Home' Trinidad and Tobago Guardian : June 29th 2017 Contents JUNE 29 • 2017 guardian.co.tt BUSINESS GUARDIAN
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UCL expands local
Asignificant manufacturer of
foods and home care prod-
ucts, Unilever Caribbean Ltd
(UCL) experienced typical
challenges on the local front
and special ones at the parent
company level. Even so, it signalled its confi-
dence in the local economy by making major
new investments in plant and machinery. Let us
now review UCL's results to December 31, 2016.
Changes in financial position
Total assets grew from $430.8 million to
$447.4 million or by 3.9 per cent.
Property, plant and equipment increased to
$121.2 million from $92.9 million. Additions of
almost $33million overwhelmed depreciation
charges of $5 million. This capital expansion
programme was concentrated under the home
care (detergents) division and continued into
The retirement benefit assets rose to $48.1
million from $33.8 million. Mainly, this re-
flected the excess of the plan's assets ($290.8
million) over the present value of its future
obligations ($240 million) for its monthly
paid staff. The latter component fell by $16.8
million; this was helped by actuarial gains of
almost $19 million, which was influenced by
the increase in the discount rate to 5.50 from
5.00 per cent.
Trade and other receivables advanced from
$138.9 million to $149.2 million. Of this total,
$59.9 million is denominated in US dollars.
The net trade receivables component rose to
$127.5 million from $107.7 million, reflecting
higher sales. On the other hand, VAT recov-
erable fell to $8.6 million from $16.0 million
while prepayments declined to $13.1 million
from $15.2 million.
Inventories closed at $60.5 million from
$54.8 million. The largest increase was shown
under finished goods, which ended at $42.8
million from $36.5 million.
Cash at hand and in bank declined to $57.4
million from $91.8 million. The reduction was
influenced by higher receivables, lower paya-
bles and increased capital expenditure.
Total liabilities declined to $211.6 million
from $218.8 million.
Although UCL has available financing facil-
ities of TT$12 million and US$7.5 million with
locally based banks, it currently has no debt.
Trade and other payables fell to $79.7 million
from $91.6 million. Both the trade payables
and other payables and accruals components
declined; the former closed at $54.7 million
from $62.4 million while the latter ended at
$25 million from $29.2 million.
Sums due to parent and related companies
were little changed, moving from $73.6 mil-
lion to $73.9million. Although purchases from
related companies increased by $12.2 million,
other transactions almost entirely cancelled
Provisions for other liabilities declined to
$7.8 million from $10.3 million; this item re-
lated to short-term employee benefits.
Deferred tax liabilities climbed to $24.8
million from $17 million; most of this related
to the improvements in the value of its retire-
ment benefit asset. Although lower than the
previous year, UCL continues to have strong
working capital of $109.1 million compared
with 2015's $121.9 million.
Total equity advanced to $235.7 million from
$211.9 million. Retained earnings rose to $173.9
million from $150.5 million. The opening figure
was boosted by the current period's profit of
$42.5 million and other comprehensive in-
come (OCI) of $13.7 million. The OCI reflected
re-measurement gains on the pension plans.
Dividends to shareholders of $32.8 million
restricted the closing balance.
The property revaluation reserve increased
marginally to $35.6 million from $35.3 million;
this reflected the OCI from the revaluation of
Stated capital was unchanged at $26.2 mil-
lion. With 26,243,832 shares outstanding, the
book value of each share improved to $8.98
from December 2015's $8.08.
Income and profit
Total revenue improved by 3.2 per cent to
$566.3 million from $548.6 million.
However, the cost of sales increased by
only 1.7 per cent, moving from $332.3 million
to $337.9 million; consequently, gross profit
expanded by 5.6 per cent to $228.4 million from
Among the major cost items, raw materi-
als and packaging edged up to $126.8 million
from $126.7million while the cost of import-
ed goods sold moved from $123.2 million to
$124.9 million. However, employee benefits
expenses declined to $102.3 million from $104
million. Notably, buying and planning expens-
es climbed to $6.4 million from $0.5 million.
Selling and distribution expenses increased
to $137.5 million from $124.8 million. Within
this category, marketing and sales expenses
advanced to $14 million from $7.2 million
while distribution costs rose to $26 million
from $23.1 million. In addition, advertising
and promotional costs expanded from $19
million to $21.7 million.
On the other hand, administrative expenses
declined to $29.3 million from $31.4 million.
These changes resulted in an operating profit
of $61.6 million, which was 2.4 per cent greater
than last year's $60.2 million.
Finance costs of $289,000 reduced this fig-
ure to $61.3 million from the previous year's
The effective tax rate rose to 30.7 per cent
from 25.6 per cent; consequently, the tax ex-
pense increased to $18.8 million from $15.3
million. The largest contributors to this ex-
pansion were changes in estimates relating
to prior years of $2.3 million and $0.6 million
relating to the increase in the tax rate.
Consequently, the net profit registered at
$42.5 million versus $44.6 million. That result
translated to EPS of $1.62 compared with the
previous year's $1.70.
The home care segment, which comprises
detergent and cleaning liquids and powders,
saw revenues grow by 2.3 per cent while gross
profit more than doubled. New investments
currently in train in this division should even-
tually result in capacity expansion, efficiency
gains and even higher profit.
The personal care division mostly comprises
imported beauty care products. Turnover im-
proved by 1.8 per cent, however, gross profit
contribution contracted by nearly 23 per cent.
That result probably reflected a combination
of cost and competitive pressures.
In the foods segment, teas and ice creams
grew by 7.4 per cent while spreads and dress-
ings increased by 4.7 per cent. Overall, top-
line revenues expanded by almost 4.9 per cent
while gross profit contribution grew by only
3 per cent.
The external market, which includes exports
from Trinidad and the distribution of imports
to other regional markets, grew to $240.9 mil-
lion from $219 million; even so, pre-tax profit
from that source declined to $17.2 million from
Q1 2017 results
For the first quarter ended March 31, 2017,
UCL recorded a 14.5 per cent fall in revenues
to $115.1 million from $134.6 million.
Driving this decline were weaker sales in both
the local and some regional markets, the fa-
miliar foreign exchange shortages and start-up
costs relating to the new capital investment
programme. EPS for this period contracted
to $0.15 from $0.37 in the comparative 2016
Inventories held steady at $60.5 million
while receivables and payables declined. Cash
fell by $24 million while sums due to the parent
and related companies contracted by an almost
Share price and dividends
UCL's share price closed at $68.30 on De-
cember 31, 2015. For most of 2016 the share
traded at progressively weaker price points,
reaching as low as $58.00 on September 12,
before eventually closing at $59.84 last De-
cember. That movement reflected a one-year
price contraction of 12.4 per cent. In 2017,
this persistent price decline continued and it
closed at $51.37 on February 22, before rallying
modestly. It was recently quoted at $52.00.
Total dividends increased from $1.20 for 2015
to $1.25 for 2016. The final dividend of $1.00
was paid on June 8, 2017. Relating the total
2016 dividend of $1.25 to the recent price of
$52.00, the yield is 2.40 per cent. That price
also reflects a lofty trailing P/E multiple of 37.1
and price to book value of 5.79.
In the short-term, this price weakness is
expected to continue. Profit improvement
resulting from recent capital investments, de-
mand recovery in its main markets and positive
developments at the parent company level are
among the variables that could help shore up
the share price, improve the dividend and re-
align its valuation metrics.
UCL, in early April 2017, issued a statement
under the heading "accelerating sustainable
shareholder value creation"
. This statement
was based on developments at its parent com-
pany, Unilever, and sought to emphasise its
long-term sustainable growth strategies.
The release ended by stating that, despite
improvements made at its baking, cooking and
spreads unit, since 2015, "...the underlying cat-
egory remains challenged in developed markets
and we have now taken a decision to launch a
process to divest the business globally." That
proposed action will eventually have some
impact on its local operations.
It is conceivable that that initiative was
prompted by Unilever temporarily thwarting
a bid by Kraft Heinz to buy it for US$143 bil-
lion, which was made in early February 2017.
Kraft Heinz is 27 per cent owned by Warren
Buffet's Berkshire Hathaway and 24 per cent
owned by the Brazilian private equity firm, 3G
Capital, which is overseen by Brazil's richest
man, Jorge Paulo Lemann. In practice, the Bra-
zilian entity exercises effective management
control at Kraft Heinz, while Warren Buffet
seems happy to serve as their main cheerleader.
3G Capital's business model emphasises
meritocracy and insists that every employee
must justify their existence (at the company)
every day. All costs are evaluated unsparingly
on a regular basis. The global big food industry
in the major western economies is under severe
pressure to offer healthier fare and improve
profits. Analysts predict that more acquisitions
in this sector are very likely.
It seems very probable that Unilever will,
in the not-too-distant future, once again be
the subject of a new take-over proposal, either
from the same or a different source.
Of course, it could aggressively streamline
its own operations, as outlined in the press
release and, perhaps, initiate an acquisition
move on its own terms.
How will these developments impact on their
In next week's article, we will review HFC Bank
Ghana Ltd's 2016 results
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