July 17, 2017/Cordros Research
Click here to download full PDF Report
UNILEVER released impressive Q2-17 result on Friday, wherein both revenue and net profit grew by 58% and 3873% y/y respectively. Compared to Q1-17, revenue grew 3.4% while net profit increased by 29.4%. Both the revenue of N22.9 billion and net profit of N2.1 billion were ahead of our estimates of N20.4 billion and N860 million respectively.
The q/q revenue growth in Q2 is UNILEVER’s first since Q2-14. It is important to reiterate that while revenue continues to benefit from the increase in the prices of key products, recent results suggest that the company is increasing market share. We had mentioned that UNILEVER backed the recent price increases with strong promotional activities, and that the slow recovery of import-dependent competition is also supportive of sales. We note particularly, the recovery in the Personal Care division, wherein revenue growth was 53% in H1, after lagging other divisions in the last two years. Revenue in this category grew by 73% y/y and 1% q/q in Q2. Revenue in the Home Care division grew by 77% y/y and 17% q/q, and while Food revenue declined by 2% q/q, it grew by 24% y/y during the review period.
Another positive surprise from the second quarter result is the strong rebound in gross margin to 33.2%, from 28.4% in Q1-17, 27.9% in Q2-16, and above our 28% forecast. The quick margin recovery to historical level was underpinned by pricing actions, positive mix, and importantly, exchange rate-linked cost savings. The NGN appreciated significantly against the USD in Q2, thus the positive pass through to production cost, given that UNILEVER is a net importer of raw materials.
Operating expenses fell by 2.4% y/y and was 2.7% less than we estimated, taking the y/y decline to the fourth quarter in a row. Branding/marketing expenses fell by 14% y/y while overheads decreased by 10% y/y, after declining by 45% y/y and 11% y/y respectively in Q1. The lower spend on branding/marketing buttresses less-intense competition.
On the negative, finance charge increased by 186.6% y/y and 38.2% q/q, notwithstanding the reduction in gross debt to N19.95 billion, from N25.4 billion at the end of Q1-17. Over H1, finance charge is up 92.8%. Driving the increase are interest on intercompany FCY loan of USD60 million obtained in Q3-16 and exchange loss difference on same. UNILEVER is raising N58 billion via Rights Issue, the proceeds of which would be channeled to (1) deleveraging the balance sheet and (2) working capital and capital expenditure investments.
Over H1, UNILEVER’s net profit is up by 236%, and well-ahead of consensus. Hence, we look for positive reaction to the latest result on expected upward revision to forecasts.
