Unilever rides price hike to beat analysts’ earnings estimates

Unilever Nigeria Plc, one of Nigeria’s largest consumer goods firms, reported second quarter profit that beat analysts’ estimates as the company benefited from a price increase across its brands.

Net income surged 236.69 percent to N3.67 billion from N1.09 billion a year earlier, the company said in a statement on the website of the Nigerian Stock Exchange (NSE).

That compares with the N2.97 billion average estimate of five analysts surveyed by BusinessDay.

Sales was up 39.79 percent to N45.10 billion in the period under review as top lines were bolstered by price increases across key product portfolios such as Royco, Knorr, and Close Up as the company successfully passed on the impact of inflationary pressures to consumers.

Unilever also recorded strong profit margins amid a tough and unpredictable macroeconomic environment.

Net margins increased to 8.13 percent in June 2017 from 3.37 percent recorded in 2016. Earnings before interest and tax (EBIT) moved to 14.16 percent in June 2017 as against 6.69 percent in 2016.

Despite the improved earnings, Unilever succumbed to inflationary pressures and a weak naira as cost of sales margins increased to 69.15 percent in the period, from 67.92 percent the previous year. This means that the company spent more on input cost to produce each unit of product.

Consumer goods firms in Africa’s most populous country and largest oil producer have seen cost of raw materials go up due to the devaluation of the local currency by the central bank as they continue to feel the pinch of imported inflation.

A sharp drop in the price of oil since mid-2014 stoked a severe dollar scarcity as firms were forced to source dollars from the parallel market.

Analysts say the currency controls imposed by the central bank and refusal to weaken the naira and lure foreign portfolio investors is responsible for the country’s economic downturn.

Output in Nigeria’s economy contracted by 0.52 percent in 2016, according to the National Bureau of Statistics (NBS).

Inflation eased to 16.1 percent from 16.3 percent in May, the Abuja-based NBS said in an emailed report Monday. Inflation has been above the upper end of the central bank’s target band of 6 percent to 9 percent for two years.

Unilever plans to raise N63 billion via a right issue, the proceeds of which will be channelled to deleveraging the balance sheet and meeting the working capital and capital expenditure requirements.

The company needs a cash injection given its huge debt and high gearing ratio as debt to equity ratio stood at 126.83 percent as at June 2017. Total long-term debt in the balance sheet was N19 billion in the period.

Unilever’s trade and other payable increased by 46.87 percent to N47.68 billion during the year, from N32.47 billion the previous year.

Analysts are of the view that the market may react positively to the stellar earnings of the consumer goods giant.

The company’s shares gained 10.24 percent to close at N36.38 at The Nigerian Stock Exchange on Monday, valuing it at N131.09 billion.

BALA AUGIE