Unilever Pakistan Foods Limited (PSX: UPFL) has reported a significant 28.8% year-on-year (YoY) decline in its after-tax profits for the third quarter of 2024. The company’s profits fell to Rs1.63 billion, or an earnings per share (EPS) of Rs255.44, compared to Rs2.28 billion (EPS: Rs358.60) in the same period last year.
Revenue Growth Dampened by Rising Costs
Despite the drop in profits, UPFL saw a modest 1.3% increase in its top-line revenue, which rose to Rs7.81 billion from Rs7.71 billion in the same quarter last year. However, the increase in sales was offset by a larger rise in the cost of sales, which grew by 4.3% to Rs4.71 billion. As a result, the company’s gross profit declined by 3.1%, standing at Rs3.09 billion, down from Rs3.19 billion in the same period last year.
This also caused a contraction in gross margins, which fell to 39.6% in Q3 CY24 from 41.3% in the corresponding period last year. The increasing cost of sales, combined with challenges related to inflation and higher raw material costs, put pressure on the company’s profitability.
Tax Burden and Rising Finance Costs Hit Profits
A major factor contributing to the sharp decline in profits was a steep increase in UPFL’s tax expenditure. The company’s tax payments skyrocketed by an astounding 839.5% YoY, rising to Rs787.67 million from Rs83.84 million in Q3 CY23. This dramatic increase in taxes was one of the key reasons for the company’s bottom-line contraction.
In addition to the tax burden, UPFL’s finance costs also surged, rising to Rs16.37 million in Q3 CY24 from Rs5.03 million in the same period last year. The sharp increase in finance costs can be attributed to the higher interest rate environment.
Decline in Operating Expenses and Other Income
On the positive side, UPFL managed to reduce its administrative and distribution expenses, which fell by 12.2% YoY to Rs1.36 billion, compared to Rs1.55 billion in the same period last year. This reduction in expenses provided some relief to the company’s overall financial performance.
Other income, however, saw a marginal decline, falling 3.1% to Rs698.56 million in Q3 CY24 from Rs720.92 million in the previous year. This decrease reflects lower returns from non-operating activities.
Conclusion
Overall, while Unilever Pakistan Foods Limited experienced a modest increase in sales, rising costs, higher finance expenses, and a substantial tax burden significantly eroded profitability. The company will need to carefully manage its costs and navigate the challenging economic environment to stabilize its earnings performance in the future.
Here are the financial highlights of Unilever Pakistan Foods Limited (UPFL) for the third quarter of 2024 compared to the same period in 2023:
- Sales: The company’s revenue grew by 1.3%, reaching Rs7.81 billion in Q3 CY24 compared to Rs7.71 billion in Q3 CY23.
- Cost of Sales: UPFL’s cost of sales increased by 4.3%, amounting to Rs4.72 billion, up from Rs4.52 billion in the same period last year. This rise in costs outpaced the growth in sales.
- Gross Profit: As a result of higher costs, gross profit declined by 3.1% year-on-year, standing at Rs3.09 billion compared to Rs3.19 billion in Q3 CY23.
- Administrative and Distribution Expenses: The company managed to reduce these expenses by 12.2%, bringing them down to Rs1.36 billion from Rs1.55 billion in Q3 CY23.
- Other Income: UPFL’s other income saw a slight decrease of 3.1%, falling to Rs698.56 million in Q3 CY24 from Rs720.92 million in the previous year.
- Finance Costs: The company’s finance costs surged by a significant 225.8%, rising to Rs16.37 million in Q3 CY24 from Rs5.03 million in Q3 CY23, largely due to the higher interest rate environment.
- Profit Before Tax: Profit before tax saw a modest increase of 1.97%, reaching Rs2.41 billion, up from Rs2.37 billion in Q3 CY23.
- Taxation: A substantial rise in taxes was recorded, with UPFL paying Rs787.67 million in Q3 CY24, an 839.5% increase compared to Rs83.84 million in the same period last year.
- Net Profit: As a result of these factors, net profit after tax fell by 28.8%, dropping to Rs1.63 billion in Q3 CY24 from Rs2.28 billion in Q3 CY23.
- Earnings Per Share (EPS): The company’s earnings per share decreased from Rs358.60 in Q3 CY23 to Rs255.44 in Q3 CY24.
This reflects a challenging quarter for UPFL, marked by rising costs and a heavier tax burden, despite slight revenue growth.
