Unilever Nigeria: The negatives in Q1’15 numbers

Late last week, one of the world’s greatest consumer goods companies, Unilever Nigeria plc, released its first-quarter (Q1) 2015 results to investors at the Nigerian Stock Exchange (NSE).

The company, which is one of the largely capitalised companies at the bourse, reported market capitalisation of N157.839 billion and shares outstanding of 3,783,296,250 and Q1’15 revenue increase of 8 percent to N14.910 billion from N13.834 billion in Q1 2014.

The company’s cost of sales rose by 15 percent to N9.849 billion in the review period as against N8.585 billion in Q1’14. Its first-quarter 2015 financial charges rose remarkably by 114 percent to N817.909 million from N381.597 million in the corresponding quarter of 2014.

Unilever Nigeria reported 21 percent decline in Q1’15 profit before tax (PBT) to N864.742 million from N1.089 billion in Q1’14. Also, profit after tax (PAT) declined by 21 percent to N590.448 million from N750.629 million in the corresponding quarter of 2014.

The company is listed on the consumer goods sector of the NSE under the personal/household products sub sector. The company, which closed last week with a share price of N41.72, recorded a 21 percent decline in Q1’15 basic earnings per share (EPS) to N0.16 from N0.20.

“The sales growth is the first time in five quarters Unilever’s topline has shown any meaningful growth. We believe unit volume growth was the principal driver for the topline as prices have been kept relatively flattish year-on-year (y/y),” Olajumoke Okeowo and Uwadiae Osadiaye, both analysts at Lagos-based FBN Capital Limited, said in their first reaction to Unilever Nigeria Q1’15 numbers.

They said: “Unabated insecurity challenges in the North and increased competition in the calmer southern markets mean that consumer good names cannot readily pass on higher costs to consumers for fear of loss of market share. However, we await management’s comments on this.”

Unilever makes and sells products under more than 400 brand names worldwide. Over 2 billion people use them on any given day.

On January 1, 2014, Unilever Nigeria appointed Yaw Nsarkoh as managing director.

“Management had indicated that cost savings and business optimisation were key priorities in 2015, given the difficult business terrain. As such, we believe such efforts have started yielding some benefits,” the analysts said, while noting topline improvement and 9 percent year-on-year decline in operation.

“We believe the devaluation of the naira is the major driver behind the gross margin contraction recorded during the period. We rate the stock underperform. Our estimates are under review. Year-to-date, Unilever shares have gained 20.1 percent, outperforming the NSE ASI which is flat,” the analysts said.

Earlier this month, Unilever Nigeria notified the NSE that Unilever Overseas Holdings B.V. (Unilever) approached the board of directors of the company with an intention to make an offer to increase its equity stake in the company from 50.04 percent up to a maximum of 75 percent (the “proposal”) and to maintain the company’s listing on the NSE.

Under the terms of the Proposal, Unilever proposes to acquire up to 944,465,532 shares in the company at an intended offer price of N45.50 per share in cash (the “offer price”). It is intended that the proposal would be effected by way of a tender offer, by giving any shareholder who elects to sell some or all of their shares in Unilever Nigeria the opportunity to do so.

The proposal represents a premium of 33.8 percent to the company’s closing share price on March 23, 2015, and a premium of 33.2 percent to the three-month volume weighted average share price. The total value of the transaction at the intended offer price and maximum acceptance is approximately N42.973 billion (£144.5m).

The proposal will be subject to the prior approval of the NSE and the Securities and Exchange Commission. Citigroup Global Markets Limited and Chapel Hill Advisory Partners Limited are acting as financial advisers to Unilever Overseas Holdings B.V.

Though in a cautionary statement, Unilever cautioned that the announcement does not represent the announcement of a definitive agreement to proceed with the proposal.

While stating their views on the proposal by Unilever’s parent company, analysts at FBN Capital said it “is a solid testament to Unilever’s long-term commitment to Nigeria and belief in the Nigerian consumer story.

“The proposed move will see the parent increase its equity stake in the local business from around 50 percent up to a maximum of 75 percent. If the deal is 100 percent successful, the value of the deal is likely to be around N40 billion. The stock has appreciated 26 percent since the announcement.”

 

Iheanyi Nwachukwu