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UNILEVER NIGERIA PLC H1'21 Earnings Release - Q2 surprise boosts H1 earnings.

Unilever Nigeria’s H1’21 performance has shown a decent recovery from last year’s pandemic-induced slump. With Q2’21 Revenue expanding 41% y/y to ₦19.7 billion (H1’21: ₦39.2 billion) - mostly boosted by the much lower base in the previous year, it has provided the much-needed boost to the company’s bottom-line in the first half of the year. Delving into segmental performances for this quarter, whilst both Food and HPC (Home and Personal Care) have continued to grow, 35% y/y and 49% y/y respectively, partly driven by the newly introduced SKUs (Store Keeping Units), the growth is not as impressive as the growth recorded in Q1’21 (40% y/y and 53% y/y respectively).

Margins become stronger on Q2 cost optimization. On a more positive note, and a measure of improvement, gross margin improved 4.5ppts y/y to 27%, much closer to its five-year average of 28%, amid rising costs. This is because in addition to the significant 41% y/y Revenue growth, cost of sales only rose 27% y/y to ₦14.3 billion. For the half year period, cost of sales rose 38% y/y mostly driven by the Q1’21 performance.  Unilever’s exposure to foreign sourced raw materials remains a concern for us especially when we consider foreign exchange volatilities/challenges. However, taking this year’s track record into consideration, we expect the company’s cost of sales figure to print 18% higher, taking gross margin 6ppts y/y to 27% for FY’21. Although the company has reported a ₦235 million impairment loss on receivables (where it had reported no loss in the previous quarter), bringing operating profit to ₦0.6 billion for the quarter and ₦0.4 billion for the H1’21 period, we do not expect a significant increase in impairment losses for the year. Thus, we expect the current positive operating profit trajectory to maintain for the FY’21 period at ₦1.6 billion.