FSDH Initial Reaction: Unilever Nigeria 2Q23 results
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July 25, 2023/FSDH

Key Performance Highlights:

• Unilever Nigeria reported total revenue of N29.6 billion in 2Q23, up 27.3% YoY from N23.2 billion in 2Q22, mainly driven by an increase in revenue from the Food Products (+41.1% YoY), supported by Personal Care segments revenue growth (+16.1% YoY). Sequentially, revenue increased by 20.3% from N24.6 billion in 1Q23. The cost of sales in 2Q23 climbed to N27.1 billion, witnessing a significant YoY increase of 67.1% from N16.2 billion in 2Q22. The cost of sales also surged 93.5% QoQ compared to N14.0 billion in 1Q23. However, it is worth noting that the cost of sales increased primarily due to massive revaluation loss and restructuring costs (more than N14 billion increase) during the quarter. The company’s gross profit in 2Q23 stood at N2.5 billion, down 64.6% YoY from N7.0 billion in 2Q22. Sequentially, the gross profit witnessed a sharp decrease of 76.5% from N10.6 billion in 1Q23.
   
• Unilever Nigeria’s Marketing and Administrative expenses in 2Q23 were N3.1 billion, down by 35.9% YoY from N4.8 billion in 2Q22. On a QoQ basis, these expenses decreased by 32.0% from N4.5 billion in 1Q23. Selling and Distribution Expenses increased slightly by 2.0% YoY to N1.3 billion. The company reported other income of N26 million in 2Q23, which decreased by 14.4% YoY from N31 million in 2Q22. Unilever Nigeria recorded a major impairment loss of N1.4 billion in 2Q23, compared to a write-back of N7 million in 2Q22. Due to a significant rise in the cost of sales and a huge impairment loss, the results from operating activities in 2Q23 showed a loss of N3.3 billion. Finance income surged to N1.6 billion in 2Q23, up 810.4% YoY from N172 million in 2Q22 due to higher interest on call deposits and bank accounts. Moreover, a positive exchange difference on bank accounts of N1.8 billion resulted in a net finance income of N3.4 billion in 2Q23, compared to a net finance cost of N335 million in 2Q22. Despite the net finance income, Unilever Nigeria’s profit before tax in 2Q23 declined 73.0% YoY to N170 million from N628 million in 2Q22.
   
• The company’s tax expenses dropped to N78 million, compared to 2Q22’s expenses of N518 million and 1Q23’s expenditure of N1.68 billion, mainly due to a lower tax base. After accounting for taxes, the net profit for the period in 2Q23 was N91 million, representing a YoY decrease of 17.2% from N110 million in 2Q22. The net profit also experienced a sharp QoQ decline of 96.6% from N2.7 billion in 1Q23. Unilever Nigeria’s EBITDA in 2Q23 was a negative N2.7 billion, compared to a positive N1.6 billion in 2Q22.
   
• The gross margin in 2Q23 was 8.4%, experiencing a significant YoY decrease of 2,181 bps from 30.2% in 2Q22. On a QoQ basis, the gross margin dropped by 3,466 bps from 43.1% in 1Q23. Moreover, the EBITDA margin and operating margin turned negative and came in at -9.2% and -11.1% in 2Q23, compared to 6.8% and 4.1% in 2Q22. The net margin in 2Q23 was 0.3%, down 17 bps YoY from 0.5% in 2Q22. On a QoQ basis, the net margin significantly decreased by 1,054 bps from 10.9% in 1Q23.
   
• Unilever Nigeria’s Food Products segment recorded revenue of N14.7 billion in 2Q23, marking a substantial YoY growth of 41.1% from N10.4 billion in 2Q22. On a QoQ basis, the segment’s revenue increased by 10.4% from N13.3 billion in 1Q23. The Home and Personal Care segment’s revenue was N14.9 billion in 2Q23, reflecting a YoY growth of 16.1% from N12.8 billion in 2Q22. Sequentially, the segment’s revenue jumped 31.9% to N14.9 billion in 2Q23 from N11.3 billion in 1Q23. The Food Products segment reported an operating loss of N1.6 billion in 2Q23, compared to an operating profit of N432 million in 2Q22. Similarly, the Home and Personal Care segment also recorded an operating loss of N1.6 billion in 2Q23, compared to an operating profit of N531 million in 2Q22.
   
• On 30 May 2023, the company announced the resignation of Mrs. Abidemi Ademola as an Executive Director, effective 31 May 2023. Mrs. Ademola’s replacement on the Board of Directors of Unilever Nigeria is expected to be announced in due course.

Market Reaction: The investor reaction to the 2Q23 results was subdued as the stock declined 8.60% to N15.95 versus a 0.41% gain for the All-Share Index (25/7).

Unilever Nigeria Earnings Highlight 2Q23

Source: Company Financials, FSDH