July 26, 2023/InvestmentOne Report

• Revenue growth: up 20.27% q/q, 23.74% y/y
• Decline in gross profit margin: down 3466bps q/q, down 827bps y/y
• Contraction in PBT margin: down 1710bps q/q, up 153bps y/y
• Mixed PAT margin: down 1054bps q/q, up 74bps y/y 
  

Decent Topline Performance

Unilever Nigeria Plc recently released its unaudited financial report for H1 2023, revealing a significant year-over-year revenue increase of 23.74%, reaching N54.21 billion compared to N43.81 billion in the previous year, 2022. This growth was mainly driven by higher sales in both major segments – Food Products and Home & Personal Care, which experienced year-over-year increases of 41.15% and 9.28% respectively, amounting to N28.05 billion and N26.16 billion. The food segment accounted for 51.75% of total revenue, while the home and personal care segment accounted for 48.25%. The surge in revenue can be attributed to increased demand for the company’s products, particularly in the Food and Beverage category, during festive periods. Additionally, there was an upswing in purchases following the reversal of the naira scarcity caused by the redesign policy.

However, the cost of sales also rose significantly by 38.88% y/y to N41.12 billion. This increase was driven by revaluation losses resulting from foreign currency denominated trade loans and restructuring costs incurred due to raw materials and packaging materials in the home care category and related items being declared as losses and removed from the inventory, as production in that segment was halted. As a result, the gross profits experienced a decline of 7.82% year over year, amounting to N13.09 billion. The negative gross profit margin of 827bps y/y was a consequence of the failure of revenue growth (+23.74% year over year) to offset the rising cost of sales (+38.88% year over year).

Exchange Rate Differential Saves Bottomline

During the fiscal year, Unilever Nigeria Plc faced several challenges that impacted its financial performance. The company witnessed a significant decline in operating profit, which fell by 59.32% year over year, amounting to N1.28 billion. This decrease was primarily propelled by the rising cost of sales resulting from the revaluation of the naira and inventory from scrapped operations, leading to increased obligations denominated in foreign currency.

Despite the revenue advancement, the company’s performance was further burdened by increasing input costs, driven by the current unstable macroeconomic environment. Operating expenses rose by 6.86% year over year, reaching N11.81 billion, contributing to the substantial decrease in operating profits. However, amidst these challenges, there were some positive factors that helped offset the adverse impact. The company managed to reduce operational costs relative to sales (OPEX/Sales) by 344bps as revenue growth outpaced the cost of operations. Furthermore, the net finance costs experienced a significant positive change of 1780.90% year over year, amounting to N3.24 billion. This was attributed to gains made by the company from the unification of the exchange rate regime in the country. Despite the overall decline in operating profit, the company’s Profit Before Tax (PBT) witnessed a notable surge of 51.66% year over year, amounting to N4.52 billion. Additionally, Profit After Tax (PAT) increased by 44.83% year over year, reaching N2.76 billion. As a result, the Earnings Per Share (EPS) also showed a significant increase, rising to N0.48 from N0.33 in the corresponding period in 2022.

Sequential Performance

On a q/q basis, gross profit decreased by 7.82% to N2.49 billion as the cost of sales (+93.51%) outweighed the revenue growth (+20.27%). Consequently, gross margin fell 3466bps. Furthermore, PBT fell by 96.09% to N169.93 million despite net finance cost rising (+1756.25%). Hence, PAT shrank by 96.56% q/q to N91.49 million.

Outlook

Going forward, we expect to see the positive momentum in revenue growth sustained, albeit, prevailing economic realities emanating from high inflation, weak consumer demand, persistent FX liquidity constraint and tough business environment should continue to undermine gains in the near term. In conclusion, Unilever Nigeria Plc faced various challenges during the year, leading to a decline in operating profit. However, certain positive factors, including gains from the exchange rate regime unification, contributed to the company’s overall financial performance, and resulted in increased earnings per share.

Source: Company’s Financials, Investment One Research