Unilever Nigeria PLC – An uphill battle to profitability

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In its recently released unaudited FY’20 financial statements, Unilever Nigeria consolidated on its improved Q3’20 performance after an especially hard year riddled with turnover challenges.

Group topline expanded by 2% y/y to ₦61.6 billion (Vetiva: ₦62.3 billion), supported by a 9% y/y growth in Food Revenue to ₦34.7 billion, even as HPC Revenue moderated 7% y/y.

The topline growth was supported by an impressive 84% y/y expansion in Q4’20 topline to ₦16.8 billion, albeit the line item fell just 3% shy of our expectation. Even accounting for mild price increases this year, we attribute the growth to continued recovery in volumes.

In spite of the higher topline, impairment on receivables fell further under control, printing at ₦5.0 million in Q4’20 compared to ₦429 million in Q3’20 and ₦405 million in Q4’19. We recall that Unilever Nigeria had in 2019, adopted tighter credit policies in order to temper rising impairments. The moderation in the Q4’20 impairments along with the 17% contraction in trade receivables balance suggests that the new policy is yielding fruit.

Unilever Nigeria PLC - An uphill battle to profitability Brandspurng
Source: Company filings, Vetiva Research

Shrunken impairment losses ease pressure on PAT

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Meanwhile in line with the increased topline, gross margin for the full year expanded 15ppts y/y to 22% notwithstanding downward inflationary pressures. That said, selling and distribution expenses as well as Marketing and admin expenses declined 11% and 2% y/y respectively, taking total Opex 4% y/y lower to ₦15.8 billion.

However, dragged by ₦1.1 billion in Receivables impairments in FY’20 (largely dragged by 9M numbers), Unilever reported an operating loss of ₦3.1 billion. We however comment that this represents progress, compared to the ₦10.3 billion operating loss reported in FY’19.

In terms of financing, whilst Unilever’s finance costs and income have lowered in response to the low yield environment, the company has continued to maintain positive net finance costs largely caused by a 70% reduction in loans and borrowings.

On a more positive note, net operating cash flow was healthier, driven by a more efficient working capital management. Overall, Loss Before Tax came in at ₦1.8 billion (FY’19 LBT: ₦9.8 billion).

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After adjusting for the mandated minimum tax and a tax credit of ₦0.3 billion, Unilever reported a Loss After Tax of ₦1.6 billion (FY’19: ₦7.4 billion), lower than our ₦2.3 billion loss projection. Thus, Unilever reported an EPS for the year at -₦0.28 (FY’19: -₦0.74).

Milder loss expected in FY’21

Unilever Nigeria’s stable progress on improving volumes should continue into the new year, endorsing our 7% y/y expansion expectation to ₦66.2 billion in FY’21, especially given the still low base in the first half of the year – although we note that the expected divestment of the company’s tea business by the end of the year would dampen Revenue growth.

With respect to the AfCFTA and the re-opened borders, we expect a limited impact on the seasonings market, given that the imported products that had competed with local seasoning makers do not originate from African regions and do not fall under the scope of the AfCFTA.

Based on this, we renew our gross margin projection of 21% for the full year. Despite an expected 5% y/y increase in Opex, we estimate that the company’s operating margin will improve 2% y/y as we do not expect further impairment losses on receivables.

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Furthermore, we expect the company’s stability in working capital management to influence operating cash flows positively.

We expect net finance costs to play out much in the same manner as FY’20 and project a slight 4% y/y increase to ₦1.3 billion, largely driven by the expectation of higher yields in the period.

Overall, we expect Unilever to declare a Loss before tax of ₦0.6 billion and a Loss after tax of ₦0.4 billion translating to an EPS of -₦0.08. Our valuation the stock yields a target price of ₦17.89 and we place a BUY recommendation on Unilever.

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Unilever Nigeria PLC - An uphill battle to profitability - Brand SpurUnilever Nigeria PLC - An uphill battle to profitability - Brand Spur

Latest News

Kinaxis Named a Leader in the 2021 Gartner Magic Quadrant for Supply Chain Planning Solutions Report

Kinaxis evaluated on both execution and vision with furthest placement for completeness of vision in the Leaders quadrant


OTTAWA, CANADA - Media OutReach - 4 March 2021 - Kinaxis® Inc. (TSX:KXS), the authority in driving agility for fast, confident decision-making in an unpredictable world, today announced it has been named a Leader in the 2021 Gartner Magic Quadrant for Supply Chain Planning Solutions. The company is recognized for both the ability to execute and its completeness of vision. Kinaxis is positioned furthest on the Completeness of Vision axis amongst those in the Leaders quadrant 1.

A complimentary copy of the report can be downloaded from Kinaxis. This is the seventh consecutive time Kinaxis has been named a Leader in a Gartner Magic Quadrant related to supply chain planning 1 .

"In the face of the unprecedented level of disruption over the past year, corporate supply chains have never been more relevant and doing nothing to improve planning has become the biggest risk. Supply chain leaders at companies of all sizes have recognized a need for a transformational shift to agility and resiliency based on a new planning technique -- concurrent planning, that only Kinaxis can provide," said John Sicard, CEO of Kinaxis. "Kinaxis uniquely combines AI, analytics and human intelligence to empower innovative manufacturers to eliminate functional silos and cost-effectively optimize the potential of their supply chains in just a few weeks."

Continued Sicard, "We believe we are the leading innovator based on vision in the market and are thrilled with our positioning for our current, proven RapidResponse platform. Kinaxis takes pride in our talented team, the collaborative relationships we have with our customer and partner community and helping advance the craft of supply chain planning for the benefit of the planet."

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Top-tier manufacturers around the world use Kinaxis in the aerospace and defense, automotive, consumer products, high-tech and electronics, industrial, life sciences and retail industries, including Unilever, Schneider Electric, Flex, Merck, Technicolor, Alstom and Honda, and many others.

"Schneider Electric's supply chain digitalization journey, including our work with Kinaxis, has allowed us to function as a truly global enterprise," said Mourad Tamoud, Chief Supply Chain Officer at Schneider Electric. "Through our engagement with Kinaxis, we have found them to be industry-leading, and the partnership has enabled us to have greater transparency, wider collaboration and increasingly autonomous high-quality decision-making throughout the organization."

Kinaxis RapidResponse® is a cloud-based software-as-a-service (SaaS) platform purpose-built for planning, leveraging patented in-memory database technology and always-on algorithms. Combined with Kinaxis' unique concurrent planning technique and AI, RapidResponse helps global manufacturers gain agile and resilient supply chains. The Kinaxis suite of ready-to-deploy planning applications (S&OP / IBP, Demand, Supply, Command & Control Center, Inventory, Live Lens Insights) is optimized with industry best practice processes and robust analytics that are synchronized across long and short-term planning and across the end-to-end network from customers to suppliers. The RapidResponse platform is uniquely extensible to build, access or connect to custom applications, algorithms and external systems across the supply network ecosystem.

Kinaxis helps customers accelerate value realization with multiple deployment options to go-live in as little as six weeks. These seamlessly expandable options allow companies to start now and focus on the most important initiatives. All based on RapidResponse, these options can grow over time to meet budget, team and change management needs along the digital transformation journey.

"Gartner defines a supply chain planning (SCP) solution as a platform that provides technology support which allows a company to manage, link, align, collaborate and share its planning data across an extended supply chain. It supports demand creation through to the detailed supply-side response and from strategic planning through tactical-level planning. An SCP solution is the planning decision repository for a defined end-to-end supply chain and is the environment in which end-to-end integrated supply chains are managed. It establishes a single version of the truth for the plan data and decisions, regardless of the underlying execution technology environment." 1

The SCP market was worth $5.2 billion in 2019 and is projected to grow at a five-year compound annual growth rate (CAGR) of 7.5% according to the Gartner Forecast: Enterprise Application Software, Worldwide, 2018-2024, 4Q20 Update. 2

According to Gartner, "Leaders demonstrate strong SCP solution vision and execution capabilities. They have a broad, deep and differentiated functionality that addresses a broad range of user requirements. Their coverage across the three categories of planning capability -- configure, optimize and respond -- is good enough, with a good balance across the categories now and/or planned for the future. They have a reasonable range of features to support a user's maturity journey. Their visions for supporting the three paradigms of SCP -- algorithmic SCP, digital supply chain planning and resilient planning -- align with Gartner's vision. When these three paradigms are blended together, they build the foundation to support a Level 5 SCP environment. Leaders anticipate where customer demands and markets are moving and identify how innovative technologies can be applied to planning applications. They have strategies to support these emerging requirements to build a future-proof SCP solution. Because leaders are well-established in leading-edge complex user environments, they benefit from a user community that helps them remain in the forefront of emerging needs." 1

For further information, you can access a complimentary copy of the full Magic Quadrant for Supply Chain Planning Solutions report here.

1 Gartner, Magic Quadrant for Supply Chain Planning Solutions, A. Salley, T. Payne, P. Orup Lund, Feb. 22, 2021

Gartner, Magic Quadrant for Sales and Operations Planning System of Differentiation, T. Payne et al, May 7, 2019; Gartner, Magic Quadrant for Supply Chain Planning System of Record, Payne, Tim, Pradhan, Alex, & Salley, Amber, 21 August 2018

2 Gartner, Forecast: Enterprise Application Software, Worldwide, 2018-2024, 4Q20 Update, Amarendra, N. Gupta, B. Abbabatulla, A. Woodward, C. Pang, C. Roth, E. Hunter, J. Hare, K. Quinn, J. Poulter, Y. Dharmasthira, J. Kostoulas, December 22, 2020

Gartner Disclaimer:

Gartner does not endorse any vendor, product or service depicted in our research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

About Kinaxis Inc.

Everyday volatility and uncertainty demand quick action. Kinaxis® delivers the agility to make fast, confident decisions across integrated business planning and the digital supply chain. People can plan better, live better and change the world. Trusted by innovative brands, we combine human intelligence with AI and concurrent planning to help companies plan for any future, monitor risks and opportunities and respond at the pace of change. Powered by an extensible, cloud-based platform, Kinaxis delivers industry-proven applications so everyone can know sooner, act faster and remove waste. For more Kinaxis news, visit Kinaxis.com or follow us on LinkedIn or Twitter.

Forward-Looking Statements

Certain statements in this release constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements include statements as to Kinaxis' growth opportunities and the potential benefits of, and demand for, Kinaxis' products and services. These statements are subject to certain assumptions, risks and uncertainties, including our view of the relative position of Kinaxis' products and services compared to competitive offerings in the industry. Readers are cautioned not to place undue reliance on such statements. Kinaxis' actual results, performance, achievements and developments may differ materially from the results, performance, achievements or developments expressed or implied by such statements. Risk factors that may cause the actual results, performance, achievements or developments of Kinaxis to differ materially from the results, performance, achievements or developments expressed or implied by such statements can be found in the public documents filed by Kinaxis with Canadian securities regulatory authorities. Kinaxis assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law.

Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur
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