever profits beat estimates, grow 25%

Smuggling continues to be a drain on potential earnings.

KARACHI: Unilever, the maker of more than 50 brands from Fair and Lovely to Knorr soup, beat all estimates and posted a 25% jump in profits to Rs4.09 billion on the back of higher sales despite price hikes across the board.

The consumer goods giant’s net profit was 10% higher than market expectation as analysts expected it to stand around Rs3.67 billion.

The company’s net sales rose 16% to Rs51.9 billion in 2011 on the back of higher volumes in home and personal care segment along with ice cream segments coupled with elevated tea prices, said AKD Securities analyst Misbah Iqbal.

Prices of almost all goods have increased that this jacked up overall gross margins.

Washing products as well as soap prices surged by 18% and 16% respectively, while price of milk powder and fresh milk – cost for ice cream and spreads segments – rose 45% and 18%, respectively, according to an InvestCap research note.

High prices led to an increase of 2.2% in gross margin to 34.9% in 2011, a year hampered by floods, prolonged outages and rising commodity costs.

The seller of Dove soap further strengthened its foothold by launching seven new brands – the highest ever in a single year – with almost six in the home and personal care segment (HPC), says a statement released by the company. The segment continued to deliver double-digit growth.

Despite increase in competitors including Engro’s Omore, ice cream sales grew by 11% fuelled by strong innovation and launch of Fruttare. The cornetto manufacturer’s greater focus on costs and pricing actions helped improve gross margins.

The company’s board of directors also declared a final cash dividend of Rs202, taking the entire year payout to Rs307 per ordinary share.

Beverage segment mainly grew on the back of price increases while tea smuggling continued to hamper the branded players sector.

Growth of the tea business, which represents 30 per cent of total Unilever sales, has been affected by smuggling in recent years as only half of the tea consumed in the country is officially imported. The other half finds its way to the market through Iran and Afghanistan.

Two of the biggest tea brands in the country Lipton and Brooke Bond Supreme are made by Unilever.

Going forward, continuous innovations in the home and personal care segment coupled with ice cream segments will keep earnings growth stable, said Iqbal.

Published in The Express Tribune, February 11^th, 2012.