July 20, 2022/InvestmentOne Report

• Strong topline performance: up 13.06% q/q and 42.28% y/y,
• Mixed gross profit margin: down 466bps q/q, up 298bps y/y
• Opex/sales ratio at 26.20%; up 160bps q/q and 64bps y/y
• Profit after tax of N110million in Q2 2022 against N1.00billion and N1.79billion in Q2 2021 and Q1 2022, respectively.
  

Last week, Unilever Nigeria Plc published its Q2 2022 scorecard which showed growth in topline performance (+42.28%) buoyed by sustained broad based increase in the Home and Personal Care (+45.20%) and Food Segment (+40.00%) respectively. However, Unilever’s Q2 2022 PBT margin contracted to 2.70% (-189bps y/y) owing to a 64bps climb in OPEX and a y/y expansion in net finance cost by 174.00%. 

Sustained Growth in Top line Performance

Unilever Nigeria Plc’s topline was up by 42.28% to N23.25 billion driven by sustained uptick in revenue from the HPC segment and Food Segment by 42.28% and 45.20% respectively. We believe that the positive outturn was buoyed by price increase in most of its core products alongside volume growth from product offerings being available to wider range of customers.  Consequently, the Food and HPC segments recorded a revenue of N10.43billion and N12.81billion respectively. 

Similarly, gross profit margin expanded by 298bps y/y to N14.21 billion in Q2 2022 as the expansion in revenue (+42.28%) outpaced the rise in input cost (+36.45%). The cost pressures may not be unconnected with the heightened inflationary pressures on key raw materials, logistics issues and foreign currency constraints faced by companies in that sector.  

Finance Cost Mar Bottomline

On a y/y basis, opex/sales ratio increased by 64bps to 45.80% in Q2 2022. The rise in opex/sales ratio was driven by a 40.60% and 70.10% surge in the administrative and distribution expenses to N1.27 billion and N4.83 billion respectively.

Down the P&L, bottom line performance was negatively impacted by higher net finance cost (+174%) to N335.02 million; thus, PBT margin declined by 189bps to 2.70%. The increased net finance cost was reflective of the decline in finance income (-67.9%) and higher finance charges (+4471.02%). The surge in finance interest was due to exchange rate losses and interest on third party loans. Consequently, PBT fell to N628.03 million – compared to N751 million printed in Q2 2021. Overall, PAT declined by 89.02% to 110 million after a tax charge of N518.00 million. 

On a q/q basis, revenue growth was up by 13.06% while gross margin declined by 466bps as rise in cost of sales (+21.16%) offset the growth in revenue (+13.06%). Similarly, PAT margin declined by 826bps to 0.50% amid rising finance cost and dwindling interest income. 

Going forward, we opine that that the ability to further increase the prices of product offerings may be constrained due to the intense competition in that space and declining purchasing power of the consumer. However, we think that some positivity may be reaped from election spending and volume growth due to management strategy to focus on the mass segment. We are less optimistic about the bottom-line performance due to the increased cost pressures emanating from heightened commodity prices locally and globally, high finance cost and FX illiquidity and depreciation, thus, earnings should remain pressured in the near term. 

Source: Company’s Financials, Investment One Research