Why Unilever Consumer Care finally declared stock dividend

For the first time, Unilever Consumer Care Limited has declared a 60% stock dividend for the financial year 2022.

Explaining the reason for declaring a stock dividend in its price-sensitive statement, the company said the stock dividend has been recommended with the objective of potential utilisation of the retained amount as capital for future business expansion.

The company will also pay a 240% cash dividend to its shareholders as declared at the board meeting on Thursday.

As per the board's decision, each shareholder will get 60 shares against 100 shares of the company.

When asked, Unilever Consumer Care's Chairman Masud Khan told The Business Standard (TBS), "Our company's shares are trading at high prices on the stock exchange. We intend to bring these shares within the reach of the common investors. So, we decided to offer stock dividends to shareholders, which will reduce the share price through dilution."

Currently, the company's share price is the second highest on the Dhaka Stock Exchange (DSE). At the end of Thursday's trading session, its shares closed at Tk2,849 each.

However, Unilever Consumer Care declared less cash dividend, which is 240%, to its shareholders for 2022 than the previous year. It declared a 440% cash dividend in 2021.

Market specialists said, apart from Unilever, other listed multinational companies such as Grameenphone, Reckitt Benckiser, Singer and British American Tobacco also declared lesser cash dividends in 2022.

Shahidul Islam, chief executive officer at VIPB Asset Management, told TBS, "I have heard that several multinational companies could not remit cash dividends to the mother companies or abroad due to the dollar crunch. So, for 2022, multinational companies have reduced cash dividends."

Unilever's profit jumped 38% in 2022

Despite a 1% revenue shrink, the company's net profit jumped by 38%, thanks to its cost-cutting measures and finance income.

Last year, its net profit was Tk73 crore, which was Tk53 crore a year ago.

Unilever Consumer Care Limited, a subsidiary of Unilever which bought Horlicks from GlaxoSmithKline (GSK), sells Horlicks and other health drinks.

"In times of high inflation, we have increased our focus on cost reduction of the company. At present, we are using Unilever's distribution channel for selling health drinks which reduced our costs a lot. Besides, another good news is that our financial income has also increased," said Chairman Masud Khan.

A one-off benefit amounting to Tk40 crore coming out of a reassessment of past liabilities and obligations in light of recent business development helped the company to register the profit growth.

Regarding the price hike of Horlicks, he said, "We have increased the price of Horlicks to meet the cost despite inflation. Although this price increase is not enough."

About the decrease in revenue, he said high inflation pushed average consumers to prioritise their food and beverage items and a large number are spending less on health drinks nowadays.

"Still, a glass of Horlicks with milk and sugar is costing consumers 23% more than that a year ago. However, the Horlicks programme to reach 4-5 million new households in a year is helping the company offset declining sales by focusing on the stressed segment of consumers," he added.

Horlicks processed in GSK's closed pharma factory

Unilever Consumer Care started to use its shuttered factory in Chattogram for processing and packaging Horlicks in a bid to minimise cost. This factory was once used by GSK for pharmaceutical production.

Rather than producing Horlicks in Bangladesh, Unilever imports its raw materials in bulk from India and does the packaging here. Earlier, the company used to process and package Horlicks by using the factories of other companies through contract manufacturing.

"A part of the pharma factory is currently being used for producing health-related food. Horlicks are being processed there," Masud Khan told TBS earlier.

"The Horlicks, processed from this factory, will cover only the Chattogram and Sylhet regions. In other regions, we will use the Horlicks processed through contract manufacturing," he said.

"We are now trying to curb our operating costs. So, if we use our own factory for packaging, costs will reduce a bit," he added.

Back in 2018, GSK shut down its pharma plant in Bangladesh as the company was unable to do well in the country's competitive pharmaceutical industry. The company, however, decided to retain its health food business at that time.

But later, it decided to exit the health food business as well and as part of this, the company sold all its shares to Unilever in 2020 for around Tk2,100 crore.

As per rules, if production is stopped in a pharmaceutical factory, the factory has to be kept in an abandoned state for a certain period, also known as the decontamination period.

Currently, GSK's pharma factory has completed the decontamination period. Masud Khan also said Unilever is yet to decide what to do with the remaining portion of the factory.