April 22, 2024/Cordros Report
Unilever Nigeria Plc (UNILEVER) published its Q1-24 unaudited results after market close on Friday (19 April), reporting an earnings per share of NGN0.58 (Q1-23: NGN0.46). The growth in earnings was driven by the higher net finance income outturn (NGN516.27 million vs net finance cost of NGN159.88 million in Q1-23) and a lower effective tax rate of 23.0% (Q1-23: 37.3%).
In Q1-24, revenue increased by 57.8% y/y (Q1-23: -0.4% y/y), due to significant expansions in the Food Products (+36.4% y/y | 56.3% of revenue), Personal Care (+63.4% y/y | 36.1% of revenue) and the recently restructured Beauty & Wellbeing (NGN2.45 billion | 7.6% of revenue) segments. We attribute the top-line expansion primarily to volume growth driven by the company’s penetration efforts, coupled with moderate price increases aimed at offsetting rising input costs.
Gross margin for the period contracted significantly by 571bps to 41.8% in Q1-24 (Q1-23: 47.5%), reflective of a 75.0% y/y increase in cost of sales primarily driven by the impact of domestic inflation on material costs (+98.9% y/y) and currency pressures. Consequently, EBITDA (-11.79ppts y/y to 13.6%) and EBIT (-10.86ppts y/y to 11.9%) margins declined significantly, influenced by the weakened gross margin and a surge in operating expenses (+100.7% y/y). The substantial uptick in OPEX was due to a 434.9% y/y rise in brand and marketing expenditures, fueled by increased investments in media promotion for brands.
Further down, the company recorded a net finance income of NGN516.27 million in Q1-24 (vs net finance cost of NGN159.88 million in Q1-23) following the strong expansion in finance income (+745.9% y/y). Notably, the substantial finance income in the period was supported by the currency exchange gain on bank balances (17.7x y/y increase to NGN1.64 billion).
UNILEVER recorded a 3.1% y/y decline in PBT to NGN4.36 billion in Q1-24 (Q1-23: NGN4.50 billion). However, profit from continuing operations increased by 19.0% y/y to NGN3.36 billion in Q1-24 (Q1-23: NGN2.82 billion) on a lower effective tax rate of 23.0% (Q1-23: 37.3%).
Comment: We like that the company continues to deliver strong top-line growth despite the strain on consumers’ income. However, we remain cautious about the escalating cost pressures, which have hampered margins expansion in recent quarters. Looking ahead, we anticipate sustained revenue growth driven by higher volumes and sub-inflationary price increases. However, we foresee margin contraction due to cost pressures stemming from near-term foreign exchange constraints and inflationary impacts on operating expenses. Nonetheless, we still expect the company to remain profitable, buoyed by its strong topline and substantial cash reserves, providing a buffer to its earnings. Our estimates are under review.
