Updated: Nigerian Breweries, Unilever results show consumer firms coping with difficulties

Steep  cuts in operating costs and product price increases have helped companies in the consumer space boost their profits in the first quarter of 2017 overcoming the difficult operating environment they faced in 2016.

Early  results from Nigerian Breweries Plc and Unilever Nigeria Plc show the companies have started benefiting from the operating efficiency decisions implemented in 2016.

Analysts say their latest results appear impressive from the point of view of revenue and operating expenses (opex) even as these companies may have also benefited from weaker competition, as they continue to grow market share.

Nigerian Breweries, the second most capitalised listed company on the local stock exchange, with a market capitalisation of N952.3billion, grew after tax profit by 9.5 percent to N11.4 billion in the first quarter of 2017, from N10.5 billion in the same period of 2016.

The company which has majority market share in the brewery sector saw, sales spiked 18 percent to N91.3 billion from N77.6 billion in the period under review. Its results from operating activities and profit after tax were impacted by lower net finance charges and a continued focus on cost efficiencies.

Unilever Nigeria, the third biggest consumer goods firm, posted its largest quarterly profit since 2013, according to data compiled by BusinessDay. Unilever, which has a market capitalisation of N134.3 billion, saw after tax profit spike 54 percent to N1.6 billion in the first quarter of 2017, from N1 billion in 2016, while earnings rose by 32 percent to N22.2 billion from N16.8 billion within the same period. The company shows commitment to deploying best practice marketing strategies, with high level of operational intensity.

Nestle Nigeria, the second largest consumer goods giant, is yet to publish earnings.

Hard hit by rising operational costs and the aftermath of a naira devaluation last June, Nigerian companies suffered unprecedented profit declines and losses in the first half of 2016. Majority saw the first such decline for the first time in four years, according to data compiled by BusinessDay.

Improved corporate profit is positive for the Federal Government’s non-oil revenue ambitions, in the form of corporate taxes, but Taiwo Oyedele, a partner and head of tax at Price Waterhouse Coopers (PWC) warns that any high expectation in the short-term must be tapered.

“The way it works is that before corporate taxes payable to government materialise, these companies must first make up for losses suffered in the past,” Oyedele said by phone.

Non-oil revenues, largely comprising Companies Income Tax, Value Added Tax, Customs and Excise duties and Federation Account levies, are estimated to contribute N1.4 trillion to government revenue in 2017, five percent lower than 2016’s estimate, according to the budget ministry.

“The turnaround we are seeing now as Q1 earnings trickle, is as a result of strategic moves the companies took in 2016 to weather the storm by reducing operating costs and increasing prices in the second half of that year,” said Pabina Yinkere, head of research at Lagos-based Vetiva Capital.

“We recall that in a bid to relieve margins amid severe production cost pressures in 2016 FMCGs implemented price increases and undertook large cuts to operating expenses, particularly in marketing spend and overhead costs,” Yinkere added.  Unilever cut operating expenses by 14 percent to N3.5 billion in the Q1 2017, from N4.1 billion in Q1 2016.

Vetiva anticipates a quarterly decline in revenues in the second quarter of the year, given that the first quarter is one of the fastest selling quarters.

Nigerian Breweries was also helped by cost cutting measures but more by price increases, according to analysts at the investment arm of First Bank, FBN Quest.

“We believe that double digit year on year growth on the top line was driven by a combination of higher pricing and volume growth, given average price increases of around 12 percent,” FBN Quest noted by email.

Both companies’ share price jumped after their financial results hit the market.

Unilever’s shares which was up 1.4 percent year to date- leaped 2.35 percent to N35.50 as of 2pm on Friday in Lagos, according to Bloomberg data. Nigerian Breweries’ share price- down 18.84 percent year to date- rose by less than 1 percent to N124.

 

LOLADE AKINMURELE