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Unilever reports growth in earnings powered by expansion in gross margin

Unilever Nigeria Plc (UNILEVER) published its Q4-22 unaudited results Tuesday, reporting a standalone EPS of NGN1.10 (vs EPS of NGN0.68 in Q4-21), bringing 2022FY EPS to NGN1.04 (2021FY EPS: NGN0.59). The growth in earnings was due to the expansion in gross margin (+105.5% y/y) following a 30.5% y/y decline in cost of sales.
Q4-22 revenue grew by 14.9% y/y (2022FY: +25.8% y/y), driven by increased sales across the Food Products (+24.8% y/y | 50.0% of revenue) and HPC (+6.4% y/y | 50.0% of revenue) segments. We believe the festive-induced increase in consumption drove demand and supported the expansion in revenue amid a moderate price increase across UNILEVER’s product portfolio.
Sequentially, revenue increased by 14.3% on a q/q basis, following increases from the Food Products (+10.9% q/q) and HPC (+17.8% q/q) business lines.
Gross margin for the quarter reached its highest point in at least seven years, as it expanded by 26.32ppts to 59.7% (Q4-21: 33.4%), reflective of the decline in cost of sales (-30.5% y/y). Consequently, EBITDA (+17.49ppts) and EBIT (+22.42ppts) margins recorded expansions amid a 39.1% y/y increase in operating expenses.
UNILEVER reported a net finance income of NGN1.36 billion for Q4-22, owing to a higher finance income (Q4-22: NGN947.57 million | Q4-21: Nil) print for the period. We highlight that the significant finance income in the period reflects the increase in interest on call deposits and bank accounts.
Overall, PBT grew by 360.2% y/y to NGN9.39 billion in Q4-22 (Q4-21: NGN2.04 billion). Following a tax charge of NGN3.05 billion, the company recorded a PAT of NGN6.34 billion (Q4-21: NGN1.55 billion).
formance came in as expected, given the year-end festivities. However, we did not envisage the sizeable decline in the cost of sales witnessed in the quarter, which significantly improved the company’s margins and profitability. Also, we view as impressive UNILEVER’s ability to eke out growth in the HPC segment, amid the increased competition in the space, following the influx of cheaper unlisted brands. For 2023FY, we expect sub-inflationary price increases to support UNILEVER’s topline, with most of the growth coming from the company’s Food Products segment. However, we believe the stiff competition in the HPC segment and cost pressures will inhibit UNILEVER’s profitability during the year.

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