January 22, 2024/Cordros Report
Unilever Nigeria Plc (UNILEVER) published its 2023FY unaudited results on Friday (19 January), reporting an EPS from continuing operations of NGN1.20 (Q4-22: NGN1.10), bringing 2023FY EPS from continuing operations to NGN1.49 (2022FY EPS: NGN1.04). The growth in earnings in the period was supported by impairment write-back on trade receivables (NGN5.51 billion vs impairment loss of NGN2.80 million in Q4-22).
Q4-23 revenue increased by 63.7% y/y (2023FY: +50.7% y/y), driven by significant improvements in the Food Products (+65.9% y/y | 66.3% of revenue) and Beauty & Wellbeing and Personal Care (+59.6% y/y | 33.7% of revenue) segments. We believe the festive-induced consumption improved demand and supported the expansion in revenue amid price increases across UNILEVER’s product portfolio. On price increases, our findings reveal that the company’s product prices rose by c.23.9%. Furthermore, we believe the company’s strategic move towards digitization and the introduction of telesales supported sales growth in the period. Despite a marginal contribution to revenue growth (+2.1%), we also note a substantial increase in export sales (+125.8% y/y) in the period.
Gross margin for the quarter declined significantly by 283bps to 35.2% in Q4-23 (2023FY: -101bps to 30.7%), reflective of the surge in cost of sales (+190.5% y/y). This increase is attributed to (i) the impact of domestic inflationary pressures on raw material costs (given a 50.0% reliance on local sourcing); and (2) revaluation loss arising from foreign currencies denominated balances (+24.6x y/y). Nonetheless, EBITDA and EBIT grew by 106.7% y/y and 82.8% y/y, respectively, supported by impairment write-back on trade receivables (NGN5.51 billion vs impairment loss of NGN2.80 million in Q4-22).
UNILEVER reported a net finance cost of NGN2.62 billion for Q4-23 (vs net finance income of NGN1.06 billion in Q4-22), owing to a high finance cost print (Q4-23: NGN3.96 billion vs finance income of NGN318.28 million in Q4-22) arising from interest on third party bank loans. For 2023FY, net finance income printed NGN269.82 million (2022FY: NGN194.91 million) on the back of higher finance income (+156.0% y/y) from a substantial cash balance of NGN56.61 billion.
Overall, profit from continuing operations grew by 65.4% y/y to NGN8.34 billion in Q4-23 (2023FY: NGN12.27 billion | 2022FY: NGN5.96 billion). After adjusting for the loss from discontinued operations* (NGN1.46 billion vs profit from discontinued operations of NGN1.30 billion in Q4-22), UNILEVER’s profit after tax increased by 8.4% y/y to NGN6.87 billion in Q4-23 (2023FY: +91.3% y/y to NGN8.54 billion).
*The company exited the Home and Cleansing segment in December 2023.
Comment: UNILEVER’s topline performance during the period was strong in our view, driven by festive season gains and commendable double-digit growth in the Food Products and the Beauty & Wellbeing and Personal Care segments, despite consumer downtrading. However, our concern lies in rising cost pressures, which inhibited gross margin expansion in the period. For 2024FY, we anticipate sustained revenue growth driven by (i) pricing and (ii) volume growth, supported by increased investments in the distribution network. Nevertheless, we highlight the risk of margin contraction due to heightened costs stemming from foreign exchange challenges and inflationary pressures. Our estimates are under review.
