Unilever: FY’15 signposts steady decline in profit

Unilever Nigeria plc notified the Nigerian Stock Exchange (NSE) that the Board approved the recommendation of the sum of N189.164million as dividend.

This translates to 5 kobo dividend per share which if approved by members in general meeting, is payable on Friday, May 13, 2016.

The company will close register of members Monday April 11 through Friday April 15, 2016 for the purpose of preparation of dividend payment. Unilever Nigeria plc is listed on the consumer goods sector under the personal/household products sub-sector of the Nigerian Stock Exchange main board. The company’s market capitalisation as at Tuesday was N116.979billion and shares outstanding stood at 3,783,296,250 units.

The full year 2015 results

Unilever Nigeria Plc annual report for the year ended December 31, 2015 released at the Nigerian Stock Exchange shows that revenue rose to N59.221billion from N55.754billion in 2014.

Operating profit rose to N4.639billion from N4.614billion; Profit before Tax (PBT) declined to N1.771billion in 2015 from N2.873billion in 2014; while profit for the year after tax declined to N1.192billion from N2.412billion. Earnings per share (EPS) declined to N0.32 from N0.64.

The company’s income statement for the year in review shows increase in selling and distribution expenses as well as its marketing and distribution expenses. Selling and distribution expenses rose to N2.844billion from N2.516billion in 2014; while marketing and administrative expenses increased to N13.641billion from N13.044billion.

The company reported increase in finance income to N301.889million from N168.462million. Finance cost rose remarkably to N3.170billion from N1.909billion in 2014.

Analysts comments

“Unilever declared a dividend of 5kobo per share which implied a dividend yield of 0.2percent and a payout ratio of 16percent. The dividend came in 50percent lower than what the company declared in 2014. (FY 2015 adjusted EPS was down -51percent year-on-year (y/y)”, said Jumoke Okeowo-led team of analysts at Lagos-based FBNQuest in their first reaction to the results.

“Although fourth-quarter (Q4) is one of Unilever’s stronger quarters owing to seasonality, which we factored in our model, we did not expect sales growth to be meaningful due to the persistent unfavourable macroeconomic environment. We await management’s comment on the drivers and sustainability of the sales growth. On gross margins, Unilever Nigeria has mentioned that it aims to source about 90percent of its raw materials locally”, the analysts said.

The analysts who rated Unilever stock ‘underperform’ noted that year-to-date (ytd) its shares have shed -28.5percent, underperforming the NSE All Share Index (ASI) which has shed -9.6percent.

“Despite the recent sell-off, we still find the shares expensive. Going forward, we expect that consensus estimates will remain fairly conservative as it will take consistently relatively strong results for the market’s view on the company to turn completely positive. We continue to believe that consumer goods names with a significant exposure to non-foods, such as Unilever, are likely to face greater challenges,” FBNQuest analysts added.

“Unilever has continued to hemorrhage earnings amidst the steady decline in topline and increasing costs. With a general increase in the trifecta of production, operating and financing costs expected to remain elevated amidst a still challenging macro and operating environment, we expect earnings to remain pressured in 2016. Similarly, with cash flows still under significant pressure, we expect borrowings will remain elevated with attendant impact from finance charges on earnings. Nonetheless, we highlight the modicum of improvement as at Q3’15 in the level of production and financing costs that if sustained, could contribute to earnings growth in FY’16,”, said equity analysts at Vetiva Capital Management Limited.

They analysts further noted that despite its leading market position, Unilever has posted underwhelming revenue performance in the last seven quarters, with revenue shrinking 2.6percent in Q3’15 compared to 0.4percent for PZ Cussons.

“Whilst we agree with parent company Unilever Overseas Holdings that the long term fundamentals for Nigeria’s consumption growth remain positive, we think earnings performance for Unilever will continue to underperform the sector amidst the relatively lower rate of innovation in the HPC leader,” Vetiva analysts added.

About Unilever

Unilever Nigeria Plc was established in 1923 as a soap manufacturing company – Lever Brothers West Africa – by Lord Leverhulme. Currently, Unilever Nigeria Plc is the oldest surviving manufacturing organisation in Nigeria.

After a series of mergers/acquisitions, the Company diversified into manufacturing and marketing of foods and personal care products. These mergers/acquisitions brought in Lipton Nigeria Limited in 1985, Cheesebrough Industries Limited in 1988 and Unilever Nigeria Limited in 1996. The Company changed its name to Unilever Nigeria Plc in 2001 in line with the global strategic direction of the business. The Company was quoted on the Nigerian Stock Exchange in 1973 and with equity holdings of 58.53percent Unilever, and 41.47percent Nigerian investors; the company is a truly multi-local multinational organisation with very outstanding international and local brands in her portfolio.

Products

The international brands include Close-Up toothpaste, Pepsodent toothpaste, LUX beauty soap, Lifebuoy soap, Rexona, Vaseline lotion and Vaseline Petroleum Jelly in the Personal Care Unit of the business; Blue Band Margarine, Lipton Yellow Label Tea and Knorr bouillon cubes in the Foods Unit; and OMO Multi-Active Detergent ,Sunlight washing powder and Sunlight Dish washing liquid in the Home Care Unit. Other Regional and local jewels include the Pears Baby Products range and Royco bouillon cubes. The Company provides sources of income to tens of thousands of Nigerians who are shareholders, distributors, suppliers, service providers and employees.

Iheanyi Nwachukwu