Unilever Nigeria Plc: Impressive results amidst controversial capital raise

Unilever Nigeria Plc, one of the oldest conglomerates in Nigeria rolled out an impressive second quarter 2017 (Q2 ’17) result showing revenue growth of   58 per cent and a jump in net profit by a massive 3873 per cent Year-on-Year (YoY).However, a quarter-on-quarter (QoQ) review shows a moderate growth rate in revenue at 3.4 per cent while net profit increased by 29.4 per cent. But both the revenue of N22.9 billion and net profit of N2.1 billion were ahead of most analysts’ estimates. Noteworthy however, is that the QoQ revenue growth in Q2’17 is UNILEVER’s first since Q2’14. It is important to reiterate that while revenue continues to benefit from the increase in the prices of key products, recent results suggest that the company is increasing its market share.

Analysts at Cordros Capital, a Lagos based investment house, had mentioned that UNILEVER backed the recent price increases with strong promotional activities, and that the slow recovery of import-dependent competition is also supportive of sales. “We note particularly, the recovery in the Personal Care division, wherein revenue growth was 53% in H1, after lagging other divisions in the last two years. Revenue in this category grew by 73% y/y and 1% q/q in Q2. Revenue in the Home Care division grew by 77% y/y and 17% q/q, and while Food revenue declined by 2% q/q, it grew by 24% y/y during the review period,” they had stated. Another positive surprise from the second quarter result is the strong rebound in gross margin to 33.2 per cent, from 28.4 per cent in Q1’17, 27.9 per cent in Q2’16, and above analysts’ 28 per cent forecast.

Industry observers believe the quick margin recovery to historical level was underpinned by pricing actions, positive mix, and more importantly, exchange rate-linked cost savings. The Naira appreciated significantly against the USDollar in Q2’17, thus the positive pass through to production cost, given that UNILEVER is a net importer of raw materials. Operating expenses fell by 2.4 per cent YoY and was 2.7 per cent less than analysts’ estimate, taking the YoY decline to the fourth quarter in a row. Branding/marketing expenses fell by 14 per cent YoY while overheads decreased by 10 per cent YoY, after declining by 45 per cent YoY and 11 per cent YoY respectively in Q1’17. The lower spend on branding/marketing buttresses less-intense competition. However, on the negative, finance charge increased by 186.6 per cent YoY and 38.2 per cent QoQ, notwithstanding the reduction in gross debt to N19.95 billion, from N25.4 billion at the end of Q1’17.

Over H1’17 finance charge is up 92.8 per cent. Driving the increase are interest on inter-company Foreign Currency (FCY) loan of USD60 million obtained in Q3’16 and exchange loss difference on same. UNILEVER is raising N58 billion via Rights Issue, the proceeds of which would be channeled to deleveraging the balance sheet and working capital and capital expenditure investments. Many equity stakeholders see the other side of the capital raise as a step towards further increases in the foreign stake while diminishing the local investors’ stake and eventually may lead to delisting of the company from the Nigerian Stock Exchange.