Unilever Caribbean - Living the compass or igniting the passion?

Many companies adopt a vision statement for their organisations that attempts to crystallise their hopes and expectations about the entity’s future. It is often used to rally the troops around a common set of goals and ideals and guide the ways they operate their business. (This may be seen as adapting a military-type strategy to achieve commercial and financial goals.) At Unilever Caribbean Ltd (UCL), they have recently begun to use the compass as a guide to build a business model that is designed to deliver sustainable growth. UCL started its local operations in 1929; let us see how well this strategy has delivered results to its shareholders in the recent past.

 

 

For 2011, sales increased by 6.5 per cent to reach $527.4 million over 2010’s turnover of $495 million. In contrast, the gross profit margin declined from 38.7 per cent in 2010 to 37.2 per cent last year. This allowed it to report a 2.4 per cent increase in gross profit, which improved to $196 million from last year’s $191.4 million. The major reason for this was an increase in inventories of finished goods and work in progress of almost $32 million. The decline in administrative, selling and distribution costs by $2.79 million helped boost the operating profit to $77.8 million from 2010’s $70.3 million. Also, a reduction in finance cost by $477,000 to $182,000 allowed it to report a pre-tax profit of $77.6 million; this reflected an 11.4 per cent improvement over the 2010 figure of $69.7 million. In 2010, the effective tax rate came in at almost 26 per cent and resulted in a charge of $18.02 million. Due primarily to an over-provision of almost $1.9 million for the previous year’s tax bill, tax costs in 2011 of $18.36 million reflected an effective tax rate of less than 24 per cent. 

 

 

 

The combination of all these factors allowed the company to report a net profit of $59.25 million or 14.7 per cent more than the $51.65 million earned in 2010. This reflects earnings per share of $2.26, also up 14.7 per cent from last year’s $1.97.

At the end of December 2011, the company repaid all of its outstanding debt. Partly resulting from this more robust financial situation, it has marginally increased its dividend payout ratio from 67 per cent in 2010 to 68 per cent of its earnings for 2011. This reflects dividends for 2011 of $1.54 versus the $1.32 paid for 2010. Unilever’s total assets of $338 million comprise long-term assets of $150 million (44.3 per cent) and current assets of $188 million (55.7 per cent). The long-term assets consist of mostly physical plant and machinery together with its attendant property totalling $82.7 million and retirement benefit asset of $58.6 million. The three main components of current assets are: trade and other receivables of $70.2 million, cash on hand and in bank of $64 million and inventories of $48.9 million. UCL’s total equity of $189.3 million exceeds its total current and non-current liabilities of $148.6 million. With 26,243,832 shares outstanding, each share has a book value of $7.22. At a recent price of $39 and a dividend payout of $1.54, this gives investors a yield of 3.95 per cent, significantly better than many other listed companies or income funds.

 

 

 

The company’s manufacturing base at Champs Fleurs, while having some cost and efficiency challenges, continues to deliver 64 per cent of the company’s turnover or about $338 million in 2011. The managing director signalled the company’s intention to make the plants more efficient. Already, in the first six months of 2012, almost $1.5 million has been spent on the purchase of fixed assets. This augurs well for the company’s growth and expansion. While the company reports that it exported $218.6 million in 2011, it was not clear that these were solely-manufactured products or included items imported for distribution to regional markets in Caricom, Aruba and the Netherlands Antilles. The company divides its business segments into two groups: home and personal care and foods. Both segments include a combination of locally-manufactured items and imported products that are distributed. The home and personal-care division includes laundry detergents, other household products, as well as items for skin care, oral care and personal hygiene. The foods section includes Blue Band margarine and a host of general food items, including ice creams. Interestingly, in both 2011 and 2010, pre-tax profit margins for both groups were identical. In 2010, each group generated a 14.07 per cent profit margin; the food group earned $26.7 million on sales of $189.8 million, while the home and personal care division contributed $42.9 million based on sales of $305.3 million. 

 

 

 

For 2011, the pattern is also remarkably consistent, with each division earning 14.72 per cent profit on their respective sales income; in this period, the food group generated profit of $31.3 million on sales of $212.85 million, while the non-foods section earned $46.3 million on sales of $314.5 million. This level of consistency seems very unusual. For the half-year to June 2012, Unilever reported improved sales of almost $270 million, up 8.4 per cent from the comparative figure of $249 million in 2011. Nimble pricing and cost-reduction actions allowed it to improve its gross margin by 1.57 per cent, or from 37.03 per cent in 2011 to 38.6 per cent of sales this year. However, higher administrative, selling and distribution costs, largely spent to support brand-expansion efforts, eroded this in the current period. Consequently, after-tax profit registered a more modest improvement of 6.2 per cent, from $23.5 million to $25 million. Earnings per share of $0.95 were 5.6 per cent higher than last year’s $0.90 and the company maintained its interim dividend at $0.32. This sum would be paid on August 22. The company’s total assets rose by nearly $20 million to almost $358 million. This increase of $9.6 million reflects an improvement in cash balances, which reached $73.6 million. Consistent with its more robust cash balances, UCL now generates positive finance income, which totalled $24,000 in this period.

 

 

 

As at the end of December 2011, the company had 2,223 shareholders. Twenty-six shareholders, who include Unilever Overseas Holdings AG’s 50.01 per cent holdings, collectively own 83 per cent of the outstanding shares. Two thousand and ninety-seven shareholders, each owning less than 10,000 shares, collectively own 2,050,555 shares or 7.81 per cent of the outstanding amount. Disapprovingly, only two of the five local directors own any shares in their own name; even so, the 1,000 shares held by the current managing director Roxane E De Freitas and the 3,196 shares owned by its chairman and former managing director Gary N Voss seem to be only token quantities. As a consumer products’ company, UCL has multiple opportunities to tie in its outreach efforts with many of its products. For example, local chefs promote recipes using Blue Band margarine. On October 15, Global Handwashing Day is popularised using Lifebuoy soaps and similar products. Relief to flood victims usually involves distribution of many of its popular products. The company’s product images are enhanced by these types of outreach programmes.

 

 

 

The company also is involved in activities that have no obvious tie-ins with any of its products. These activities include its involvement with cancer awareness, diabetes, health, safety and environment and World Water Monitoring Day. From a purely financial perspective, the company appears to be on the right track with its mission of living the compass. Also, its various outreach efforts, to the extent that they reinforce its marketing efforts, appear not to do any harm; more likely, much goodwill is generated. The effectiveness of these initiatives is difficult to measure. Cynics may view some of them as self-serving, while others are less obviously so. An important factor in the company’s continued success is its ability to obtain new products from its parent company to distribute in local or selected regional markets. This is an important benefit, especially when operating in a sluggish economy. Another positive factor is that the parent company can help create market access for its various products in new markets.