Unilever Nigeria Plc.’s Large Earnings Miss Clouds Profit Outlook
Unilever Nigeria Plc (Ticker: Unilever) was unable to buck its weak performance record as the company’s earnings decline again, an analysis of the company’s second quarter financial statement for 2022 shows.
In its second quarter financials, profit after tax printed at N11 million, which was 89% below N1 billion earned in the comparable period in 2021. The downward earnings performance was due to a combination of foreign exchange losses, higher effective tax payment; above regulated market intercompany borrowing rate and rising price levels.
Some equity analysts remain unimpressive about the low beat in the company’s earnings, saying these pressures are unlikely to pave way for improved earnings for the rest of the year. READ: Unilever Nigeria Earnings Improve Amid Concern over FX Exposure
The report shows that the consumer goods producer’s pre-tax profit went down by 16.3% to N628.28 million amidst foreign exchange losses and higher interest payments on third-party loans.
At the topline, Unilever Nigeria’s sales jumped significantly but rising costs on operations eclipsed its healthy revenue growth in the period. In itself, the company’s higher revenue generated in the period was supported by price adjustments across the company’s market offerings amidst rising headline inflation rate prints in the country.
Though the management struggles to keep the company’s head high among competing brands in an already tightened consumer goods market, Unilever Nigeria’s earnings eventually break.
The company’s second quarter of 2022 unaudited results shows EPS of N0.02 as against N0.22 in the comparable period in 2021. However, its latest earnings record brings the first half of 2022 EPS to N0.33 from N0.12 in the comparable period in 2021.
On the cost side, the company’s unaudited financials show that Unilever Nigeria expended N507.47 million as an obligation on its debt book. This appears to be a significant increase when compared with N11.09 million paid as costs of obtaining funds in the comparable period.
On the revenue side, Unilever Nigeria was able to raise its sales by 42.3% across its foods, home and personal care business units. Channel checks show that the company’s products across its core segment have increased. Households demand has declined generally while customers’ consumption pattern has been tempered by much higher price levels.
“We highlight that revenue from the food segment bucked the trend from the last two quarters following the positive growth recorded in the quarter”, Cordros Capital analysts said in a review.
The firm said it suspects price increases implemented across the company’s product portfolio drove the strong growth in both the Food Products and HPC segments. Sequentially, revenue grew by 13.1% on a quarterly basis, following the broad-based increases across the company’s business segments.
Food products sales inched higher by 10.5% above record level seen in the first quarter of the year. Likewise, revenue generated in its home and personal care segment spiked 15.2% above the first quarter of 2022.
A further look into the company’s numbers shows that net finance cost came in at N335.02 million from N452.78 million expended in the second quarter of 2021 And there was a 62.8% decline in finance income in the period.
Its unaudited financial statement shows that in the second quarter of 2022, Unilever Nigeria recorded a finance income totalling N172.44 million, much lower than N463.87 million reported 12 months earlier.
Analysts traced the increase in finance costs to interest on third-party bank loans which printed at N122.51 million as against zero level seen in the comparable period in 2021. This was worsened by an exchange rate loss of N430.35 million, a development that appear first time in the last 12-month.
Due to a higher tax charge of N517.91 compared with a tax credit of N253.13 million taken in a similar period last year, the company recorded a PAT of N110.37 million compared with N1.00 billion in the comparable period in 2021.
In a market note, analysts at Cordros Capital said Unilever Nigeria’s second quarter 2022 performance was below expectations. Analysts spotted that the company’s sustained revenue and gross margin growth were inhibited by the dual impact of finance expenses and exchange rate loss on its bottom line.
“Considering the current FX illiquidity in the domestic economy which we assess may have a negative impact on the company’s operations, we believe earnings will remain under pressure in subsequent quarters”, analysts projected.