Connect with us
nairametrics
UBA ads

Blurb

Unilever could be living out its lifecycle to a rebound

Its Q1 2020 interim report, revealed a 30% decline across its revenues streams.

Published

on

Most businesses have a very similar lifecycle; while there are different ways this could play out, the script is pretty much the same – startup, growth, maturity/peak, decline. At this point, a reversal, which could be in the form of the company’s rebranding or a redefinition of operations based on current trends, then has to take place to lead to the company’s rebirth and restart the cycle – otherwise, meet its end.

Over the past few years, Unilever – producer of some of the most top-of-mind household and lifestyle brands, has experienced a decline in its operations. The 91-year old FMCG company having around 400 loved brands in more than 190 countries had hit a wall with structural deficiencies around its management of trade receivables in Nigeria. This issue dates back to 2016 when the only amount reported as cash out of a revenue of about N32 billion in the first 6 months of the year, the company only collected N8.6 billion in cash. In 2019, it wrote down about N721 million in impaired receivables and had to put out strict measures to tighten its credit policy to its distributors to enable it manage its huge receivables. A previous Nairametrics article captures all the preceding details.

READ ALSO: UBA Records 13% Earnings Growth and Delivers N111billion Profit

In 2019, Unilever’s revenue plunged in 3 out of 4 quarters, and the trend has continued this year as its most recent results have followed the same momentum. Covid-19 has not made it any easier as inflation amongst other economic constraints has threatened the purchasing power of Nigerians who would have reallocated funds to only essential items. Its Q1 2020 interim report, revealed a 30% decline across its revenues streams. Revenue had fell by 19.5% from N9.2 billion in the corresponding quarter in 2019 to N7.4 billion in Q1, 2020. Its H1 results, together, show a 36% decline in revenue as both business lines – Food Products and Home & Personal Care, reported 28% and 43% declines respectively as compared to H1 2019 results.

READ ALSO: GTBank declares closed period as directors meet July 22nd to consider H1 result

GTBank 728 x 90

The brand has good market share and fair fundamentals

Unilever’s Home & Personal Care division has a wide range of popular products like LUX beauty soap, Close-Up toothpaste, Vaseline Petroleum Jelly, OMO Multi-Active Detergent, Sunlight washing powder, Pepsodent toothpaste, Rexona, Pears Baby Product ranges and many more while its Food Products division has names like Lipton Yellow Label Tea and Knorr bouillon cubes in its stash. If most of these names ring a bell, it is because the company has overtime developed these brand names and attained good market share. That said, it also has competition like Nestle on its tail.

READ MORE: Top 10 highest earning CEO’s in Nigeria

Unilever’s share price at market close today is 12.85, on the low side of its 52-week range of 9.90 and 32.00. While its price to book ratio isn’t bad at 1.1184, revealing a level of undervaluation, its negative EPS of -1.44 is worrisome albeit attributable to the overall reduction in earnings. One of the peculiarities of companies at this phase is a change in management so as to stir the waters and enforce the required amount of change to cause a turnaround. Toeing the line, the company had asked its previous CEO Yaw Nsarkoh to resign and Mrs. Adesola Sobande-Peters was delegated as the interim Managing Director of the company.

READ: Dangote to create 100,000 jobs with sugar projects

Its rebound will, however, only come to fruition when major strategies are deployed to rebrand its operations, better structures are put in place, and new markets based on current trends are explored so as to increase its revenue across all frontiers. For investors, the best bet might be to hold on for the long term until losses are recouped.

app
Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Blurb

Total Nigeria caught in the oil demand and lockdown saga

In Q1 2020, the company had recorded a revenue drop of 9.3% to N70.2 billion compared to Q1 2019.

Published

on

Total Nigeria caught in the oil demand and lockdown saga

The year 2020 was supposed to be a good one for the global oil and gas industry. Save for the unprecedented fangs of the Covid-19 pandemic, the IEA had forecasted in February that the global oil demand would grow by 825,000 barrels a day in 2020. On the contrary, lockdown measures restraining travel and other economic activities to contain the pandemic in many parts of the world had global oil demand down around 90,000 barrels a day from 2019. While the upstream sector had a direct hit owing to this reduced demand, the impact of the pandemic on the downstream oil industry caused the price of crude oil to fall significantly in a short period of time. GlobalData had forecasted that the energy sector would face downward earnings revisions of 208% in 2020.

READ MORE: Analysis: Total Nigeria needs a financial overhaul

With the pandemic leading to a slowdown in a wide range of business and personal travel, even gasoline demand had reduced and this has led to inventory challenges in both the distribution network as well as the refineries. In Nigeria, following the challenges of the pandemic, the federal government deregulated the downstream sector of the oil industry through the removal of fuel subsidy. While it presents a level playing field for the downstream oil private sector, it didn’t take long before companies like Total Nigeria plc. started caving into the overall reduction in inventory from the reduced demand for oil products in Q2 2020. Consequently, the company witnessed a 45% reduction in inventories from N33.6 billion as at 31st December 2019 to N18.5 at the end of Q2 2020.

READ ALSO: Nigeria’s Foreign Trade hits N9.18 trillion in Q3, as non-oil export rose by 374.5%

How the exogenous shocks affected an already ailing Total Nigeria

The success or failure of any organization depends on both the macroeconomic environment as well as the operations of the company itself. For Total Nigeria, the timing for the crisis had been off as it too had operational challenges to deal with. In Q1 2020, the company had recorded a revenue drop of 9.3% to N70.2 billion compared to Q1 2019. While the headwinds of the pandemic might have played a small role in the decline at least in the latter part of the quarter, the loss after tax of N163 million it had recorded was 65.6% better than the loss after tax of the  comparative quarter – a testament of the series of operational challenges it had from huge loans to raging expenses. While the company had set off on a strategic trajectory deploying a series of initiatives around cost efficiency, process optimization, as well as a significant reduction of working capital requirement and finance costs, Q2 had its own troubles waiting.

GTBank 728 x 90

Restrictions in the oil market had led to weaknesses across product lines. Total revenue fell by as much as 50% from N73 billion in Q2 2019 to N36.5 billion in Q2 2020. Revenues from petroleum products had contracted by 55.7% while lubricant sales also fell by 26.7% in the quarter. Across the company’s core business sectors comprising Networks, General Trade, and Aviation, revenue from aviation experienced the most decline, falling by 83.0%. Its performance can be predominantly attributed to the fall in demand owing to strict lockdown measures even in major Nigerian cities.

READ MORE: Five oil majors reduce value of their assets by $50 billion in Q2

Outlook

The outcome of the company’s internal and external challenges is a loss after tax of N373.9 million from N604 million in Q2 2019 – an alarming drop of 161.9%. However, its strategic intent is also visible. Net cash balance was a negative N19.6 billion at the end of the quarter, compared to negative N41.8 billion a year ago. Finance costs also declined by 76.1% to N830.3 million as the company sought to reduce its leverage position. In the same vein, borrowings came at N31.0 billion in Q2 2020 as opposed to the N39.9 billion in Q2 2019. Yet, the success of the company in the immediate future is somewhat bleak.

Download the Nairametrics News App

This is because of the conditions of the oil market and overall economic landscape which is set to take a few years before returning to the norm as well as the financial and operational position of the company. That said, its earnings per share (EPS) of N4.37 and its price-to-earnings ratio of 18.12, reveal that the company has a good potential to make a rebound. However, it could take a few years. Hence, investors must be willing to wait for the long term. With its share price of N79.10 at the far bottom of its 52-week range of N78 and N129.50, it’s a great time to purchase its shares if you are willing to wait the long term.

app
Continue Reading

Blurb

Implications of CBN’s latest devaluation and FX unification

This move portends significant implications for Nigeria’s public and private sector.

Published

on

Implications of CBN's latest devaluation and FX unification, current account deficit, IMF, COVID-19, CBN OMO ban could give stocks a much-needed boost , CBN’s N132.56 billion T-bills auction records oversubscription by 327% , Nigeria pays $1.09 billion to service external debt in 9 months , Implications of the new CBN stance on treasury bill sale to individuals, Digital technology and blockchain altering conventional banking models - Emefiele  , Increasing food prices might erase chances of CBN cutting interest rate   , Customer complaint against excess/unauthorized charges hits 1, 612 - CBN , CBN moves to reduce cassava derivatives import worth $600 million  , Invest in infrastructural development - CBN Governor admonishes investors , Credit to government declines, as Credit to private sector hits N25.8 trillion, CBN sets N10 billion minimum capital for Mortgage firms, CBN sets N10 billion minimum capital for Mortgage firms , Why you should be worried about the latest drop in external reserves, CBN, Alert: CBN issues N847.4 billion treasury bills for Q1 2020 , PMI: Nigeria’s manufacturing sector gains momentum in November, CBN warns high foreign credits could collapse Nigeria’s economy, predicts high poverty, MPC Member, BVN, Fitch, Foreign excchange (Forex), Overnight rates crash after CBN’s N1.4 trillion deduction, Nigeria’s foreign reserves hit $36.57 billion; Emefiele keeps his word on defending the naira, CBN to support maize farmers, projects 12.5 million metric tons in 18 months

The CBN devalued the naira by 5% at the end of last week, adjusting the official exchange rate to N380/$1  in a major move aimed at unifying the multiple exchange rate windows.

Whilst no official confirmation was issued by the apex bank, its website displayed the buying rate of N379/$1 and selling rate of N380/$1. Nigeria is clearly in a new exchange rate territory.

This move portends significant implications for Nigeria’s public and private sectors. Since March when the CBN last depreciated from N307/$1 to N360/$1, there have been calls for further depreciation to at least close the gap between the official CBN rate and the more market-friendly NAFEX exchange rate. The NAFEX rate has traded between N385-390 in recent weeks.

READ MORE: Manufacturing sector in Nigeria and the reality of a “new normal”

Government Finances

For the federal government, devaluing the naira solves two major issues:

GTBank 728 x 90
  • Firstly, it increases the amount available to share from the Federal Allocation (FAAC) between the FG and States.
  • Oil proceeds, which is a major source of revenue sharing for the government is deposited at the CBN and then converted to naira using the official exchange rate of N360/$1. The CBN’s latest devaluation suggests more money for the government as the conversion rate is now N379/$1.
  • Government taxes that are priced in forex but converted to naira also stand to gain a major earnings boost.
  • Custom duties, petroleum profit taxes, and other charges will now be converted at an exchange rate of N379/$1 or whatever new rate the CBN chooses, assuming it will work within the NAFEX band.
  • A second issue the solves is the condition precedent towards obtaining a $3 billion world bank loan. The government applied for a world bank loan as part of its N2.3 trillion stimulus expected to be injected into the economy.
  • It is understood that a unification of the exchange rate is critical to the disbursement of the loan.

Whilst these are positives, the government will record cost escalations for some if not all of its capital projects and expenditure. From vehicle purchases to furniture and fittings we should expect a spike except the contracts are fixed-priced.

READ ALSO: Explained: CBN’s powers to seize bank account of criminals

Private Sector

The impact of the latest devaluation will also be significant for the private sector.

  • While the private sector has recorded its own devaluation via the NAFEX and more recently the SMIS window, the impact of the CBN’s latest move will still be felt.
  • Most private pubic partnership projects, contracts are priced using the CBN official exchange rate. The price will now change to N379/$1 at the least.
  • The latest move could also lead to a reopening of forex sale to BDC’s which the CBN suspended in March as the Covid-19 pandemic ensued.
  • Sectors such as Power, Downstream Oil and Gas where the government has control over pricing will be significantly affected by the new price.
  • An example if fuel prices. With the exchange rate devalued again, fuel prices might increase if the impact of the exchange rate is reflected in the pricing template.

READ MORE: Expert simplifies FIRS’ newly-introduced stamp duty

NAFEX versus Official Rate

It is not clear how the latest round of devaluation affects the NAFEX rate and other separate rates currently in use by the CBN. Whilst the disparity has been closed somewhat, we still do not know if these windows will be retained or if we will just have two major exchange rate windows, the BDC and the NAFEX.

Most critics of the CBN’s forex policy prefer a uniform exchange rate that is floating or under a managed float system. The difference is that the CBN intervenes occasionally to ensure the exchange rate trades within its preferred band. It does this even if it means burning through its thin reserves.

app

We expect a string of circulars in the coming days which will perhaps douse some of the confusion providing needed clarity to the exchange rate situation.

Continue Reading

Blurb

Why Shoprite is “exiting” Nigeria

Shoprite’s intention to divest from its Nigerian operations appears to be anchored on these factors.

Published

on

Shoprite, Growth outlook

Africa’s largest retail chain, Shoprite, announced on Monday that it is considering divesting from its Nigerian retail entity, Retail Supermarkets Nigeria, the owners of Shoprite Supermarket Nigeria.

Shoprite Nigeria operates about 26 outlets across the country and employs about 2000 employees who are 99% Nigerians. A divestment means it will sell its holdings to another investor who will continue to run the business.

According to the company, it has taken a decision to leave “following approaches from various potential investors” looking to invest in the Nigerian entity.  The group also said the decision is in line with its “re-evaluation of the Group’s operating model in Nigeria” one of the 15 countries where it currently operates.

Shoprite also confirmed it has initiated a formal process to sell its entire stake in the Nigerian entity or a majority stake.

READ ALSO: Nigeria’s retail outlets risk CBN sanction, debit N50 PoS fee from customers 

GTBank 728 x 90

Why the exit?

Shoprite’s explanation of its intention to divest from its Nigerian operations appears to be anchored on its investment expectation and operating environment. However, there could be more to it.

Firstly, Nigeria is a highly competitive space, where retail is the survival of the fittest. Following Shoprite’s foray into Nigeria in 2002, the retail chain disrupted Nigeria’s retail space giving ordinary Nigerians a taste of what it feels to shop with family and friends. But the fairy tale was not going to last forever. Previous retail outlets like Park n Shop rebranded and injected significant funds in their operations and business expansion. Park n Shop rebranded to Spar and has 14 outlets across the country. It only makes sense for them to divest having held on to the Nigerian operations for almost two decades.

Shoprite also competes with homegrown retail outlets especially in Nigeria’s commercial city, Lagos State. Retail outlets like Ebeano, Citydia, and Adiba are now household names that are expanding rapidly across the state. There are also several neighbourhood supermarkets in the nooks and cranny of Nigeria’s commercial capital piling pressure on Shoprite’s market share. Shoprite does not disclose revenues from its Nigerian operations.

Shopping is also going online as evidenced by the growth in online shopping since COVID-19 hit Nigeria. Jumia, one of Nigeria’s largest online retail outlets, revealed lower earnings in the first quarter of 2020. However, the company is optimistic of higher revenue growth in Q2, on the back of the COVID-19 lockdowns. Jumia had earlier noted that “we are seeing unprecedented demand to join the Jumia platform, especially for named brands. We believe those dynamics will help accelerate the shift toward online.”

READ MORE: The deal that helped Lafarge stock gain 18% in less than a week

Local competitors like Spar and Ebeano already offer online shopping experiences and deliver goods to your doorstep. Shoprite’s business model relies heavily on physical store visits.

app

As internet services become faster and cheaper, more Nigerians will rely on e-commerce to meet their shopping needs. Jumia has often struggled in this space and remains unprofitable. However, gravitation towards online shopping is inevitable and only those who have the capital and know-how will come out winners.

Jumia’s competitor in this space, Konga, was also recently acquired by Zinnox. Konga was then merged with another Nigerian retail giant Yudula. Interestingly, Konga’s model includes a combination of online and brick and mortar. The company has since been acquiring warehouses across the country as delivery points for its retail expansion drive.

Nigeria’s harsh operating environment is also another major challenge Shoprite faces. The Muhammadu Buhari-led administration, through the CBN, has focused on supporting locally made goods by banning forex availability for the importation of local substitutes. This has negatively impacted the number of products Shoprite can sell and how many new shelves it can create per floor space. It also creates supply chain challenges, especially with locally produced goods.

Coronation ads

Note that supermarkets sell on very thin margins. Therefore, the more products they can sell the higher the operating profits. Taxes are also higher and Nigeria’s susceptibility to exchange rate devaluation is also a major challenge. The company makes money in Naira and must convert to dollars before converting back to Rands.

READ MORE: Exploring branchless, other digital forms of banking in a crisis

In 2017, when Nigeria last faced a currency crisis, Shoprite explained that it has about Rand 2.3 billion in cash locked up in Angola and Nigeria due to currency restrictions (inability to repatriate their money on time). Information reaching Nairametrics from traders suggest most foreign-owned investments in Nigeria are also facing “restrictions” due to limited liquidity in the NAFEX window.

Shoprite’s less talked challenge is its Legal Issues. In 2011, Nigerian company A.I.C Limited (the Claimant), which is owned by Chief Henry Akande, issued a summons against Shoprite South Africa and its Nigerian subsidiary for an alleged breach of a joint venture agreement (the JV Agreement) allegedly concluded in 1998. The company took Shoprite to court claiming it breached on an agreement to set up the Nigerian arm of the business.

The Federal High Court then ruled in favour of AIC and awarded damages of $10 million against Shoprite in 2017. Shoprite appealed the judgment in the appeal court and lost again earlier in 2020. It is unclear if Shoprite has any plans to take the matter up to the Supreme Court. Could this be another reason why the owners are deciding to divest?

Whatever the reason is, officially, it perhaps makes sense for the company to exit its Nigerian operations in the light of the points mentioned above. Its Nigerian entity is worth 1.1 billion Rands (N24 billion) per its financial statements and could be worth more when the sale is eventually consummated.

Continue Reading
Advertisement
Advertisement
first bank
Advertisement
Advertisement
Patricia
Advertisement
first bank
Advertisement
ccitraders
Advertisement
Heritage bank
Advertisement
beyondperception
Advertisement
devland
Advertisement
GTBank 728 x 90
Advertisement
Advertisement
financial calculator
Advertisement
Advertisement
deals book
Advertisement
app
Advertisement