On Thursday, Unilever Nigeria Plc published its unaudited FY 2019 results, announcing a disappointing 34.0% y/y slump in revenue to N60.8 billion in 2019 from N92.0 billion in 2018. Q4 revenue was higher by 1.8% q/q but was down 57.9% y/y to N9.1 billion.
The steep decline in Q4 revenue follows a disappointing quarter and compounds an already disappointing 2019 where revenue plunged in 3 of 4 quarters. In line with our observation in Q3, the plunge in revenue comes alongside a steep decline in receivables.
Trade receivables fell 26.9% q/q to N24.5 billion in Q4 2019. This explains our findings on how the company has restructured its route to market while cutting down on credit extension to distributors. To buttress this, we note that over the past 5 quarters, quarters with over 20.0% decline in receivables (Q4 2018, Q3 2019, Q4 2019) have seen revenue plunge at least double digits within the quarter implying quarters, where growth in Revenue was recorded, were driven by elevated credit sales.
The company’s two product segments were pressured within the quarter with Home and Personal Care (HPC) business suffering the biggest weakness declining 39.5% y/y to N28.8 billion in FY 2019. In addition, the Food Products business segment fell 28.0% y/y to N31.9 billion in FY 2019.
Cost of Sales (adjusted for Depreciation) declined by 16.6% y/y to N52.3 billion in FY 2019 from N62.7 billion in FY 2018 largely on the back of lower volumes. On a q/q basis, Cost of Sales grew faster than the growth in Revenue, climbing 13.9% q/q to N11.7 billion in Q4 2019. The faster decline in revenue and per-unit cost pressures saw Gross Profit decline 71.1% y/y to N8.5 billion.
We note the company recorded a Gross loss of N2.5 billion in Q4 2019, higher than Q3 2019 Gross loss of N1.3 billion. Input cost continues to pressure operating performance as high cost of industrial heavy Linear Alkyl Benzene continues to pressure margins in the HPC business. Overall business Gross margin dipped 17.9ppts y/y to 13.9% for FY 2019.
In the face of pressured revenues and input costs, management placed a tight lid on Operating Costs. Thus, Marketing & Administrative Expenses, as well as Selling & Distribution Expenses adjusted for depreciation, dipped 10.3% y/y and 28.7% y/y to N12.7 billion and N2.6 billion respectively for FY 2019. However, the decline in Operating Expenses was inadequate to stop the company from recording negative EBITDA.
Loss before depreciation & amortisation printed at N7.6 billion in FY 2019 against EBITDA of N11.1 billion in FY 2018. Despite lower Depreciation & Amortisation (down 4.5% y/y to N2.8 billion), the company recorded Operating loss of N10.4 billion in FY 2019 compared to Operating Profit of N8.2 billion in FY 2018. The company also recorded a 97.1% y/y decline in Other Income to N0.7 billion in FY 2019 from N2.3 billion in FY 2018 which further dragged losses.
Net Finance Income was down 35.2% y/y to N2.0 billion in FY 2019 from N3.1 billion in FY 2018 due to lower Interest Income (down 20.4% y/y to N2.9 billion) and higher Interest Expense (up 82.1% y/y to N0.8 billion). The decline in Net Finance Income was driven by decline in Cash & Cash Equivalents (down 37.5% y/y to N35.7 billion) for the period.
The Net Finance Income booked tempered losses, but the company still posted Loss before Tax of N8.3 billion in FY 2019 as against Profit before Tax of N13.6 billion in FY 2018. Overall, the company booked a Net Loss of N4.2bn in FY 2019 as against a Net Income of N10.1 billion in FY 2018. We note the company saw Loss after Tax grow in Q4 2019 by 58.6% to N4.8 billion from N3.0 billion in Q3 2019.
In our earlier notes, we have communicated our concerns on the growth prospects for Unilever. The company’s disappointing Q4 performance confirms our fears. Our model is currently under review.
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First Bank’s board replacement won’t affect profitability – Fitch
CBN’s remedial actions will not have a material effect on the group’s asset quality, profitability and capitalisation.
Fitch Ratings has affirmed that the recent First Bank board replacement will not affect the bank’s profitability and asset quality, as it rates the bank at B- with a negative outlook.
This was disclosed by the rating firm via a statement seen by Nairametrics.
According to the rating firm, the development reflects its view that the impact of the Central Bank of Nigeria’s replacement of FBNH and FBN Ltd boards, the identification of corporate governance failings and the imposition of corrective measures are tolerable at the rating level.
What Fitch is saying
It stated, “We have assessed the near-term financial impact of these actions on FBNH and FBN and believe this is tolerable at the rating level, even though the final outcome is uncertain. In our view, any remedial actions imposed by the CBN, including a potential reclassification of related-party exposures as impaired, will not have a material effect on the group’s asset quality, profitability and capitalisation.
However, this does not consider any possible additional actions by the CBN, especially if FBN fails to implement the regulator’s corrective measures or if there were any further uncovering of corporate governance irregularities.
The Outlook remains Negative, reflecting FBNH’s pre-existing asset quality and capitalisation weaknesses as well as the group’s corporate governance weaknesses highlighted by the CBN. These could put pressure on the ratings.”
What drives First Bank’s rating
FBNH is the non-operating holding company that owns FBN. FBNH’s ratings are aligned with those of FBN (which represents around 90% of consolidated group assets) due to high capital and liquidity fungibility within the group, and low double leverage (at 95% at end-1H20) at the holding company level.
It added that FBNH’s IDR is driven by its intrinsic creditworthiness, as defined by its ‘b-‘ Viability Rating (VR). The rating, according to Fitch, considers the group’s exposure to Nigeria’s volatile operating environment and also factors in vulnerability in its capital position in the context of moderate earnings generation and asset-quality pressures, where headroom above the minimum regulatory capital requirements is also moderate. Capitalisation is a factor of high importance to VR.
“The new boards appointed to FBNH and FBN comprise individuals with sufficient experience and expertise. However, we view such major change as hugely disruptive. There are no changes in FBNH and FBN’s executive management team.
“We believe the governance shortcomings cited by the CBN reflect poorly on FBNH’s reputation and on the group’s governance and control practices. As a result, we have revised down our assessment of FBNH’s Management and Strategy score to ‘b-‘ from ‘b’.
“We also assigned a negative outlook to this factor, which reflects the uncertainty surrounding additional remedial actions that the CBN may impose due to these related party exposures as well as the potential for further uncovering of governance irregularities. It also captures the lack of track record of the new board and its ability to restore confidence in FBNH and FBN,” it added.
Asset quality remains a rating weakness. FBNH reported an improved impaired loan ratio of 7.9% at end-1Q21 (end-2020: 7.7%). However, FBNH’s reported reserve coverage of 54.5% at end-1Q21 (end-2020: 48%) remains significantly weaker than domestic peers’.
“Our assessment indicates that if the related-party loan highlighted by the CBN were classified as impaired, the ratio would be unlikely to be above 10% (excluding any new impaired loan generation from ordinary business),” Fitch added.
What you should know
On 29 April 2021, the CBN removed the non-executive directors on the boards of FBNH and FBN and replaced them with new individuals appointed by the apex bank, according to Nairametrics.
The CBN gave a series of reasons for its action including the unjustified and unapproved change of the bank’s MD/CEO by the former board, corporate governance failings pertaining to long-standing insider loans that were affecting the bank’s capitalisation and failure to comply with regulatory directives.
Airtel Nigeria announces appointment of Surendran as new Chief Executive Officer
Airtel Nigeria, has announced the appointment of Mr C. Surendran as the new MD/CEO with effect from August 1, 2021.
Telecommunications giant, Airtel Nigeria, has announced the appointment of Mr C. Surendran as the new Managing Director and Chief Executive Officer with effect from August 1, 2021.
Surendran would be replacing the outgoing Managing Director and Chief Executive of Airtel Nigeria, Olusegun Ogunsanya, who has been elevated to the position of Chief Executive Officer of Airtel Africa Plc with effect from October 1, 2021.
According to a report from the News Agency of Nigeria, this disclosure is contained in a statement issued by Airtel on Wednesday, May 5, 2021, in Lagos.
The statement says that Surendran would also be appointed to the Executive Committee (ExCo) as Regional Operating Director, reporting to the CEO of Airtel Africa plc, and onto the Board of Airtel Networks (Nigeria) Limited.
Airtel in its statement said, “Surendran has been with Bharti Airtel since 2003 and has contributed immensely in various roles across customer experience, sales and business operations.
He was the Chief Executive Officer of Karnataka, which is the largest circle in Airtel India, with over one billion dollars in revenue.
Surendran delivered an exceptional performance with significant movement in Revenue Market Share (RMS) over the last few years, currently at 54 percent. He has over 30 years of business experience, including 15 years at Xerox.’’
Airtel said that Surendran would transition into his new role from June 1, 2021, and spend the time onboarding into the business until July 31, 2021.
In case you missed it
It can be recalled that a few days ago, Airtel Africa Plc, a leading provider of telecommunications and mobile money services in Nigeria and 13 other countries, announced the appointment of Mr Olusegun Ogunsanya as the new Chief Executive Officer, following the notice of retirement given by the current Managing Director/Chief Executive Officer, Raghunath Mandava, to the Board.
In the notification sent by Airtel Africa to the Nigerian Exchange, Ogunsanya is expected to join the board of Airtel Africa with effect from October 1, 2021.
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