Unilever Consolidates Performance


With a growth of 236 per cent in profit after tax for the half year ended June 30, Unilever Nigeria is consolidating and raising the prospects of higher returns at the end of the year, writes Goddy Egene

The year 2015 was a year that Unilever Nigeria Plc will not forget in a hurry. That was the year the food, personal and home care products companies were in the lime light for the wrong reason. In that particular year, Unilever Nigeria’s profitability fell by about 51 per cent.

Specifically, the company’s profit after tax (PAT) declined to N1.192 billion in 2015, from N2.412 billion in 2014. Like other manufacturing companies, Unilever contended with rising cost of operations, dwindling demand following the continuous reduction in disposable income of consumers. While many consumers cut down their demand for goods, other look for cheaper imported alternatives.

However, apart from the challenging environment, another major reason why Unilever’s bottom-line suffered significant decline was due to high financing costs. The company was paying heavily on bank borrowings to finance its operations.
But light came at the end of tunnel for Unilever in 2016 when the company recorded a PAT of N3.07 billion, an increase of 157 per cent from N3.07 billion in 2015. Based on the improved bottom-line, the company paid a dividend of 10 kobo per share, which was a 100 per cent increase above the five kobo per share paid in 2015.
And going by the results of Unilever for the half year ended June 30, 2017 released last week, the company is consolidating on its 2016 performance and raising the hopes of a better returns at the end of the year.

2017 Half year results
Unilever posted a revenue of N45.105 billion in H1 of 2017, up 39 per cent from N32.278 billion in the corresponding period of 2016. Cost of sales was up at N32.197 billion in 2017. Sales and distribution expenses also went up from N1.502 billion to N1.942 billion in 2016.

However, marketing and administrative expenses reduced from N6.689 billion to N5.571 billion. The company ended with operating profit of N6.394 billion, a jump of 195 per cent from N2.161 billion posted in the first half of 2016. Finance cost rose from N895 million to N1.725 billion.

Unilever ended the period with profit before tax of N5.044 billion, compared with N1.487 billion in 2016, showing a growth of 239 per cent, while PAT stood at N3.676 billion, up by 236 per cent from N1.093 billion in 2016.
A further analysis of the revenue by portfolio, showed that food products contributed the highest of N20.725 billion, which is 45 per cent. The home care products segment followed with N12.255 billion or 27.3 per cent, while personal care products accounted for N12.124 billion or 26.8 per cent.

In terms operating profit, food products segment accounted for N2.943 billion, followed by home care products, which recorded N1.741 billion, while personal products segment ended with N1.721 billion.
It is believed that once Unilever can reduce its finance cost, its bottom-line will witness more growth. For instance, the N1.725 billion finance cost incurred in H1 of 2017 resulted mostly from interests paid on inter-company and third party bank loans.

The company paid interest of N682 million as against none in the corresponding period of 2016. The sum of N567 million was paid as interest on third party loan, which was a reduction compared to N729 million in 2016. Another major contributor to the high finance cost was an exchange loss of N315 million in 2017, compared with N2.079 million in 2016. The higher exchange loss stemmed from the United States dollar loan obtained last year.
Unilever had in the third quarter of 2016 obtained an inter-company facility of $59.7 million to refinance local short term bank over draft and other facilities.

Rights Issue to Rescue
Apparently realising the negative impact of bank borrowings on its bottom-line, Unilever is planning to raise up N58.851 billion in equity through a Right Issue.
Although the shareholders of the company had authorised the directors of the Unilever to raise about N63 billion, the company applied to raise about N58.851 billion.

In the application made through its stockbrokers, Stanbic IBTC Stockbrokers Limited, Unilever will be issuing 1,961,709,167 ordinary shares of 50 kobo each at N30.00 per share to shareholders on the basis of 14 new shares for every ordinary shares held.
If successfully raised, it will amount to N58.85 billion. The directors had proposed to shareholders at the AGM to approved that the authorised share capital of the company be increased to N5 billion (from N3.03 billion) by the creation of additional 3.95 billion new ordinary shares of 50 kobo and to raise up to N63 billion by way of Rights Issue, subject to obtaining regulatory approval.

Assurance for better performance
The Chairman of Unilever, His Majesty Nnaemeka Achebe, the Obi of Onitsha had told the shareholders that the challenging operating notwithstanding, the company would deliver impressive results going forward.
He told that the company’s 2016 performance showed its commitment to grant shareholders returns on their investments
“The company’s performance for the year ended 31 December 2016 shows sustained growth and resilience even under depressed economic conditions. Although Unilever Nigeria has not been insulated from the tough economic environment, we have remained focused on our short and long term growth ambitions with strong emphasis on operational intensity, cost efficiencies, growing market share across key categories as well as reinvesting behind our iconic brands,” he said.
Speaking further, Achebe said: “Even in this period of economic downturn, Unilever Plc. is dogged about ensuring sustained and steady growth in the company’s operations to achieve improved returns on investments. We are more resolute than ever to continue to forge ahead despite the business operating environment.”

“As a company, we will continue to appreciate the resilience and unwavering commitment of all our stakeholders; shareholders, dynamic employees, loyal consumers, dedicated suppliers and other business partners for their unflinching support through these challenging times. We look forward to a better 2017 for our brands and our great company which you are all an important part of.”
According to him, in line with the company’s priority, Unilever remains committed to driving returns on investments to shareholders.

“However, our company recognises that these are unusual times and prudence demands that we should continue to plough back into the business in the short term in order to secure a sustainable future. Unilever is a company that cares about humanity and value the environment, through our business practices, we continually demonstrate deep commitment to delivering products that meet the needs and aspirations of our consumers and align with the global goals of making our planet safe, beautiful and sustainable,” the chairman said.

Analysts’ Projection
Analysts at Afrinvest (West Africa) had said Unilever’s product portfolio has shown resilience amid rising domestic macroeconomic risks, pressured consumer income and changing consumer taste.
According to them, they are of the view that the company was devising strategies to weather the storms of FX challenge (a major drawback to re-stocking raw materials for its products) while price inelasticity of the products makes cost pass through to customers less herculean.
“We adjusted our assumptions for Unilever in tune with recent realities and project revenue and PAT for 2017 to grow 10.0 per cent and 34.2 per cent to N76.8 billion and N4.1 billion respectively,” they had said.