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Unilever Plc is one of Nigeria’s oldest company. They are the owners of household brands like Lipton, Vaseline, Knorr, Blue Band, Close Up etc. There is hardly any household in Nigeria who does not rely on a Unilever type product. The company is the type Blue Chip company any investor will want to hold on to possessing qualities that ensure it always grows its earnings. However, the company also plays in an industry that is rife with competition as multiple players and new entrants pervade the country. However, they have managed to build very strong brands which consumers have come to know for decades and can always rely on. Lets see how they hold up in the first quarter of 2011.

Revenue

The Company grew its revenue by 7.9% over the same period in 2011 adding an extra N1b to its top line revenue. I consider a revenue growth rate of 7.9% for an Industry that is rife with competition impressive. This is also on the back of a very difficult first quarter for the Nigerian economy where prices have spiked up due to the fuel increase. It is also important to note that at 7.9%, their growth rate is in line with the country’s GDP growth rate of 7.5% predicted for the country in 2011.

Gross Profit

Gross Profit Margin was 34.9% down 6.5% from the same period last year. Increased competition and cost of raw materials may have contributed to the increase in cost of sales eating into margins for the period.  Sadly, this has made the revenue growth look very modest as the 7.9% growth only produced an a paltry 0.9% in Gross Profit

Operating Profit

This in my view is one of the most important metric in analyzing a company’s performance. Operating profit displays how profitable the business is without the effect of taxes and interest.  For Q1, Operating Profit dropped 9.7% when compared to the same period last year. A major reason for this was the high Admin, Selling & Distribution Expenses which increased 11% from Q1, 2011. Operating Profit Margin which measures the percentage operational profit against revenue, was 15.54% down from 18.57% in the prior period.

Profit After Tax

Despite significant drops in margins, the company was still able to generate a profit after tax of N1.3b, which is  9.49% of revenue. Even though profits were down 18.1% from the prior period, an ability to achieve profitability amidst harsh economic conditions is still acceptable. Its important to note that the ability of the company to survive could also be because of their very low finance cost which is currently 1.46% of Gross Profit.

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Bottom Line

I believe Unilever will pick up in the second quarter of 2012 as the economy rolls into full steam. With the implementation of the minimum wage, release of budgetary allocations, more money will be in the hands of consumers. I also expect the CBN to relax their monetary grip over the next few months which should see more money flow into the system. Bottom line therefore is a black ink

 

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