Shareholders laud Unilever’s multibillion Naira Rights Issue

OKEY ONYENWEAKU| 

Half year performance corporate performance figures of consumer retail giant Unilever Nigeria Plc has attracted mixed feelings amongst business analysis. The company’s mid-year operating performance has put smiles on the faces of expectant shareholders over the last six months but has left economy watchers sceptical of its massively improved gross earnings which rose 39.7 per cent between half year (H1) 2016 and H1 2017, with sales revenues rising from N32.3 billion in 2016 to N45.1 billion in 2017. Profit before tax rose by a thundering 239 per cent from N1.487billion in 2016 to N5.044billion in the corresponding period of 2017. Indeed industry analysts have suggested that the company’s strong revenues may indicate a positive turn in the country’s economic recession.

The company saw profit after tax triple from N1.093 billion in 2016 to N3.676billion in 2017, representing a growth of 236 per cent.

Unilever’s half year 2017 financial scorecard may have prompted its managers to announce plans to raise a whopping N58bn through a rights issue on the basis of 14 new shares for every 27 shares held by its existing shareholders, whose names appeared in the register of members of the Company as at 28 June 2017 at an issue price of N30 per share.

Climbing on the back of its recent operating performance, the leading soap manufacturer believes it can seduce shareholders to take up more equity in its business as the company positions itself for future earnings growth.

‘’The company can raise the funds. Their Parent company is solidly behind them’’, notes President, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie.

The company also achieved strong performance for the year ended December 31, 2016. A cursory examination of its results reveals a significant jump in profit after tax by 157 per cent from N1.19billion in 2015 to N3.07billion in 2016.

Unilever Nigeria’s turnover increased 17 per cent in 2015 from N59billion to N69 billion in 2016, showing a sustained growth.

Despite the weak economy, the company’s cost of sales increased by 29.6% from N38bn for the period ended December 31, 2015 to N49bn for the year ended December 31, 2016. This reflected rising cost given the currency volatility which pushed up prices of raw materials.

While the high cost of sales was caused by an exchange revaluation loss of N1.7bn in 2016, cost of operations dropped by 16% from N13.1bn for year ended December 31, 2015 to N11.6bn for the year ended December 31, 2016. However, other income grew by 60% to N124m from N77.5m in 2016.

This is no mean performance analysts have said. In comparison with P Z Cussons Nigeria Plc, Unilever may look saintly especially in the second quarter performance. In fact, PZ Cussons Nigeria Plc. (PZ)  unaudited financial results, the second quarter 2016/17 for the period ended November 30, 2016 on January 27, 2017 posted  revenues increase by 8.8% year-on-year (YoY) to ¦ 33.3 billion. This was blamed on unrealized foreign exchange losses of N4.9 billion.

“Although Unilever Nigeria has not been insulated from the tough economic environment, we have remained focused on our short and long term growth ambitions with clear emphasis on operational intensity, cost efficiencies and growing market share across key categories”, a senior staff of the company has said.

MACRO -Economic environment

2016 was difficult for businesses in Nigeria given a blooming recession which has persisted and is only recently abating. The economy slipped into a negative growth of -0.34 percent and fell into full recession in the second quarter by -2.06 and further by -2.24 in third quarter and ended the year with a negative growth of -1.5 per cent.

Manufacturers and other sectors of the economy were in bad shape as economy continued to weaken by the day.

The macro-environment as was noted by business operators was stifling and negative impact on bottom lines of businesses.

President, Manufacturers Association of Nigeria (MAN), Frank Jacob noted that industrial capacity utilisation hovered around 20 per cent during the year.

“More than half of the surviving firms are classified as ailing which posed serious threat to the survival of the manufacturing sector.

“The business environment was plagued by epileptic power supply, bad roads, high interest rate and high cost of energy which contributed to high cost of production and impediment to competitiveness of the sector,” he said.

Others fingered acute scarcity of foreign exchange which restricted the ability of manufacturers to import raw materials for production.

The apex bank had earlier maintained an official exchange rate with the bound of N197 to N199/USD from February 2015 to June 2016 and later introduced a new foreign exchange system and some monetary controls in June 2016.

The Apex had also banned 41 raw materials from getting foreign exchange for importation at the official segment of the foreign exchange market.

Director-General, Nigerian Textile Manufacturers Association (NTMA),Hamma Kwajaffa explained that the textile industry nearly went into extinction due to inability to access foreign exchange for critical raw materials.

Mr. Kwajaffa said that no textile manufacturer had accessed foreign exchange in spite the $660 million earmarked for manufacturers at the official interbank market.

Operators have decried scarcity of foreign exchange, infrastructure deficit, high banking charges and lack of raw materials as they claim that about 272 firms were shut, while some reduced their production, staff strength and remuneration of workers.

Despite these challenges Unilever Nigeria Plc which manufactures and markets consumer products primarily in the home, personal care and foods categories has survived.

The Company sells products such as Omo washing powder, Key soap, Royco bouillon, Lipton tea, Blue Band margarine, Pears baby care goods, Vaseline petroleum jelly, Lux soap, and Close Up toothpaste. Market observers believe that Unilever’s products are household names which have penetrated the market over the years and is capable of sustaining the company’s growth.

One other challenge which is discomforting investors in Unilever Nigeria is her outstanding N20.92 billion debt the company had as at the end of 2016 financial year. While analysts believe as one of the biggest players PERSONAL/HOUSEHOLD PRODUCTS segment and can service its loans, Investor are jittery the Rights Issue will reduce the earnings per share, dividend and stock price of the company eventually. There is also the fear that the parent company of Unilever is using the rights issue to ramp up its holding on the company in the long term.

The company has assured stakeholders that,

“Although Unilever Nigeria has not been insulated from the tough economic environment, we have remained focused on our short and long term growth ambitions with clear emphasis on operational intensity, cost efficiencies and growing market share across key categories”,

But experts do not have any doubt that shareholders will pick up their rights whenever it opens.

Managing Director, Crane Securities limited, Mr. Mike Ezeh reckons that rights offering will be successful given the readiness of shareholders for the exercise.

‘’The company’s product is in every home and shareholders are still confident about its fundamentals’’, Ezeh said.

‘’The company is an investment grade equity and it is one of the biggest and most profitable firms on the Exchange. And I think the parent company may seize the opportunity of the coming Rights Issue to increase its holdings in the company.’’ Managing Director, HighCap Securities limited, Mr. David Adonri believes.

Meanwhile, the company’s stock has gained 9.4 per cent Year To Date from N35.00 per share as at January 3, 2017 to close last Friday at N38.32 per share. The stock performance according to many is below the market performance which stood at N25.38 per cent YTD.