July 17, 2017/InvestmentOne Research
Q2:2017 results highlight: Strong topline growth buoyed by price increase
§ Strong sales performance : up +3.43%q/q; up +47.99% y/y
§ Improved Gross margins : expanded by over +482bps q/q ; +532bps y/y
§ PBT advanced by over c.+4000% y/y to c.N2.8bn on lower base effect
UNILEVER NIGERIA Plc (UNILEVER) late Friday released its unaudited Q2 2017 results which were reflective of impact of improved macro environment on key performance metrics. Topline of c.N22bn was up 47.9% y/y with positive growth across segments: Food (+24.02%), Homecare (+77.4%) and Personal care (+73.1%). This, in our opinion, benefitted from price hike as recent price check revealed that Unilever has implemented over 40% price increase in the last one year.
Contrary to recent trend, Unilever’s gross margin expanded by +532bps y/y to c.33.2%, driving the +76.2% growth in gross profit to c.N7.6bn.This may not be unconnected with improved access to FX and lower NGN/USD rate following CBN’s persistent FX sales, which eased FX liquidity in the economy.
Moving down the P& L statement, opex/sales ratio contracted by over –894bps y/y, as was the trend in the last four quarters, to 17.3%. This, in addition, to benefit from improved gross margin and +37.6% y/y rise in finance income offset the +186.6% y/y jump in finance cost to c.N1.01bn ( due in part to c.N314m FX loss on FCY loans). Consequently, PBT and PAT of c.N2.8bn and c.N2.07bn rose by over c.4000% and c.3000% y/y on the back of lower base effect as well as expansion in margins across board.
On a sequential basis, Unilever showed improved performance in key metrics. Turnover was up by a meagre +3.4% q/q while gross margin expanded by 482bps q/q. On the flip side, opex/sales ratio was relatively flat (inched up by 13bps) while finance cost rose 50.6% q/q. Nonetheless, PBT and PAT margins of 12.5% and 9.0% respectively expanded by 266bps and 191bps respectively, consequently driving the 31.4% and 29.4% q/q growth in bottom-line numbers.
Overall, the result was headlined by appreciable topline growth, improvement in margin performances, as well as growth in bottom-line numbers due to lower base effect of Q2 2016.
In conclusion, we see the appreciable growth in both topline and bottom-line numbers as a positive. However, concerns remain regarding potential for earnings dilution as Unilever plans a c.N59bn right issue to offset its FCY loan obligations. This could see additional 1.96billion shares in issue.
Over the medium to longer term, we see continued support to performance from increased efforts at local sourcing of raw material and sustained improvement in access to FX from CBN’s special intervention sales.
Our models are under review. We rate UNILEVER a SELL
Unilever Nigeria Plc Q2 2017 figures ( N’ millions)
Q2 2017 | Q/Q | Y/Y | H1 2017 Actual | ||
Sales | 22,933 | 3.43% | 47.99% | 45,105 | 39.74% |
Cost of Sales | (15,318) | -3.53% | 37.08% | (31,197) | 42.29% |
Gross Profit | 7,614 | 20.99% | 76.24% | 13,908 | 34.33% |
Gross margin | 33.2% | 482bps | 532bps | 30.8% | -124bps |
OPEX | (3,970) | 12.03% | -2.39% | (7,513) | -8.28% |
Opex/sales | 17.3% | 133bps | -894bps | 16.7% | -872bps |
Financial Charges | (1,001) | 38.17% | 186.60% | (1,725) | 92.79% |
Financial income/(losses) | 225 | 50.55% | 37.66% | 375 | 69.78% |
PBT | 2,864 | 31.38% | 4117.31% | 5,044 | 239.16% |
PBT margin | 12.5% | 266bps | 1205bps | 11.2% | 658bps |
Tax | (790) | 36.95% | 4927.39% | (1,367) | 247.32% |
Tax rate | 28% | 112bps | 445bps | 27% | 64bps |
PAT | 2,074 | 29.37% | 3873% | 3,677 | 236.23% |
PAT margin | 9.0% | 181bps | 871bps | 8.2% | 476bps |
Source: NSE, Investment One Research
