UNILEVER's Soaring Running Costs In The Face of Declining Revenue Poses Concerns

Proshare

July 24, 2014/ DLM Research

1H’14 revenue declines by 1.3% y/y. In its six months to June 2014 result,
Unilever Nigeria recorded a decline of 1.3% y/y in revenue to N29.28billion compared with N29.67billion in 2013. Also, the reported revenue is lower than our estimate of N29.78billion by 1.7%. On a quarterly basis, the company posted revenue of N15.45billion in 2Q2014, down by 0.1% compared with the revenue of N15.43billion recorded in 2Q2013 and higher by 11.7% against N13.83billion reported in 1Q2014. Similarly, the reported revenue in 2Q2014 is lower than our estimate of N15.94billion by 3.1%.

Gross profit improves due to a higher decline in input cost. For the review period, Unilever’s cost of sales (COS) of N18.28billion is lower than N18.81billion reported in the first half year of 2013 by 2.8%. The higher y/y decline in the COS compared with the y/y decline in revenue resulted in a marginal decline in COS/revenue ratio to 62.4% relative to 63.4% in the same period of 2013. On a quarterly basis, the company reported COS of N9.69billion in 2Q2014, up by 12.9% compared with N8.59billion in the first quarter of 2014 and lower by 0.7% against N9.77billion recorded in 2Q2013. Therefore, gross profit increased by 1.3% y/y to N11.00billion compared with N10.86billion in 2013 resulting in an improved gross profit margin of 37.6% relative to 36.6% in 2013.

Increase in running expense depressed operating profit.
For the six months to June 2014, Unilever Nigeria recorded operating expenses of N8.32billion, up by 27.6% compared with the N6.52billion posted in 2013. On a quarterly basis, the company reported operating expenses of N4.49billion in 2Q2014, i.e. an increase of 23.8% and 17.4% compared with the N3.63billion and N3.83billion respectively posted in 2Q2013 and 1Q2014. Consequently, operating expenses/revenue ratio moved up to 28.4% relative to 22.0% in the previous year.



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