Unilever plc, the parent company of Unilever Nigeria plc, plans a strategic review of its global tea business, which includes brands like Lipton, Brooke Bond and PG Tips.
Unilever Overseas Holding B.V. owns a 60.04 percent share in Unilever Nigeria while other investors account for just 40 percent of its equity.
The multinational says it will retain only the tea businesses in India and Indonesia, and the partnership interests in the ready-to-drink tea joint ventures.
The decision, according to Unilever, will make the rest of its tea brands and geographies and all tea estates have an exciting future, “and this potential can best be achieved as a separate entity.” The tea business that will be separated generated €2 billion (N1.06trn) in 2019.
A process will soon begin to implement the separation, which is expected to conclude by the end of 2021, which Unilever Nigeria has notified the Nigerian Stock Exchange (NSE) about.
“We shall keep the NSE informed of any subsequent development on this matter as it affects Unilever Nigeria plc. The disclosure is made for and on behalf of the Board of Unilever Nigeria plc,” according to an August 5 note signed by Abidemi Ademola, general counsel/company secretary, Unilever Nigeria plc.
Unilever Nigeria manufactures and markets consumer products primarily in the home, personal care and foods categories. The company sells products such as Omo washing powder, Key soap, Royco bouillon, Lipton tea, Pears baby care goods, Vaseline petroleum jelly, Lux soap, and Close Up toothpaste.
In recent times, the fortune of the once colossus in the consumer goods space has been on a free fall, no thanks to the intense competition in the sector that has seen price sensitive consumers shift to cheaper brands.
The N11.20 per share, which Unilever Nigeria stock traded on August 4, places it among worst performing equities on the Nigeria Bourse. The stock has lost 49.1 percent of its year-open value.
Market analysts differ in their advice to existing and potential shareholders of Unilever Nigeria as evidenced in their target price (TP) for the stock.
“Unilever Nigeria continues to sit on an increasingly high cash balance, now at N44.6billion. We review our year-end target price to N14.86/share (expected return of 13.5percent) largely buoyed by the company’s healthy cash position,” said United Capital research analysts in their July 22 note. They want investors to “Hold” the stock.
On the contrary, Vetiva Research analysts, who set a target price of N8.21 for the stock, want investors to “Sell”, noting that the company’s half-year results released recently show costs, impairment losses are deterring earnings momentum.
Nigeria’s large population remains very attractive to consumer-facing companies and retailers, buoyed by the rapid urbanisation rate and the rising spate of the youthful population that is eager to try new products and brands.
However, weak consumer disposable income and high poverty rates continue to make the case for growth less compelling.
Also, Nigeria’s tough operating environment – decrepit infrastructures, porous borders, double-digit inflation and sluggish economic recovery, have further compounded consumer goods companies’ woes as they struggle to break-even.
The recent outbreak of the COVID-19 pandemic has added a new layer of concern for most of the consumer goods company, as lockdown in key revenue generating and industrial states (Lagos, Abuja, and Ogun states) as well as the ban on inter-state movement depressed performance. Also, the disruption in global supply chains, naira adjustment, and FX market illiquidity throughout second-quarter (Q2) 2020, added more concerns for companies with sizable import needs
In its recently released half-year (H1) 2020 financial result, the consumer goods giant’s EPS declined by 181.9percent year-on-year in Q2 with post-tax loss of N1.63 billion, the company’s third loss in the last four quarters.
Revenue fell 35.9 percent year-on-year to N27.3billion in the first half of the year. Between April and June, Unilever Nigeria sales rose 5 percent on a quarterly basis but slumped around 40 percent compared to the same period last year.
The company suffered more decline (-43%) in Home/ Personal Care (HPC) segment than in its food business (-29%). The faster decline in revenue meant Unilever made N26 from every N100 sales as gross profit, almost N3 less from last year.
Gross profit margin shrank to 19.5 percent in Q2-20, as cost of goods sold (-29.3% y/y) remained sticky, declining much lower than revenue. The recent devaluation in the naira, restrictions in access to foreign exchange and the inflationary impacts on productions inputs as factors affecting the preceding.
Also, Unilever Nigeria recorded net finance income growth of 158.5percent year-on-year in Q2-20 as finance costs fell faster than finance income. Consequently, the company recorded a net loss of NGN1.63 billion (versus net income of NGN2bn in Q2-19). In the last earnings call held in June, management unveiled plans to explore the value segment of the home and personal care market.
Unilever global brands give it a unique opportunity to create positive change, to grow business, and to achieve purpose of making sustainable living commonplace. Across the globe, 2.5 billion people use Unilever products each day; 400+ Unilever brands are used by consumers worldwide; the brands are sold across 190 countries; while 155,000 Unilever people delivered its success as seen in record €52 billion turnover in 2019.
