Mixed topline performance: up 45.98% q/q, down 30.71% y/y

·        Improved gross profit margin of 25.71%: up from -32.44% in Q4 19 and 560y/y basis.

·        Mixed Opex/sales ratio performance at 22.10%: down q/q from 68.45% and up from 12.36% on a y/y basis.

·        Profit before tax of N950million in Q1 2020 against a loss of N8.9billion in in Q4 2019 and down 53.2% y/y.

Earlier Unilever Nigeria Plc released its Q1 2020 unaudited result. This showed a contrast in performance on a y/y and q/q basis.  On a y/y basis, the company posted a lackluster performance owing to seemingly lower credit sales following management’s decision to implement stricter credit terms. Topline declined by 30.71% y/y driven by a 20% and 41% decline in Food products and Home and Personal care segments respectively. PBT margin dipped significantly, by 340bps y/y, following a 974bps spike in opex/sales ratio majorly attributable to a 53.4% jump in marketing and admin expenses, and a 38% drop in interest income. On a brighter note, on a q/q basis the company showed signs of a resurgence since implementing its stricter credit policy. PBT for Q1 2020 printed at N950million following significantly improved margin performance. The company also recorded a tax credit of 166million taking net profit to 1.1billion for the quarter. 

Sequential Improvement a Breath of Fresh Air

On a q/q basis, the company recorded positives down the P&L line. Topline grew by 46.0% q/q as Food and Home and Personal Care segments recorded 41.6% and 51.9% improvements in Q1 2020. We highlight that this is the first rebound since stricter credit terms were implemented in Q3 2019 in order to focus on cash collection. In the same vein, we saw margin performance improve significantly with gross margin and operating profit margin increasing by 58ppts and 108ppts respectively. This was reflective of a significant drop in overheads (down by 70.8% q/q) and a consequential improvement in opex/sales by about 46ppts q/q. The company turned a profit of N950million following two consecutive quarters of losses supported by the aforementioned and a net finance income on the back of the company’s de-levered position.  

New Strategy Reaping Results

On a y/y basis, the company recorded a notable 30.7% drop in topline which may not be unconnected to a minimized level of credit sales following the company’s strategy of stricter credit terms. More remarkably, the company recorded a positive cash flow from operations (CFO) of N4.7billion compared to a negative CFO recorded in consecutive quarters in 2019. We highlight that the company’s cash balances stood at N40billion as at Q1 2020 with no loans and borrowings. PBT saw a 53.1% y/y decline attributable to the increase in marketing and administrative expenditure (up 53.4% y/y) and a steep fall in finance income attributable to lower interest rate environment.

Outlook

Going forward, we expect the company’s margins to be pressured given the spread of the coronavirus and the restrictive policy measures taken to curb the contagion, particularly felt in Q2 2020. In the same vein, weaker economic activities and consumer spending power may play out negatively for topline performance.  Other factors which may portend towards a negative earnings outlook include intense competition in the FCMG space and increased cost pressures related to domestic inflation and dollar illiquidity.