Unilever Nigeria Earnings Improve Amid Concern over FX Exposure
Unilever Nigeria Plc. earnings improved as the Fast Moving consumers Goods Company (FMCG) makes a comeback from extended loss-making outturns. Due to volatile local currency, naira, some analysts polled by MarketForces Africa expressed concern over the company’s exposure to raw materials input from foreign countries.
According to analysts, Unilever Nigeria has to grapple with incessant naira depreciation with possible hit on earnings. At the Nigerian Stock Exchange, its share trades at N14 as investors valued the company at N81.3 billion over weak key performance metrics.
With upward price adjustments in the FMCG space, analysts have projected that the company will be able to sustain its comeback into profitability.
The leading consumers’ goods company has had its earnings rough-handled by a significant push up in its cost profile amidst a steep rise in headline inflation.
Price adjustment helped a bit following the closure of the land border that limits the inflow of substitutes and competing products into the Nigerian market.
Now, the management has to formulate a strategy to contend with the rising cost profile exacerbated double-whammy pressure from local currency devaluation, and inflation rate surge.
In the first half of 2021, Unilever Nigeria performance has shown a decent recovery from last year’s pandemic-induced slump, Vetiva Capital analyst Chinma Ukadike said in a review.
From the company’s result for the second quarter of 2021, sales jumped 41% to N19.7 billion. This raised Unilever Nigeria’s first half total sales to N39.2 billion.
Vetiva analyst said the revenue surge was actually boosted by the much lower base in 2020 and provides a much needed boost to the bottom line in the first half.
Basically, the tough time has reset the company scorecard traction. Effectively, last year’s unimpressive performance makes 2021 a good year for an obvious reason – low base effect.
Segment analysis of the company performance shows that the food and home and personal care segment recorded an upsurge in the period.
The company’s food segment saw a 35% year on year growth while the home and personal care unit witnessed a meteoric increase of 49%
According to Vetiva, these were partly driven by the newly introduced Store Keeping Units and analyst Ukadike thinks the growth is not as impressive as the first quarter record in the same year.
In the first quarter of 2021, Unilever Nigeria’s food segment expanded by 40% year on year while home and personal care jumped 53% in the same period.
An impressive point that features in the second quarter earnings scorecard for Unilever Nigeria is that the company’s margins become stronger as a result of second quarter 2021 cost optimization.
“On a more positive note, and a measure of improvement, gross margin improved 4.5 percentage points year on year to 27%, much closer to its five-year average of 28%, amid rising costs”, analyst Ukadike said.
This was attributed to a significant 41% year on year revenue growth, as the cost of sales only expanded 27% year on year to N14.3 billion.
For the half year period, Unilever Nigeria result shows that cost of sales witnessed a sky-high jump of 38% year on year which was mostly driven by the first quarter performance.
“Unilever’s exposure to foreign sourced raw materials remains a concern for us especially when we consider foreign exchange volatilities/challenges”, Vetiva Capital analyst said.
However, taking this year’s track record into consideration, Vetiva analysts said they expect the company’s cost of sales figure to print 18% higher, taking gross margin 6 percentage points year on year to 27% for the financial year 2021.
Vetiva said, “Although the company has reported a N235 million impairment loss on receivables (where it had reported no loss in the previous quarter), bringing operating profit to N0.6 billion for the quarter and ₦0.4 billion for the first half of 2021, we do not expect a significant increase in impairment losses for the year”.
Consequently, the investment firm indicates an expectation that Unilever Nigeria will maintain a positive operating profit trajectory for the financial year 2021 at N1.6 billion.
In the first quarter, the company delivered N1.2 billion as profit after tax as against N1.6 billion reported in the comparable period in 2020.
Its fresh foray into profitability saw the second quarter profit level wiped off its loss after tax in the first quarter of 2021. Effectively, profit for the first half settled at N0.7 billion as against N0.5 billion loss after tax in the comparable period in 2021.
On that note, Vetiva capital raised profit expectation to N1.7 billion for 2021 from N0.8 billion loss sustained in 2020 with target price sets at N14.23 per share.
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Unilever Nigeria Earnings Improve Amid Concern over FX Exposure
