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Unilever Nigeria’s loss after tax despite steady growth in revenue

Unilever Nigeria has sustained topline growth despite selling off its tea business in October 2021. Based on the 9M 2022 unaudited numbers, the company’s Revenue grew by 30.4% y/y to N64.77bn in 9M 2022 from N49.67bn in 9M 2021. The Food segment – Blue Band, Knorr, and Royco, recorded impressive growth, up 43.2% y/y to N30.66bn in 9M 2022 from N21.42bn in 9M 2021. We note that the discontinued tea business generated N9.05bn in 9M 2021, which if adjusted, implies an effective Food Revenue growth of 148% in 9M 2022. The Home and Personal Care products segment grew 20.7% y/y to N34.12bn in 9M 2022 from N28.26bn in 9M 2021.

However, q/q, Revenue moderated by 9.8% to N20.96bn in Q3 2022 from N23.25bn in Q2 2022 which was triggered by a 20.6% decline in the Home and Personal Care products to N10.17bn in Q3 2022 from N12.82bn in Q2 2022. While we expect sustained upbeat in the demand for the company’s food products, the personal care segment may see a further decline in demand as consumers adjust their spending pattern in favour of most basic needs amidst weakening purchasing power.

Cost of Sales (adjusted for depreciation) grew faster than Revenue as global inflation and Naira devaluation continued to impact raw materials import, up 34.6% y/y to N46.28bn in 9M 2022 from N34.39bn in 9M 2021. Despite a q/q decline in Revenue, the Cost of Sales grew by 11.3% to N17.56bn in Q3 2022 from N15.77bn in Q2 2022 indicating a continued increase in input costs. Consequently, Gross Profit rose by 20.9% (below +30.4% growth in Revenue) y/y to N18.49bn in 9M 2022 from N15.29bn in 9M 2021 while Gross Margin shed 2.2ppts to 28.5% in 9M 2022 from 30.8% in 9M 2021.

The company’s Operating Expenses were pressured by inflation as Marketing and Administrative Expenses (adjusted for depreciation) jumped by 22.5% to N13.13bn in 9M 2022 from N10.72bn in 9M 2021. Selling and Distribution Expenses (adjusted for depreciation) also leaped by 66.4% to N3.10bn in 9M 2022 from N1.86bn in 9M 2022. However, OPEX Margin ducked slightly by -0.8ppt to 15% in 9M 2022 from 25.7% in
9M 2021.

The higher growth in Cost of Sales and jump in Opex, weighed on EBITDA as it declined by 7.6% y/y to N2.31bn in 9M 2022 from N2.50bn in 9M 2021. Hence, EBITDA Margin contracted by 1.5ppts to 3.6% in 9M 2022 from 5.0% in 9M 2021.

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However, given a 12.5% y/y decline in Depreciation & Amortisation, Operating profit
grew by 21.0% y/y to N449m in 9M 2022 from N371m in 9M 2021.

The company recorded a 33.2% increase in Interest Income to N887m in 9M 2022 from N666m in 9M 2021. On the other hand, Interest Expense stood at N365m while Loss on Foreign Exchange balances came to N479m. Consequently, Net Finance Cost was N71m in 9M 2022 compared to a Net Finance Income of N666m in 9M 2021. Hence, Profit Before Tax declined by 54.4% to N473m in 9M 2022 from N1.04bn in 9M 2021. Effective Tax Rate leaped to 173.6% in 9M 2022 from 3.3% in 9M 2021 which further triggered a Loss After Tax of N348m in 9M 2022 compared to a Profit After Tax of N1.379bn in 9M 2021. Unfortunately, there was no additional information on the N821m tax provisions made for the 9M 2022.

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Our estimates are under review. Current Price: N12.00 Unilever Nigeria 9M 2022 (Nm) Nm, except where mentioned otherwise 9M’22 9M’21 y/

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