UNILEVER published Q2-21 unaudited financials after the market’s close on Friday (16th June), reporting a profit after tax of NGN1.21 billion – the highest since Q2-19. The performance was underpinned by the solid topline growth (+40.8% y/y) and an increase in finance income (+31.1% y/y). Consequently, the company recorded an EPS of NGN0.21 (Q2-20: NGN-0.28).
Revenue grew by 40.8% y/y to NGN19.73 billion in Q2-21 following strong growth in revenue across the HPC (+48.7% y/y) and Food (+34.6% y/y) segments, marking the highest quarterly revenue since Q2-19. Although the business could not implement a substantial price increase due to the heightened competition, we believe the topline growth was driven by a gradual increase in credit sales to distributors following the substantial progress made in reducing its trade receivables between 2018 and 2020 (-82.4%). Accordingly, trade receivable as of Q2-21 was NGN3.92 billion compared to NGN3.11 billion as of 2020FY.
Gross margin increased by 79bps to 27.4% y/y in 2021FY, as topline (+40.8% y/y) grew faster than cost of sales (+27.0% y/y). However, the increase in the cost of sales reflects the impact of the devaluation in the Naira given that the company currently source for c. 55% of its raw materials abroad. Gross profit also surged by 97.8% y/y to NGN5.40 billion while EBITDA (NGN1.40 billion) turned positive in Q2-21 as opposed to a negative NGN989.58 million in Q2-20. Similarly, EBITDA margin was positive at 7.1% y/y (Q2-20: -7.1% y/y) as OPEX expanded moderately by 4.3% y/y due to the decline in selling and distribution expenses (-5.5% y/y) and null impairment loss on trade receivable as opposed to the NGN597.13 million loss recorded in Q2-20.
Unilever’s earnings were further supported by the growth in finance income primarily due to the increase of NGN7.07 billion in cash and bank balance to NGN44.17 billion in Q2-21 from NGN37.10 billion as of December 2020. Similarly, the company recorded a net operating profit of NGN557.86 million in Q2-21, which is the highest since Q2-19 compared to a net operating loss of NGN1.86 billion in Q2-20.
Overall, the company recorded a profit before tax of NGN1.04 billion – the highest in eight quarters as opposed to a loss before tax of NGN1.52 billion in Q2-20. Similarly, profit after tax (NGN1.21 billion) was boosted by a tax credit of NGN166.14 million, translating into an EPS of NGN0.21 for the period.
Comment: We like that the company overturned the prior quarter’s loss with a decent topline growth bringing the H1-21 EPS to NGN0.21 amidst the sub-inflationary price increase across its product portfolio. In addition, we believe that the company management’s gradual increase in credit sales will remain supportive of volume growth in the near term. As such, we now expect UNILEVER to deliver positive earnings in 2021E. Our estimates are under review.
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