UNILEVER Higher Increase in Costs Weighs on Margins; DLM Recommends HOLD

UNILEVER Higher Increase in Costs Weighs on Margins; DLM Recommends HOLD

Friday, April 11, 2014 04:42 / DLM Research

Sales revenue improves by 8.0% y/y. In its full year 2013 audited results, Unilever Nigeria reported revenue of N60.00billion, i.e. an increase of 8.0% compared with N55.55billion in 2012. The sales revenue recorded in the period is below our estimates of N61.10billion by 1.8%. On a quarterly basis, the company’s sales revenue of N14.39billion in 4Q2013 increased by 3.6% compared with N13.89billion in 4Q2012. Also, the revenue in the last quarter of the review year is lower than our estimates of N15.50billion by 7.2%.

 

Input costs are in line with our estimates. For the review year, Unilever’s cost of sales (COS) of N37.55billion is higher than N33.90billion recorded in 2012 by 10.8%. Also, the COS is marginally below our estimates of N37.59billion by 0.1%. The higher y/y growth in the COS compared to the growth in the revenue resulted in an increase in COS/revenue ratio to 62.6% relative to 61.0% in 2012. In the fourth quarter of 2013, Unilever Nigeria posted a y/y increase of 9.6% in COS to N8.59billion (4Q2012: N7.84billion). Consequently, full-year gross profit moved up by 3.7% to N22.45billion compared with N21.65billion in 2012.

Growth in operating expense depressed operating profit. In the review period, the company recorded operating expenses of N14.55billion, up 14.2% y/y from N12.65billion in 2012. Again, the operating expenses beat our estimate of N14.06billion by 3.5%. The increase in operating expenses resulted in a higher opex/revenue ratio of 24.2% relative to 22.9% in 2012, therefore operating profit declined by 11.4% to N7.88billion against N8.89bilion in 2012. Furthermore, total cost moved up by 11.7% to N52.10billion in the review year compared with N46.64billion in 2012. Consequently, total cost to revenue ratio moved up to 86.8% relative to 84.0% in the preceding year, hence pre-tax profit decline by 15.6% y/y to N6.91billion in the review year.



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