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February 1, 2022/FSDH Research

Solid operating performance aided by lower impairment losses and profit on discontinued operations in 4Q21

Key Performance Highlights:

• Unilever Nigeria recorded a solid 35.1% YoY increase in revenue to N70.5 billion in FY21, powered by a 47.1% spurt in Home and Personal Care coupled with a 22.3% jump in Food Products revenue. The robust increase in revenue combined with a relatively lower rise in the cost of sales resulted in a spectacular 711 bps YoY increase in gross margin to 28.3% in FY21. The company reported a gross profit of N19.9 billion in FY21 versus N11.0 billion in FY2020. However, the company’s costs also shot up in line with the revenue growth as the Marketing and Distribution expenses rose 35.3% YoY to N14.7 billion in FY21, whereas Selling and Distribution expenses grew 38.8% YoY to N3.3 billion in FY21.
   
• Helped by a significantly lower impairment loss of N361.9 million versus N3.7 billion in FY20, the company reported an operating profit of N1.7 billion in FY21, compared to a loss of N5.9 billion in a prior year. Recall that the company wrote down about N1.3 billion in impaired receivables (and N721 million inventories) in 2019 (FY20 was the first full year after the company tightened its credit policy in 3Q19) and put out strict measures to tighten its credit policy to its distributors to enable it to manage its huge receivables. Despite relatively lower net finance income, the company’s net profit came in at N3.5 billion in FY21 versus a loss of N4.0 billion in FY20. The company benefitted from the gains from discontinued operations of N2.2 billion in FY21 against a loss of N217 million in the prior year. The company’s operating cash flow jumped 9.2x YoY to N20.0 billion in 2021, owing to strong operating performance and better working capital management in the current year.
   
• Looking at the quarterly performance, Unilever recorded a solid 42.2% YoY growth in revenues in 4Q21 to N20.9 billion driven by a 55.8% YoY rise in Home and Personal Care revenue to N11.3 billion, along with a 29.0% YoY growth in Food Products revenue to N9.6 billion in 4Q21. Like the FY21 performance, even the 4Q21 performance benefitted from lower impairment losses and the gains from discontinued operations. The blockbuster revenue growth and the relatively lower rise in the cost of sales led to an almost doubling of gross margin to 33.4% in 4Q21. However, the company’s operating costs rose more than revenue growth as Marketing and Administrative expenses grew +51.6% YoY while Selling and Distribution Expenses jumped +66.1% YoY. The impairment loss was merely N156 in 4Q21 compared to N2.7 billion in 4Q20. The company reported a net profit of N3.9 billion in 4Q21 against a net loss of N1.9 billion in 4Q20. Unilever Nigeria reported an EBITDA and a net margin of 19.8% and 18.6%, respectively, in 4Q21, against negative margins of 0.9% and 13.0% in the prior-year quarter.
   
• The Food Product segment’s revenue grew by 29.0% YoY to N9.6 billion, while the Home and Personal products segment reported a jump of 55.8% YoY to N11.3 billion in 4Q21. Moreover, both the segments recorded an operating performance improvement with the Food Products segment operating profit of N1.0 billion while the Home and Personal Care segment recorded N1.3 billion profit in 4Q21.

Market Reaction: The investor reaction to the sound FY21 results was restrained as the stock remained unchanged at N14 over the next two trading days versus a 1.3% gain for the All-Share Index at the close of the day on 31/1. Moreover, anticipating the company’s sustained profitability this quarter, the stock popped 7.30% to N14.0 on January 27, the day of the results.

Unilever Nigeria Earnings Highlight FY21

Source: Company Financials, FSDH