. .



Financial Review of the Half Yearly Accounts 2001.

By ALTAF NOOR ALI, ACA
Oct 08 - 14, 2001
E-mail: altafnoorali@yahoo.com

Financial Highlights

Six months ending

 

Reference

30.6.01

31.12.00

30.6.00

31.12.99

30.6.99

Sales Rs.'000s

1

9,642,559

10,790,801

9,717,415

9,426,775

9,939,479

Profit after tax Rs.'000

2

623,270

843,209

495,905

415,168

348,792

Dividends Rs.'000

3

498,520

1,103,869

438,698

332,586

332,347

Shareholders' equity (or Net assets) Rs.'000

4

1,383,352

1,258,602

1,517,879

1,538,483

1,451,690

Number of shares 000s

5

13,294

13,294

13,294

13,294

13,294

Key Financial Benchmarks

Sales per share (Rs)

6=1/5

725.33

811.70

730.96

709.10

747.67

Net profit margin (%)

7=1/2

6.46%

7.81%

5.10%

4.40%

3.51%

Eps (Rs)

8=2/5

46.88

63.43

37.30

31.23

26.24

Dividend per share (Rs)

9=3/5

37.50

83.00

33.00

25.00

25.00

Dividend payout (%)

10=3/2

79.98%

130.91%

88.46%

80.11%

95.29%

Book-value per share (Rs)

11=4/5

104.06

94.67

114.18

115.73

109.20

Return on equity (%)

12=2/4

45.06%

67.00%

32.67%

26.99%

24.03%

Sales: The company's revenue streams are reported under three heads: foods, beverages, and detergents (including personal-care products). The foods group covers brand names 'Dalda Banaspati' and 'Planta' cooking oil, and 'Walls' and 'Polka' icecream. The beverages group covers brand names 'Lipton' and 'Brooke Bond Superme' tea. The detergent covers 'Surf' and 'Vim'. Personal care products includes 'Lux', 'Lifebouy' soap and 'Sunsilk' shampoo.

During 1H01 the company introduced new food packagings which resulted in greater volumes. The icecream units did well because of enhanced product visibility made possible by door to door mobile vending. The overall sales under foods head improved by Rs. 22m (1H01: Rs. 2,612, 1H00: Rs. 2,590).

Lipton Yellow Label is the principal brand alongwith Brooke Bond Supreme in beverages. The biggest threat to its growth comes from smuggled tea, available at 30-40% below company product prices, due to evasion of import duty and sales tax. The recent move to increase import duty from 25% to 30% is likely to benefit tea smugglers only. The policy makers needs to realise that its overall revenue from tea imports increased significantly in 1998 when the duty was reduced from 30% to 25%.

On the other hand if conserving foreign exhange and encouraging local cultivation of tea are the motivations behind the increase in import duty then the best course of action for the company is to redouble its efforts in local cultivation of tea in Manshera, where the President Musharraf formally inaugurated the facility on 7 September 2001. However the sheer whimsical adhocism of bureaucracy can hardly be pardoned on these grounds.

The sales in beverages decreased by Rs. 111 m (1H2001: Rs. 4,099, 1H2000: Rs. 4210). We expect sales to improve only moderately in this category in the 2H01 without much contribution to the bottom line.

Lastly, detergents are facing stiff contest from 'Ariel' of rivals Procter & Gamble (an important fact not mentioned in Chairperson's review). The personal care products also take a pinch from products of other Unilever group companies in Middle East. Given the lack of 'be Pakistani, buy Pakistani' ideology in end-users, the personal care products are smuggled in huge quantities and enjoy the benefit of being exempt from sales and other taxes, but the fact is not overtly highlighted in chairpersons' report. The sales in detergent and personal-care group for 1H01 decreased marginally by Rs. 15m (1H01: 2,932, 1H00: 2,917). We expect sales to increase only moderately in this category in the 2H01.

Rebates and allowances. During the six months period ending 30th June 2001 the gross sales of the company was greater than the corresponding period but the rebates and allowances showed an increase of Rs. 93m from Rs. 330m in 1H2000 to Rs. 423m in 1H2001.

Earning per share. The improvement in eps is noticeable. In 2H00 the eps scaled new heights, unlikely to be matched or surpassed in the current 2H01. This is further confirmed by Ms. Musharaf Hai, Chairman and Chief Executive in her candid review when she says: 'current economic environment and uncertainty...may slow down revenue growth and profitability in the second half'. We believe that the eps for the current half will be in the range of Rs. 40 to 55. The target eps is expected to be around Rs. 50.

Dividends and payout. From shareholder's point of view, the final dividend announcement of Rs. 83 per ordinary share on 20th March 2001 was an unexpected but pleasant surprise. The presence of distributable reserves of Rs. 604 m makes it possible for the company to maintain final dividend at last years' level but such feat is unlikely to be repeated for atleast next couple of years. However the strong payout of the company (row 10 above) is worth noticing.

Consistently improved margins. The most important thing to observe is that the company has been able to improve its bottom line, indicated by net profit margin (row 7), which considering only 6% growth in revenues from 1999 to 2000 is an achievement, the basic reason for which is the improved cost control.

Cashflows. Another important factor (not detailed in above table because of space limitations) is that the company has recorded significant cash earnings after a long time, which is good news for its shareholders. As a result, the overdrawn balance has gone down by Rs. 166 m, from Rs. 194 in 2H00 to Rs. 28 m in 1H01, which is no mean achievement. The half-yearly accounts of 2001 also show that Rs. 1 billion is payable by the company in the next twelve months, which will be a drain on its cash resources but given the ability of the company to borrow funds at reasonable financial charge from elsewhere, this too will pass. The company as a fast mover of consumer goods needs to carry heavy inventory but gladly it has been able to control its inventory, and receivables properly. The role of creditors as a source of financing is also significant. Creditors etc have balloned considerably by Rs. 719 m from Rs. 2,353m at 2H00 to Rs. 3,072 m in 1H01. Creditors etc are almost 150% of the net assets and it sure is an indication of over-trading. The level of creditors etc needs to be bought down.

Conclusion

The stock of Lever Brothers Pakistan Limited is being traded at an average price of Rs. 675 (in October 2001) , at a price-earnings P/e multiple of 6.70x, Rs. 675/(63.43+37.30=100.73), and dividend yield of 17.19% (Rs. 83+33=116/675). With such valuations, there is plenty of room for daring and long-term investors.