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UNILEVER NIGERIA PLC H1'22 Earnings release - PAT growth slowed on significant tax charge

Q2’22 performance is a mixed bag: Unilever Nigeria PLC recently released its Q2’22 result, showing a 42% y/y rise in Revenue to ₦23.2 billion (Vetiva: ₦21.9 billion). Whilst Revenue from the Food segment remained lower y/y, given the sale of the tea business in October 2021, we believe that the segment’s performance has been quite impressive, as Revenue from the continued food business has grown 45% y/y, when matched with the previous year’s comparable. Additionally, the Home and Personal Care (HPC) segment has continued its growth trend on improving economic and social activities, as well as the success of the products introduced in the value segment; these factors have expanded Revenue from the segment by 40% y/y to ₦12.8 billion. Nonetheless, whilst we know that volume has played a vital part in Revenue growth, we believe that the implementation of stronger pricing y/y has been more impactful to topline growth.

However, the challenging global supply scene has elevated costs significantly (albeit at a slower pace than Revenue), as rising commodity prices have pushed cost of sales 36% higher y/y. Likewise, soaring energy costs and other inflationary pressures have resulted in a 46% y/y rise in OPEX for the firm. Despite this, Gross and Operating margins have improved 3ppts and 2ppts to 30% and 4% respectively, riding on firmer pricing across segments.

Q1’22 performance smoothens earnings: Interestingly, Unilever’s Q1 performance has provided a cushion for H1 earnings, with Revenue growing at 35% y/y for the period, to ₦43.8 billion. Similarly, gross, and operating margins have soared by 7ppts each to 32.4% and 7% respectively. Overall, the drag on profits was not as severe in the H1 period (given a blended tax rate of 32.5%), as PAT improved 1.7x to ₦1.9 billion.