Unilever Nigeria Trouble Deepens as Revenue, Profit Drop Big

Unilever Nigeria Trouble Deepens as Revenue, Profit Drop Big

Unilever Nigeria Plc is having trouble making sales, as indicated by the consumers’ goods producer’s first half 2020 results. The company’s stock traded at ₦12.85 on Monday. Its 52-week high was ₦32 and it had hit the bottom at ₦9.90 in the same period. Analysts at Chapel Hill Denham downgraded Unilever Plc to hold, at a price target of ₦18.92.

The company’s 6-month unaudited result shows that shareholders lost 9 kobo on every share deployed in financing the company in the period. Revenue nosedived by 36% from ₦42.657 billion in the first half of 2019 to ₦27.337 billion in the first half of 2020. The company recorded rising account payables, surged from ₦34.72 billion in the first half of 2019 to ₦37.62 billion.

This is coming despite the fact that receivable accounts nosedived from N24.131 billion to N20.329 billion. Supporting the company’s cash flow, inventories were also converted to cash, having dropped from ₦11.869 billion to ₦9.841 billion.

But a 30% slash in borrowed funds seems to have offset the trend as adjusted free cash flow moved settled at negative ₦280 million (a likely overdraft) from N5.6 billion positive cash position.

As a result of the lower activities level, the cost of sales dropped by more than ₦10 billion from ₦31.311 billion in the first half of 2019 to ₦21.181 billion a year after. Meanwhile, the decline in revenue led to a more than 45% reduction in gross profit position year on year, from ₦11.346 billion to ₦6.156 billion.

While Unilever Nigeria maintained moderate movement in operating expenses, specifically as cumulative selling, distribution, marketing and administrative were stable, impairment loss on trade receivables grew more than 300%. From ₦217.803 million, Unilever Nigeria booked ₦646.433 million against income statement due to bad receivables book.

Due to the fixed nature of its operating expenses, operating profit slipped to a negative zone as revenues generated were not enough to cover direct cost and overhead. In the first six months of 2020, the company declared ₦1.41 billion as operating loss for the period, coming from ₦3.853 billion profit a year earlier.

Its finance cost moderated, from ₦357.316 billion to ₦5.167 million, and then finance income also moderated to ₦849.347 million from ₦1.2 billion. Analysts explained that Unilever Nigeria had witnessed a general decline in performance in 2019 as the company struggled with a sluggish market and declining margins.

The audited report for the year ended December 31, 2019, had shown that turnover dropped from N92.89 billion in 2018 to ₦60.5 billion in 2019. The company recorded a loss after tax of ₦7.42 billion in 2019 as against a net profit of ₦10.55 billion in 2018.

Vetiva says Unilever Nigeria Road to Redemption has Many Bumps

Vetiva Capital analyst, Chinma Ukadike downgrades Unilever Nigeria Plc to sell, having noted many bumpy roads to redemption for the consumer goods company. The investment firm forecasts ₦8.55 price target for Unilever Plc, though the company share traded at ₦12.45 on Thursday. Its market capitalisation closed the trading session at ₦71.425 billion on 5,745,005,417 outstanding shares.

Explaining the selling advice, Vetiva said coming from a loss-making position in the past year, Unilever kicked off 2020 on a much stronger foot. The Nigerian Stock Exchange chart reading revealed however that Unilever share price had peaked at ₦33 in 52 weeks, hit 52 weeks low at ₦9.90.

Read also: NB Plc: Analysts downgrade stock to HOLD on borrowing, margin concerns

The company reported a 45.9% quarter on quarter growth in the top line in the financial year 2020. Vetiva says Unilever Nigeria Road to Redemption has Many Bumps

Vetiva’s analyst explained that while the competitive landscape of its largest revenue segment has not slowed, Unilever made a slow return to profit in the part quarter. The breakdown of the results shows that 26.1% of its revenue coming from the segment as against 16.4% reported in the fourth quarter of 2019.

“Going forward, we believe that FMCG giant is approaching a new sales baseline after abandoning the problematic receivables policy”, Vetiva said. Vetiva said it expects the company to conservatively maintain the run rate for the rest of the financial year 2020.

That said, the investment firm’s analyst stated that the super-premium position of its flagship seasoning brand, Knorr, place Unilever in an awkward position. This is as a result of an expected reduction in consumers wallets could lead to broad-base down-tiering of consumers’ purchases across the FMCG spectrum.

However, Vetiva said it expects Unilever’s home and personal care segment to thrive this period, given the increasing need or awareness for personal and environmental hygiene.

“Given our expectation for a more stable outlook on revenue in line with its Q1 run rate and normalise credit stance, we expect revenue from its seasoning segment to decline 11% year to ₦28.4 billion”, Vetiva said.

Vetiva also forecast a 9.6% decline in revenue to ₦54.7 billion as against ₦60.5 billion in the comparable period.

“We expect operating margins to come in greatly improved at 19%”, the investment firm stated.

Unilever Nigeria Trouble Deepens as Revenue, Profit Drop Big