Unilever Nigeria hopeful for another profit leap

Unilever Nigeria’s first quarter operations have raised hopes for another high rise in profit in 2017 after registering a 158% advance in after tax profit in 2016. It was a turnaround for the company last year that ended three years of running profit fall. The company’s turnaround momentum appears to be gaining speed this year and the conglomerate looks promising to attain a new profit high at the end of the year if the first quarter growth rate is sustained. 

Revenue performance strengthened further for the second year in 2016 and with the strength shown in the first quarter, turnover may accelerate for the second year for Unilever Nigeria. The company closed the first quarter trading with sales revenue of N22.17 billion, a top record growth of 32.1% year-on-year.

Based on the first quarter growth rate, we expect sales revenue to be in the region of N90 billion for Unilever at the end of 2017. That will be a growth of 23% for the company at full year, accelerating further from an increase of 18% in sales it recorded in 2016. The company had grossed N69.78 billion last year – a new peak in revenue since a 7% decline from its N60 billion turnover in 2013.

Unilever appears to be comfortable with the general cost-income balance in the first quarter, which has stretched out profit margin. From the 32% growth in sales, the company raised after tax profit by 60% to N1.60 billion at the end of the first quarter. With that, the company has already earned about 73% of the 2016 full profit figure in three months.

If the first quarter growth rate is maintained to full year, the company is expected to close the current financial year with an after tax profit in the region of N6 billion. That will be an advance of over 95%, up on the 158% profit lifting in the preceding year. The company’s profit peak is the N5.6 billion it posted in 2012 after which it continued to lose profit until the rebound of last year.

The strong profit growth reflects both the accelerating sales revenue and some cost moderation during the period. Cost of sales however continued to grow ahead of sales revenue and has continued to erode gross profit. At N15.88 billion at the end of the first quarter, cost of sales grew by nearly 48% and claimed almost all the increase in sales revenue. That left gross profit flat at N6.29 billion at the end of March.

Cost of sales claimed close to 72% of sales revenue, up from 64% in the same period last year. Rising cost of sales had caused a decline in gross profit at the end of the 2016 operations.

Selling/distribution expenses grew by 23% and therefore moderated relative to sales revenue. A major cost saving however came from marketing and administrative expenses, which dropped by 23% to N2.6 billion during the review period. That was the major development on the income statement of the company during the quarter that permitted the strong growth in profit. It accounted for a 44% growth in operating profit, which amounted to N2.75 billion at the end of the first quarter.

A strong growth in interest income moderated the increase in net finance cost and that permitted the cost saving from administrative expenses to flow down to the bottom line. With that, the company improved net profit margin from 6.2% to 7.2% over the review period. This is a continuing improvement in net profit margin from 2% in 2015 to 4.4% at the end of 2016.

Except for a new bank overdraft facility of about N3.5 billion, the company’s borrowings have not grown much from the last year’s closing position. Borrowings had grown by 163% in 2016 following a drop of over 61% in net cash generated from operating activities. The position has reversed this year with an increase of nearly 62% in net cash generated from operating activities at N5.65 billion at the end of the first quarter.

The company earned 42 kobo per share at the end of the first quarter, rising from 28 kobo in the same period in 2016. It has announced a cash dividend of 10 kobo per share for its 2016 operations. Dividend qualification date is Thursday 13th April, 2017 while the company’s register closes on Tuesday, 18th to Monday, 24th April, 2017. Payment date is Friday, 12th May, 2017.