Unilever Nigeria Plc recently released its audited results for the year ended December 31, 2016. Looking at the year-on-year (y/y) performance of the company, analysts highlight notable improvement across all line items.
Unilever Nigeria Plc is Nigeria’s largest Home and Personal Care (HPC) manufacturing company. The company’s operations span across the HPC and Food segments. Parent company, Unilever Overseas Holding B.V. owns a 50.04% share in Unilever Nigeria Plc.
Unilever Nigeria Plc is a largely capitalised company with Market Capitalisation in excess of N128.253billion and Shares Outstanding of 3.783billion units. The company’s share price opened this week with N1.6 gain to N33.9 as at Monday.
The full year results
The results at the Nigerian Stock Exchange (NSE) show the Company recorded a significant increase in profit after tax (PAT) from its 2015 position of N1.19billion to close the year with PAT of N3.07billion, about 157.6percent increase.
The result shows a 17.8percent increase in turnover from N59billion in December 2015 to N69billion in December 2016.
Cost of sales increased by 29.6 percent from N38billion for the period ended December 31, 2015 to N49billion for the year ended December 31, 2016 reflecting rising costs particularly raw material costs that are significantly exposed to foreign currency volatility.
In 2016, foreign exchange (FX) sourcing for the importation of raw materials was a major challenge faced by some consumer goods names. However, analysts believe the impact of this challenge was greater for the smaller competitors.
With these results, the likes of Unilever Nigeria Plc appear to have gained market share, offsetting the negative impact of FX importation issues on its components.
Marketing and administrative expenses reduced by 16percent from N13.1billion for year ended December 31, 2015 to N11.6billion for the year ended December 31, 2016 while other income grew by 60percent to N124million from N77.5million in 2015
Net finance costs reduced by 40percent to N1.7billion for the year ended December 31, 2016 compared to N2.8billion reported for the corresponding period in 2015.
The results show that net finance cost as a function of operating profit improved significantly to 29percent (2015: 62percent), reflecting improvements in cash management.
Profit after tax for the year ended December 31, 2016 increased significantly by 157percent to N3.07billion from N1.19billion reported for the year ended 31st December 2015.
Unilever declared a dividend of 10kobo (versus 5kobo in 2015) which implies a yield of 0.3percent.
Company’s view
In a recent statement released by the company, Unilever Nigeria Plc assured shareholders of its efforts to ensure a sustained and steady growth in the company’s operations to achieve better returns on their investments. The company said the cost of sales reflects an exchange revaluation loss of N1.7billion in 2016.
It said, “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 clear emphasis on operational intensity, cost efficiencies and growing market share across key categories”.
Analysts view
While highlighting the notable improvement across all line items in Unilever Nigeria Plc results, Ifedayo Olowoporoku team of research analysts at Lagos-based Vetiva Capital Management Limited noted that the segmental breakdown revealed that the strong growth was mainly delivered by the Food (up 22%) and Home Care (up 32%) segments.
“The Personal Care segment (which boasts of the most products), continued to underperform as revenue grew by a mild 2% despite notable price hikes. We attribute this to the highly competitive terrain in this segment”, Vetiva analysts said.
According to them, “Whilst gross margin for the year contracted 645 basis points (bps) year-on-year (y/y) as a result of the impact of currency weakness (UNILEVER imports 62% of its inputs), we note the improvement in earnings before interest and taxes (EBIT) margin (FY’16: 8.3% versus FY’15:7.8%)”.
“Substantial cost cutting (particularly in Branding and Marketing activities) contributed to this, as operating expenses (OPEX) to Sales ratio for FY’16 moderated to 20.9% (FY’15: 27.8%). Also, Net interest expense for the year also fell 41% y/y following a rise in Interest income (bloated by the aforementioned exchange gain) and decline in financing costs.”
Looking into 2017, Vetiva analysts noted that currency remains a key determinant for production costs this year.
“Given that UNILEVER imports 62% of its raw materials with palm oil accounting for a sizeable portion of this. We expect production cost to be modestly contained in the first half of the year noting the 10% decline in global palm oil prices year-to-date (ytd) and amidst a relatively stable exchange rate environment.
“Hence, we take a slightly optimistic stance on FY’17 costs and estimate Cost of Sales (as a % of sales) of 70% (FY’16: 71%). Having adjusted for lower operating expenses, our FY’17 earnings per share (EPS) estimate is revised higher to N0.88 (Previous: N0.59, FY’16: N0.81). Our 12-month target price is revised higher to N20.12,” the analysts added.
Also in their reaction, Jumoke Okeowo-led team of analysts at FBNQuest said, “Despite a y/y gross margin contraction of -645basis points (bps) y/y, the positives – strong y/y sales growth and declines of -11% y/y and 41% y/y in opex and net interest expense – more than offset this setback. The FY sales were broadly in line with consensus’ estimate of N67.9billion. However, PBT and PAT were higher than consensus estimates by 64% and 44% respectively”.
The analysts said they had forecasted a dividend of 8kobo. “Unilever shares have shed -7.7% and have underperformed the NSE ASI which has shed -5.1%. We expect the market to react positively to these numbers. We rate the stock Underperform. Our estimates are under review”, FBNQuest analysts stated in their reaction to the results of Unilever Nigeria Plc.
Iheanyi Nwachukwu
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