Unilever Nigeria Plc’s nine months ended September 30, 2017 showed significant increase in revenue and profitability despite increased finance cost and operating expenses.
Finance costs increased over the multinational company repayment of short term Dollar intercompany loans in the period under review.
The higher-than-expected finance cost signals possible changes (presumably exchange rate) to the terms of the intercompany borrowings.
Unilever Nigeria’s announced 38.6 per cent increase in revenue as finance cost and total operating expenses grew by 71 per cent and six per cent respectively.
The higher revenue reflects the stronger prices of key products, albeit the company’s promotions for some products during the quarter, wherein star key distributors were rewarded with product incentives.
Unilever Nigeria successfully raised N58.9billion via a rights issue in September, adding 1.96billion shares to the existing 3.78billion shares.
The Management had disclosed that the funds will be used to repay intercompany loans, support working capital and for capacity expansion.
Between 2014 and 2016, the company went through challenges, mainly due to the macroeconomic difficulties in the country and recorded Profit Before Tax (PBT) as low as N1.8billon in 2015 (versus an average PBT of N7.1billion between 2009 and 2013).
However, due to the steady pickup in the economy and the favourable Central Bank of Nigeria (CBN) policies that have made sourcing of foreign exchange easier, the company has started to turn positive, even more so due to the anticipated expansion plans which have reflected in its model of operations.
The company’s performance continued to show sustained growth and resilience even under depressed economic conditions.
Although Unilever Nigeria has not been insulated from the tough economic environment, but focused on its short and long term growth ambitions with strong emphasis on operational intensity, cost efficiencies and growing market share.
Significant increase in revenue leverage on growth in Profit
Unilever Nigeria’s announced 38.6 per cent increase in revenue to N69 billion in nine months ended September 30, 2017 from N49.87 billion in nine months ended September 30, 2016.
The company’s cost of sales added 35.6 per cent to N47.7 billion from N35.17 billion in prior nine months of 2016 to push its Gross profit up by 46 per cent from N14.7 billion in nine months ended September 30, 2016 to N21.43 billion in nine months of September 30, 2017.
Total operating Expenses that comprise selling and distribution expenses and Marketing and administrative expenses rose by six per cent to N12.3 billion from N11.6 billion in nine months ended September 30, 2016.
The growth in operating expenses reflects mainly higher brand and marketing spend this year, allowing the company’s Opex margin closed nine months of 2017 at 19.8per cent from 19.4per cent in nine months of 2016.
Operating profit reported a significant growth of about 195 per cent to N9.2 billion from N3.1 billion in prior nine months of 2016.
However, the company’s finance income increased by 335 per cent to N627 million from N144 million while finance cost also increased by 71 per cent to N2.98 billion in nine months ended September 30, 2017 from N1.75 billion in nine months ended September 30, 2016.
The breakdown of Interest on third party bank loans dropped by 13.4 per cent to N1bilion from N1.19 billion while Interest on intercompany loan stood at N 1.2 billion in nine months ended September 30, 2017.
Also from the company’s finance cost, the exchange difference on bank accounts rose by 89.4 per cent to N551million from N291.2 million and Interest cost on defined benefit plans moved to N241 million from N263.7 million.
Despite the growth in finance cost, the company’s profit before tax rose significantly by 352 per cent to N6.8 billion in nine months ended September 30, 2017 from N1.5 billion in nine months ended September 30, 2016.
Meanwhile, Unilever Nigeria’s profit gained 208 per cent to N4.8 billion from N1.6 billion in nine months ended September 30, 2016.
With growth in profit, the company’s Earnings Per Share (EPS) gained 212 per cent to N1.28 from N0.41 in nine months ended September 30, 2016.
Compared to nine months of September 30, 2016, gross margin of about 29 per cent, it rose to 31 per cent in nine months of September 30, 2017.
PAT margin stood at 4.8 per cent from 2.7 per cent in nine months of 2016.
Total assets driven by Trade and other receivables
Unilever Nigeria’s total assets grew by nine per cent to N78.8 billion in nine months ended September 30, 2017 from N72.4billion in nine months ended September 30, 2016.
The growth was driven by the company’s short and long term Trade & other receivables. Non-current assets grew by two per cent to N31 billion from N30.9 billion while Current assets gained 14 per cent to N47 billion from N41.5 billion reported in 2016 full year results.
Current liabilities remained flat at N53 billion while Non-current liabilities gained 22 per cent to N8.9 billion in nine months of 2017 from N7.3 billion in 2016.
In all, total liabilities rose marginally by three per cent to N62.7 billion from N60.8 billion in 2016.
Total equity for the period added 38 per cent to N16 billion from N11.7 billion in 2016.
This year, the share price of Unilever has returned +25.7 per cent year till date (ytd) as the Nigerian Stock Exchange All-Share Index has appreciated by 36.5 per cent ytd.
Nigerian NewsDirect retained its neutral rating on Unilever Nigeria’s shares but believed that the deleveraging and expansion are supportive for the longer term.
On profit, Unilever Nigeria’s profit is impressive and dividend payout to the shareholders expected to improve this year.
That said, Nigeria NewsDirect expects to revise our forecast of N7.48 billion lower, in consideration of the surprisingly higher finance costs.
Before now, the company in a statement had assured shareholders of its efforts to ensure a sustained growth in profit and steady growth in the company’s operations to achieve better returns on their investments going forward.