FSDH Initial Reaction: Unilever Nigeria 3Q22 results
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October 31, 2022/FSDH Research

Key Performance Highlights:

• Unilever Nigeria recorded a solid 21.5% YoY increase in revenue to N21.0 billion in 3Q22, primarily driven by a robust 50.4% YoY growth in Food Products coupled with a marginal 1.0% YoY rise in Home and Personal Care revenue. Despite double-digit revenue growth, rising inflationary pressures resulted in a significant fall in the 3Q22 gross profit, as the production costs increased by 54.0% YoY to N18.0 billion from N11.7 billion reported in 3Q21. Consequently, Unilever Nigeria reported a gross profit of N3.0 billion in 3Q22 compared to N5.6 billion in 3Q21. The company’s operating costs also shot up with the revenue growth, as the Selling and distribution expenses rose a massive 46.2% YoY to N1.2 billion in 3Q22 against N811 million in 3Q21, while the Marketing and administrative expenses edged 5.1% higher to N4.4 billion in 3Q22. Under the Marketing and administrative expenses head, the service fees jumped 85.6% YoY to N456 million in 3Q22, compared to N246 million in 3Q21.
   
• The company recorded N28.3 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 recorded an impairment write-back of N2.0 million in 3Q22, compared to an impairment loss of N205.4 million in 3Q21, resulting in an operating loss of N2.6 billion in 3Q22, significantly down from an operating profit of N344.7 million in the prior period.
   
• Finance income soared a massive 609.3% YoY to N430.4 million in 3Q22, primarily from an increase in the interest from call deposits and bank accounts to N430.4 million in 3Q22 from N143.7 million in 3Q21. Finance costs also shot up to N329 million in 3Q22, primarily driven by N242.2 million interest paid on third-party bank loans. Furthermore, the company recorded a tax credit of N251.0 million in 3Q22, compared to a tax of N37.5 million in 3Q21. Consequently, Unilever reported a net loss of N2.3 billion in 3Q22 versus a net profit of N368 billion in 3Q21. The company’s net operating cash flow declined 149.2% YoY to negative N2.3 billion in 3Q22, owing to rising costs.
   
• Looking at the sequential performance, Unilever recorded a 9.8% QoQ decline in revenues in 3Q22, driven by a 20.6% QoQ fall in Home and Personal Care revenue to N10.2 billion, partially offset by a 3.4% QoQ rise in Food Products revenue to N10.8 billion in 3Q22. The rising inflationary pressure resulted in a 10.9% QoQ jump in the cost of sales, leading to a 1601 bps drop in the gross margin to 14.2% in 3Q22. On a sequential basis, the 3Q22 performance worsened due to an 8.2% QoQ decrease in the Marketing and administrative expenses, coupled with a 7.0% fall in selling and distribution expenses to N1.2 billion in 3Q22. Finance income for the period jumped 149.6% QoQ, while the finance costs for the quarter declined 35.2% QoQ in 3Q22. The company recorded a tax credit of N251 million in 3Q22, compared to a tax of N517.9 million at an effective tax rate of 82.4% in 2Q22. Accordingly, Unilever reported a net loss of N2.3 billion in 3Q22 against a net profit of N110.4 million in 2Q22. Unilever Nigeria reported an EBITDA margin and a net margin of negative 9.6% and negative 10.8%, respectively, in 3Q22, against positive 6.8% and positive 0.5% in the prior quarter.
   
• The Food Product segment’s revenue soared by 50.4% YoY to N10.8 billion, and the Home and Personal products segment climbed 1.0% YoY to N10.2 billion in 3Q22. Moreover, both the segments recorded an operating loss, with the Food Products segment operating loss of N1.2 billion, compared to an operating profit of N123 million a year ago, and the Home and Personal Care segment recorded an operating loss of N1.4 billion in 3Q22, down from an operating income of N130 million in 3Q21. 

• On October 21, 2022, the company announced the resignation of Mr. Felix Enwemadu from the Board of Directors of Unilever Nigeria Plc. with effect from September 30, 2022.

Market Reaction: The investor reaction to the 3Q22 performance was negative as the stock closed 10.00% lower at N10.80 (24/10) versus a 0.15% gain for the All-Share Index (24/10).

Unilever Nigeria Earnings Highlight 3Q22

Source: Company Financials, FSDH