Litmus Test For Unilever

David Mureithi, Unilever Boss

David Mureithi, Unilever Boss

Unilever Ghana should be bracing itself to confront certain serious challenges for this fiscal year given the present economic environment.

Frontline Capital Advisors (FCA), stock analysts, which gave the warning, said the energy situation and the increasing cost of doing business as reflected in the current inflation trend “would eat into the company’s margins.”

In its recent analysis of Unilever’s performance for the 2012 financial year, FCA noted that “with increasing competition in the consumer sector, it would be very difficult for the company to pass on the cost to consumers in the form of higher retail prices.

“Amongst many other things, the Ghana cedi continues to depreciate though somewhat marginally as compared to the prior year. However, the growing budget deficit still raises cause for concern.”

Unilever Ghana Limited manufactures and markets consumer goods throughout Ghana. Its key brands are in personal care, home care and food category.

It stated that despite a challenging environment, brand loyalty continued to remain high as turnover for the full year 2012 rose by 18 percent from GH¢239 million to GH¢282 million.

“Even though success in its personal, home care and food brand presents an optimistic outlook, the company’s operating profit was down 6 percent falling from GH¢29 million to GH¢24 million.

“The key driver was a sharp depreciation of the cedi coupled with a challenging business environment that increased the company’s operating cost, the analysts indicated.”

Commenting on Unilever’s poor margins, FCA stated that a surge in interest expense, coupled with an unfriendly business environment, saw Unilever’s bottom line drop by almost half to GH¢16 million from GH¢30 million.

Consequently, gross profit margin dropped by 3 percent to 23 percent whilst net profit margin dropped from 13 percent to 6 percent.

Unilever’s investment in brand equity should translate into more brand loyalty. Thus, we anticipate future strong performance in its key brands in Personal Care, Home Care and Food categories.

“The company expects input costs to be major challenge going forward. We believe that with the current energy and water problems coupled with the deteriorating fundamental position of the domestic economy, operating cost would continue to be hit hard.”

The company’s CEO, David Mureithi is set to exit the company for greener pastures in East Africa.

By Samuel Boadi

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