May 4, 2022/InvestmentOne Report

• Topline performance: down 1.39% q/q, up 24.54% y/y
• Positive gross profit margin: up 151bps and 917bps on a q/q and y/y basis respectively
• Mixed Opex/sales ratio at 24.65%: up 296bps q/q, down 239bps y/y
• Profit before tax of N2.35 billion in Q1 2022 against loss of N130million in Q1 2021
  

Recently, Unilever Nigeria Plc published its Q1 2022 unaudited scorecard which revealed an uptick in turnover y/y as reflected in the company’s Home and Personal Care (HPC) and Food segment by 23.17% and 26.02% respectively. Cumulatively, revenue was up by 25.54% y/y to N20.56billion. Overall, Unilever’s Q1 2022 PBT margin improved by 1222bps y/y owing to a 917bps increase in gross profit margin and slight increase in net finance cost by 6.90% y/y in the quarter under review.   

Improved Topline Performance

Following management intent to focus on the mass mainstream segment to appease price-sensitive consumers, Unilever’s revenue rose by 25.54% y/y to N20.56billion. This was driven by marginal increase in core prices of products alongside volume growth given improved marketing efforts. Breaking it down, we noted a broad-based increase in both the company’s Home and Personal Care (HPC) and Food segment by 23.17% and 26.02% respectively.  

Consequently, gross profit margin expanded by 71.59% to N7.17 billion. This positive outturn can be attributed to topline growth (+25.54%) outpacing the cost of sales (+8.58%). We noted that input sales grew at a slow pace despite the heightened inflationary environment on key raw materials, FX devaluation and constraints in accessing forex. 

Efficiency in Managing Cost

Moving down the P&L line, opex/sales ratio declined by 239bps driven by efficiency in managing its overhead cost. However, we highlight that the administration expenses and selling & distribution expenses increased by 8.60% y/y and 38.80% y/y to N4.06 billion and N1.01 billion respectively. Elsewhere, net finance cost increased slightly by 6.40% further impacting on PBT margin; improving by 11.43% y/y to N2.35 billion. Resultantly, bottom-line improved by 8.70% y/y to N1.80 billion.

Strong Sequential Performance

Looking at the quarterly numbers, revenue was slightly down by 1.39% while cost of sales also decreased by 3.63%. Consequently, gross profit margin improved by 3.08%. We noted a write back of impairment losses written off earlier and we believe this is evident of the direction taken by management to tighten credit terms to distributors. Bottom-line performance was further improved by a decline in net finance cost as the company paid down on its loan as evident from the 56.45% decrease in finance cost. Overall, PBT and PAT margin was up 165bps and 132bps respectively

Outlook

Going forward, we opine that the management strategy to focus on mass mainstream segment should bode well for volume growth. In addition, some positivity may be reaped from election spending, implementation of the 2022 budget and lower interest rate environment. However, increased cost pressures from the heightened commodity prices locally and globally, currency risks and weak consumer spending pose a downside risk to earnings. 

Source: Company’s Financials, Investment One Research