July 25, 2023/Cordros Report
Unilever Nigeria Plc (UNILEVER) published its Q2-23 unaudited results yesterday, reporting standalone earnings per share of NGN0.02 (same as the corresponding period in 2022), bringing H1-23 earnings per share to NGN0.48 (H1-22: NGN0.33). UNILEVER’s earnings in the period was impacted by the weaker gross margin (-21.81ppts) and operating loss.
Revenue increased by 27.3% y/y (Q2-22: +13.1% y/y), outperforming our expectations (+26.0% y/y) with the positive outturn driven majorly by the strong growth in the Food Products (+41.1% y/y | 49.7% of revenue) segment and HPC (+16.1% y/y | 50.3% of revenue) sales. We believe price increases in response to continued high input costs amid an improved volume performance drove the strong revenue performance in the quarter. On the price increases, our channel checks reveal that the company raised its prices across its product portfolio by c. 6.5%. Sequentially, revenue grew by 20.3% on a q/q basis, following the strong growth in HPC sales (+31.9% q/q) relative to Food Products (+10.4% q/q), in the quarter.
However, gross margin contracted by 21.81ppts to 8.4% (Q2-22: 30.2%), owing to the faster growth in the cost of sales (+67.1% y/y), which outpaced the increase in the revenue (+27.3% y/y). The higher cost of sales stemmed from (1) revaluation loss (13.4x increase) from foreign-denominated trade payables and (2) restructuring cost (+393.2% y/y) of raw and packaging materials written off due to stoppage of production in the home care category and associated redundancy costs.
Accordingly, UNILEVER recorded an operating loss of NGN3.28 billion in Q2-23 (vs operating profit of NGN963.30 million in Q2-22) due to (1) the decline in gross margin, and (2) an impairment loss on trade receivables of NGN1.40 billion amid lower operating expenses (-28.0% y/y).
Elsewhere, net finance cost was positive at NGN3.45 billion in the quarter owing to an exchange gain of NGN2.93 billion on its bank account balances in the period amid an 810.9% y/y increase in finance income.
Overall, PBT declined by 73.0% y/y to NGN169.94 million in Q2-23 (Q2-22: NGN628.28 million). Following a tax charge of NGN78.46 million, the company recorded a lower profit after tax of NGN91.48 million (Q2-22: NGN110.37 million).
Comment: UNILEVER’s Q2-23 performance was below our expectations as the company’s sturdy revenue was subdued by the dual impact of a higher cost of sales and operating loss recorded in the period. Looking ahead, we expect cost pressures to remain elevated for the producer, given the high inflationary environment and currency risk exposure. Thus, we believe earnings will remain under pressure in succeeding quarters. Our estimates are under review.
