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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Fidelity Bank to raise N50 billion in bonds in Q4 to refinance existing debts
The new issue will be made to redeem the existing N30 billion bond which was issued at 16.48%.
One of Nigeria’s second-tier commercial banks, Fidelity Bank Plc, has concluded plans to issue up to N50 billion ($131.3 million) in local bonds by the fourth quarter of 2020, in order to refinance existing debts as the yields drop.
The disclosure was made by the Chief Operations and Information Officer, Gbolahan Joshua, during an analyst call on Tuesday, September 8, 2020.
The crash of crude oil price globally, which was triggered by the novel coronavirus pandemic, has led to a decline in bond yields on the local debt market. This has made foreign investors to dump their local assets, leaving excess liquidity in the money market. This has also put a lot of pressure on the foreign exchange market as they look for dollars to repatriate their funds.
The Fidelity Bank top executive disclosed that the new issue will be made to redeem the existing N30 billion bond which was issued at 16.48%.
The global economic situation has seen yields in the debt market drop from as high as 18% about 3 years ago to less than 5% for the one-year treasury bill.
Fidelity Bank had revealed that it expected to see a 15% drop in profit this year when compared to 2019 result due to the coronavirus pandemic. Its profit after tax increased by 21.9% to N12 billion for the half-year 2020.
The second-tier bank also disclosed that its income declined in the second quarter due to a downward review of lending rates on loans as a result of the economic downturn.
Heineken buys more units of Nigerian Breweries Plc
The Dutch firm has invested N276 million in NB since August, to increase its stake in the Brewer by 0.10%.
The major shareholder of the largest brewer in Nigeria, Heineken Brouwerijen B.V, has increased its stake in Nigerian Breweries, with the purchase of 233,110 additional units of Nigerian Breweries shares. This was disclosed by the company in a notification sent to the Nigerian Stock Exchange, which was seen by Nairametrics.
According to the notification, which was signed by the Company’s Secretary, Uaboi G. Agbebaku, the purchase was made on the bourse over two transactions on the 2nd and 3rd of September.
This disclosure is a regulatory requirement that must be reported to the Nigerian Stock Exchange, especially when a major shareholder or director of a publicly quoted company purchases shares in the company they own.
The analysis of these transactions indicates that the purchase consideration for the 233,110 additional units of Nigeria Breweries shares at an average price of N39.94 is put at N9.3 million.
This purchase and previous purchases further cement Heineken Brouwerijen B.V’s status as a major shareholder; the company has accumulated a total of 7,720,236 since 30th June.
As of June 30th, when Nigerian Breweries released its Half-year financial results and reviewed its shareholding pattern, the company had exactly 7,996,902,051 outstanding shares, with Heineken Brouwerijen B.V being the majority shareholder with 3,019,363,804 units, which amount to 37.76% of the total shares of the company outstanding.
Hence, with the current purchase of 233,110 additional units, and previous purchases in August and September 1, which amount to 7,487,126 units, Heineken’s ownership percentage of Nigeria Breweries is now put at 37.85%.
Insider transactions, both sales and purchases, are often an indication of how shareholders perceive a company’s valuation. It could also mean a possible capital raise or that the majority shareholders are strengthening their existing holdings.
In like manners, the purchase of the shares of Nigerian Breweries by Heineken and other majority shareholder has mopped up stray volumes on the bourse, and pushed the stock price higher by 29% or N9, from N31 it closed at on the 3rd of August to its current value of N40 with 38.2x earnings.
About the company
Nigerian breweries is the largest brewing company in Nigeria. It engages in the brewing and marketing of lager beer, stout and non-alcoholic malt drinks, and the bottling of the Schweppes range of soft drinks and Crush Orange. Its brands include Star, Gulder, Legend, Heineken, Maltina, Amstel Malta, Fayrouz, Climax, Goldberg, Malta Gold, and Life. These products are mainly sold in Nigeria and other neighbouring countries.
Key takes on NB’s financials
Nigerian Breweries was affected by the disruption in the global and domestic demand and supply chain, as profit after tax of the largest brewer dropped by as much as 58%, at the back of the adverse impact of the sharp contraction in economic activities.
The knock-on effect of the COVID-19 lockdown, which affected the trade segment of the business, affected the company sales and this triggered the 11% drop in revenue in the first half of the year.
Nestle’s parent company increases stakes in Nestle Nigeria in August
The purchase consideration for the 748,047 additional shares at an average price of N1,174.74 is put at N878.8 million.
Nestle S.A, Switzerland, the parent company of Nestle Nigeria Plc and the majority shareholder of the company, has increased its stake in the Nigerian subsidiary, as it purchased about 748,047 additional shares in August.
This was disclosed by the company in a notification sent to the Nigerian Stock Exchange, which is seen by Nairametrics.
This disclosure is a regulatory requirement which must be reported to the Nigerian Stock Exchange, especially when a major shareholder or director of a publicly quoted company purchases shares in the company they own.
The analysis of this development shows that the purchase consideration for the 748,047 additional shares at an average price of N1,174.74 is put at N878.8 million.
Importantly, this purchase increases the ownership percentage of Nestle S.A, this adds significantly to the multinational’s investment in the company as the parent company now owns 66.27% of Nestle Nigeria Plc.
The 66.27% ownership share of Nestle S.A. total amounts to 525, 307, 504 ordinary shares worth N617 billion out of the 792, 656, 252 shares outstanding.
Meanwhile, insiders’ transactions both sales and purchases are often an indication of how shareholders perceive the company’s valuation. It could also mean a possible capital raise or the majority shareholders strengthening their existing holdings.
About the company
Nestlé Nigeria PLC is one of the largest food and beverage companies in Africa. Nestlé Nigeria Plc engages in the manufacturing, marketing and distribution of food products including purified water. It also exports some of its products to other countries within Africa.
It has three product segments: Food, Beverages and seasoning. The Food segment engages in the production and sale of Cerelac, Nutrend, Nan, Lactogen and Golden Morn. The Beverages segment engages in the production and sale of Milo, Chocomilo, Nido, Nescafe and Nestlé Pure Life. While the seasoning segment engages in the sale of Maggi cubes.
Key takes on Nestle financials
Nairametrics had earlier published after perusing through the company’s half-year unaudited financial report that the increase in the cost of sales, Administrative expenses, low finance income coupled with high costs coloured the bottom line of the company as earnings per share dipped from N33.11 to N27.53.
This shows the knock-on-effect of the pandemic on a giant like Nestle, despite grappling hard to keep revenues flat year on year, the increase in key costs still ebbed earnings.