July 19, 2022/FSDH Research

Kindly click here to download the report.

Key Performance Highlights:

• Unilever Nigeria recorded a solid 42.3% YoY increase in revenue to N23.2 billion in 2Q22, driven by a robust 45.2% YoY growth in Food Products coupled with a 40.0% YoY jump in Home and Personal Care revenue. Despite the double-digit food inflation, the 2Q22 gross profit was supported by superior cost management practices as production costs increased by 36.5% YoY to N16.2 billion from N11.9 billion reported in 2Q21. The company reported a gross profit of N7.0 billion in 2Q22 versus N4.5 billion in 2Q21, resulting in a 298 bps YoY increase in gross margin to 30.2% in 2Q22. However, the company’s operating costs also shot up, along with the revenue growth, as the Selling and Distribution expenses rose a massive 70.1% YoY to N1.3 billion in 2Q22, while the Marketing and Administrative expenses soared 40.6% YoY to N4.8 billion in 2Q22 due to rising inflationary pressures. Under Marketing and administrative expenses head, the overhead expenses jumped 123.3% YoY to N2.6 billion in 2Q22, compared to N1.2 billion in 2Q21.
   
• The company recorded N30.8 million as other income from a Transitional Service Agreement (TSA) following the disposal of their Tea business to Unilever Tea MSO Nigeria Limited. The agreement will last for 15 months, during which time Unilever Nigeria Plc will give production and sales support to Unilever Tea MSO Nigeria Limited in exchange for a fee. Unilever Nigeria also recorded an impairment write-back on trade and intercompany receivables of N7.0 million in 2Q22, resulting in an operating profit of N963.3 million in 2Q22, compared to an operating profit of N297.9 million in the prior period.
   
• Unilever Nigeria recorded a 62.8% YoY drop in the Finance income to N172.4 million in 2Q22, primarily due to the decrease in the interest received on call deposits and bank accounts. However, the finance costs shot up 45.7x to N507.5 million in 2Q22, compared to N11.1 million in 2Q21. The rise in finance costs was primarily driven by the N347.1 million exchange difference on bank accounts, coupled with an N122.5 million interest paid on third-party bank loans. Furthermore, the company recorded a tax of N517.9 million at an effective tax rate of 82.4% in 2Q22, compared to a tax credit of N353.3 million in 2Q21. Consequently, the company’s net profit came in at N110.4 million in 2Q22, versus a net profit of N1.2 billion in 2Q21, a 90.9% YoY decline. The company’s net operating cash flow declined 37.3% YoY to N3.3billion in 2Q22, driven by an increase in working capital, owing to a massive increase in trade and other receivables.
   
• Looking at the sequential performance, Unilever recorded a 13.1% QoQ rise in revenues in 2Q22 to N23.3 billion, driven by a 15.2% QoQ rise in Home and Personal Care revenue to N12.8billion, supported by a 10.5% QoQ increase in Food Products revenue to N10.4 billion in 2Q22. The rising inflationary pressure resulted in a relatively higher fall in the cost of sales, leading to a -466 bps drop in the gross margin to 30.2% in 2Q22. On a sequential basis, the 2Q22 performance declined primarily due to a 19.0% QoQ rise in the Marketing and Administrative expenses, coupled with a 26.1% increase in selling and distribution expenses to N1.3 billion in 2Q22. The impairment write-back stood at N7.0 million in 2Q22 compared to N45.0 million in 1Q22. Finance income declined by 39.9% QoQ to N172.4 million in 2Q22, and the finance costs for the quarter spurted by 318.9% QoQ to N507.5 million in 2Q22, driven by loss on exchange differences on bank accounts. The company recorded a much higher effective tax rate of 82.4% in 2Q22, compared to the effective tax rate of 20.0% in 1Q21. Consequently, the company reported a net profit of N110.4 million in 2Q22 against a net profit of N1.8 billion in 1Q22, a 93.9% QoQ drop. Unilever Nigeria reported an EBITDA margin and a net margin of 6.8% and 0.5%, respectively, in 2Q22, against margins of 13.7% and 8.7% in the prior quarter.
   
• The Food Product segment’s revenue grew by 45.2% YoY to N10.4 billion, while the Home and Personal products segment reported a 40.0% YoY jump to N12.8 billion in 2Q22. Moreover, both the segments recorded an operating performance improvement, with the Food Products segment operating profit of N432 million, a 229.9% YoY jump, and the Home and Personal Care segment recorded an N531 million operating profit in 2Q22, a 218.2% YoY increase.

Market Reaction: The investor reaction to the 2Q22 performance was restrained as the stock remained unchanged at N15.50 (18/7) versus a 0.20% gain for the All-Share Index (18/7).

Unilever Nigeria Earnings Highlight 2Q22