October 21, 2024/Cordros Report
Unilever Nigeria Plc (UNILEVER) published their Q3-24 unaudited results this afternoon reporting standalone earnings per share of NGN1.14 (Q3-23: NGN0.59). Similarly, for 9M-24, the company also posted an EPS increase to NGN1.92 (9M-23: NGN1.30). The increase in earnings was primarily due to robust revenue growth (+54.5% y/y).
Q3-24 revenue grew by 54.5% y/y (9M-24: +45.8% y/y), largely driven by significant growth in the Food Products (+60.4% y/y | 60.8% of revenue), Personal Care (+43.7% y/y | 31.2% of revenue), and Beauty & Wellbeing (+56.1% y/y | 8.0% of revenue) segments. We believe higher pricing drove the solid revenue performance in the quarter as our channel checks reveal that the company raised prices across their product portfolio by c. 35.0%. Additionally, export sales showed remarkable growth (+270.9% y/y | 6.1% of revenue), supported by a higher FX rate. Revenue also rose by 26.4% quarter-on-quarter, reflecting the pricing adjustments.
Gross margin improved significantly, rising by 435bps to 41.7% (Q3-23: 37.4%), owing to the robust revenue growth (+54.5% y/y). However, the cost of sales increased by 43.7% y/y, pressured by rising raw material costs due to inflation and naira depreciation.
Elsewhere, UNILEVER’s EBIT (-169bps y/y to 16.7%) and EBITDA (-243bps y/y to 18.2%) margins were weakened by the surge (+111.3% y/y) in operating expenses. The higher OPEX was driven by a substantial increase (+14.4x y/y) in brand and marketing expenses for the quarter amid the impact of the naira devaluation on foreign-denominated obligations and inflationary pressures.
The company’s net finance income increased by 10.4x y/y to NGN1.00 billion in the quarter (Q3-23: NGN87.94 million), owing to a 210.3% y/y growth in finance income which overshadowed the 115.8% y/y rise in finance costs. The significant jump in finance income was mainly due to a foreign exchange gain on bank balances (Q3-24: NGN1.85 billion vs an exchange loss of NGN127.74 million in Q3-23).
Overall, profit before tax grew by 58.5% y/y to NGN7.68 billion in Q3-24 (Q3-23: NGN4.84 billion). After accounting for a tax expense of NGN1.11 billion (Q3-23: NGN1.48 billion), UNILEVER reported a profit after tax of NGN6.57 billion (vs loss after tax of NGN1.09 billion in Q3-23).
Comment: UNILEVER’s Q3-24 performance is impressive, particularly in terms of revenue growth and gross margin expansion. However, the company is still under significant pressure from rising operating expenses, driven by naira devaluation and inflation. Looking ahead to Q4-24, we expect continued revenue growth, supported by price increases and festive-driven demand, particularly in the Food Products segment. That said, the escalating operating expenses and currency challenges raise concerns about margin sustainability. Overall, UNILEVER is expected to end the year on a strong note, supported by sturdy topline growth, low debt levels, and positive exposure to rising interest rates, which should help sustain earnings. Our estimates are under review.
