Unilever revenue climbs on price increase as profit beats estimates

Unilever revenue climbs on price increase as profit beats estimates

Unilever Nigeria Plc first quarter revenue climbs as price increases in key products continues to underpin the consumer goods giant’s profit amid an economic downturn.

For the first three months through March 2016, Unilever’s net income rose 53.84 percent to N1.60 billion from N1.04 billion the previous year.

The average estimate of 8 analysts surveyed by BusinessDay was for net income to be N1.50 billion.

Sales spiked by 32.21 percent to N22.17 billion as the company increased the prices of CloseUp, Knorr, Lipton, Omo and Sunlight in February and March.

“….. We expect investors to react positively to the announced PAT, which, if we annualized, is ahead of consensus by 112.3 percent, according to analysts at Cordros Capital Limited in note to BusinessDay.

While Unilever was able to record impressive results in the period under review, analysts say rising cost of production is undermining profit margins

Consumer goods firms in Africa’s most populous nation have been incurring huge costs on the back of rising cost of raw materials and shortages of gas at the factory that forced them to switch to expensive source of energy.

The naira lost 40 percent of its value against the U.S currency as a result of the adoption of a flexible exchange rate by the central bank.

This means consumer goods firm that import most of their raw material are exposed to currency risk.

As a result of these challenges, Unilever’s cost of sales increased by 47.72 percent to N15.87 billion while cost margin moved to 71.29 percent in March 2016 from 64.02 percent the previous year.

This means the company is spending more on input costs to produce each unit of product.

Unilever’s gross margin fell to 28.37 percent in March 2016 as against 25.75 percent the previous year. Operating margins  ratio moved to 12.40 percent in March 2016 as against 11.32 percent the previous year.
Unilever announced last week that it is planning a right issue of about N63 billion ($200 million) in order to pay some of its debt and invest in capital projects.

The maker of foods, homecare and personal care products also said it would seek the approval to increase its authorized share capital to N5 billion by creating additional 3.95 billion new ordinary shares of N0.50 each.

Management said the company plans to convert its outstanding Foreign Currency (FCY) of N15.14 billion from its parent company Unilever Finance International AG into equity.

Unilever has outstanding debts of N21.91 billion while total payable stood at N41.85 billion, which means the company needs to raise capital to clear the backlog of dollar debts owed to suppliers.

Analysts say this is the right time for them to come out and raise capital because the market sentiments is much better and positive adding that it is cheaper for these firms to opt for a right issue than borrow because of high cost of borrowing.

“Most of them are having challenges given the huge finance costs in their books. Their finances have been pressured because of Foreign exchange challenges,” said saheed Bashir, head of research at Meristem Securities Limited. 

“They have losses so they require additional capital and it is equity capital that comes to mind because debt capital would increase their financial leverage,” said Bashir.

Unilever’s share price closed at N33.12 as of 2:00pm, valuing the company at N125.41 billion.

 

BALA AUGIE

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