Unilever Nigeria's H1 2021 Result: Making Merry as Revenues Grow and Earnings Soar


Thursday, August 12, 2021 / 11:27 AM / by AbdulQudus Isiaka, Proshare Research / Header Image Credit: Citywire

Investors in Unilever can so far draw wide smiles as the company's result for H1 2021 show improvements in both the company's top line (revenue) and bottom line (profit) numbers. The fast-moving consumer goods (FMCG) company saw profitability rise in H1 2021 as short-term liabilities took a tumble on the back of increased liquidity, despite a marginal drop in current assets.

The company equally recorded a reduction in financial risk supported by improvements in operational efficiency. The half-year result also showed that the company's food product division edged out the home & personal care product division in the company's top spot for highest operating performance.

Key Takeaways

  • Revenue rose year-on-year by +43.2% from N27.34bn in H12020 to N39.15bn in H12021.
  • Profit before tax grew by +246.5% Y-o-Y from -N0.57bn in H12020 to N0.83bn in H12021.
  • Profit after tax grew significantly by +237.7% from N650.49m in H12020 to N1.13bn H12021.
  • Gross profit appreciated Y-o-Y by +97.8%, from N2.73bn in H12020 to N5.4bn in H12021.
  • Cost of sales appreciated by +58.96% from N4.53bn in H12020 to N11.09m in H12021.
  • Finance cost rose significantly Y-o-Y by +143.66%, from N4.55m in H12020 to N11.09m in H12021.
  • Selling and distribution expenses rose considerably by +33% Y-o-Y from N635.89m in H12020 to N845.72m in H12021.
  • Total debt rose by +14.5% in H12021 from N29.39bn in H12020 to N33.64bn. Although loans and borrowings reduced in the period, there was a +16% rise in short-term trade financing obligations accounting substantially for the rise in Total debt.
  • Total assets grew Y-o-Y by +5.4% from N91.52bn in H12020 to N96.49bn in H12021.
  • Net Assets appreciated by +1.2% from N62.13b to N62.84bn.

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Unilever's Bullish Share Price Collide with ASI Anxiety

The Consumer goods manufacturer's share price has been somewhat choppy over the first two quarters of 2021, averaging around N13.13/share for most of the last 6 months. Unilever's share price however saw a major dip in the first week in June 2021 when it fell to N11.9 before returning to the N13.1 mean later on in the month. Unilever Nigeria's shares posted a +4.3% growth YTD, while the All-Share Index (ASI) dropped by -4.1% in the period under review. Proshare Analyst, therefore, estimated a weak but positive correlation coefficient of 0.45 between the Manufacturers share price and the All-share Index (see chart 1).


Chart 1: NGX ASI and Unilever Share Price

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Source: NGX, Proshare Markets

Unilever also seemed to have outperformed the Consumer goods Index which only appreciated by +1.12% in the period under review. Unilever's share price also demonstrated a low but positive correlation with the NGX consumer goods index, Proshare Analyst found a correlation coefficient of +0.38 between Unilever Nigeria Share price and Consumer Goods Index (see chart 3).

Chart 3: Consumer Goods Index and Unilever Share Price

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Source: NGX, Proshare Markets




Unilever Nigeria's revenue reversed the downward trend it has had in the past 3 years. In H1 2021, revenue grew by +43.21%from N27.34bn in H12020 to N39.15bn (see chart 4 below).  

Chart 4: Unilever Nigeria's Revenue 2017 - 2021 (N'bn)

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Source: Unilever Nigeria's Financial Statement, Proshare Research

A breakdown of the company's H1 2021 revenue based on product category reveals that N20.97bn (54%) was generated from the Food Products category as against N15.26bn (55.84%) in H1 2020, while N18.18bn (46.43%) of the company's revenue was generated from the home & personal care product category in H12021, as against N12.07bn (44.14%) in 2020. The contribution of the food product category improved slightly while that of the Home and personal care section reduced also marginally.

Mapping Revenue

Further analysis of Unilever Nigeria's revenue by geographical location shows that 99% of the company's revenue was generated from the Nigerian market.

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Profit Before Tax 

The FMCG merchant's profit before tax (PBT) rose by N1.40bn an equivalent of +246.5% Y-o-Y having recorded a PBT of N830.4m in H12021 and a loss of N566.8m in H12020. This was as a result of a +68.4% appreciation in operating profit despite a +143.6% increase in finance cost. Although the  H1 2021 PBT of  N830m represents a rebound from H1 2020 loss, this is still significantly less than the pre-pandemic PBT level of N4.69b in H1 2019. Meanwhile, between H12020 and H12021, profit after tax (PAT) grew by +36.79%, representing a much slower growth than the rate at which PBT rose, the variance is accounted for by the N115m tax paid in H12020 as against a tax refund of N47.69m claimed in H1 2020. (see chart 5 below). 


Chart 5: Unilever Nigeria Profit Before Tax 2017 - 2021 (N'm)

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Source: Unilever Nigeria s Financial Statement, Proshare Research

Liquidity? No, Problems

Current Ratio

The H12021 result of the company showed an improvement in its current ratio, from 1.98 in H12020 to 2.19 in H12021, conveniently satisfying analysts preferred current ratio of 2:1, an indication that Unilever can meet its short-term obligations. The improvement in the company's current ratio was supported by a +9.6% rise in current assets. In H12020, while the pandemic raged, Unilever Nigeria recorded its lowest half-year current ratio in five years (- 1.98), after it dropped by -11.6% from a much more liquid position of 2.24 in H12019. The current ratio for H12021, therefore, represents an improvement in the short-term availability of funds, although the performance still falls short of the pre-pandemic level (see chart 6 below). 


Chart 6: Unilever Nigeria s Current Ratio 2017 - 2021

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Source: Unilever Nigeria s Financial Statement, Proshare Research

Acid-Test Ratio 

In H1 2021, the FMCG company's acid-test/quick ratio also improved, although less substantially when compared to the current ratio. Between H12020 and H12021, the acid test ratio appreciated from 1.72 to 1.81. Financial Statement analysts set an acid-test ratio standard of 1:1 as an indication of the company's ability to match its short-term obligations with its liquid assets which excepts inventory. In the last five years, the company was least liquid in H1 2020 at the height of the pandemic, having fallen from a much more liquid position of 1.98 in H1 2019 to 1.72 (see chart 7 below).

Chart 7: Unilever Nigeria s Acid-Test Ratio 2017 - 2021

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Source: Unilever Nigeria s Financial Statement, Proshare Research

Lower Gearing: Less Financial Risk

Unilever Nigeria's leverage ratio dropped considerably between H12020 and H1 2021 from 0.60 to 0.54. Before H1 2021 the company's debt-to-equity ratio had averaged 0.6 which implies that 60% of the company's assets was funded by debt and the complementary 40% was accounted for by equity owners, with the reduction in the gearing ratio Unilever's financial risk reduced to a five-year low.  (See chart 8 below).

Chart 8: Unilever Nigeria s Leverage Ratio 2017 - 2021

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Source: Unilever Nigeria s Financial Statement, Proshare Research

The total debt of the company fell by -15.4% Y-o-Y while total equity had a larger Y-o-Y drop of -4.8%. Meanwhile, a breakdown of total debt showed that the company's current debt rose by +15.15% Y-o-Y while non-current debt fell within the period by -19.7 % Y-o-Y.

Much Ado about Efficiency

To measure the productivity of Unilever Nigeria in H12021, an assessment of efficiency is made using three major efficiency ratios, namely: working capital turnover, fixed asset turnover, and total asset turnover.

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Working capital turnover

The FMCG producer recorded a working capital turnover ratio of 0.58 in H1 2021, this represents a reversal of the downward trend in the working capital turnover ratio. The working capital turnover ratio measures the degree of efficiency to which management has put the company's working capital to use. In H1 2020 working capital turnover ratio fell from 0.44 in H1 2019 to 0.37, before climbing to 0.58 in H1 2021. By implication, every one Naira worth of working capital employed by the company yielded 58k in revenue. Analysts note that this means that the company's management needs to ensure that the rise in working capital turnover ratio should improve to allow lower levels of working capital to sweat out more revenue (See chart 9 below).


Chart 9: Unilever Nigeria s Working Capital Turnover Ratio 2017 - 2021

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Source: Unilever Nigeria s Financial Statement, Proshare Research


Fixed Asset Turnover

To support the previous ratio Unilever's Fixed Asset Turnover Ratio for H1 2021 was 1.45, a large rise from the earlier figure of 0.86 in H1 2020. Fixed asset as a metric assesses how effectively the company's fixed assets have been put to use in the period. The fixed asset turnover ratio at 1.45 represents a return to pre-pandemic capacity utilization since it surpasses the H1 2019 ratio of 1.37. In effect, each N1m committed to fixed asset generated sales worth N1.45m (See chart 10 below).

Chart 10: Unilever Nigeria Fixed Asset Turnover Ratio 2017 - 2021 

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Source: Unilever Nigeria Financial Statement, Proshare Research

Total asset Turnover

As was the case with the two preceding measures of efficiency, the total asset turnover of Unilever Nigeria improved to 0.42 in H1 2021 from 0.26 in H1 2020. The FMCG company had seen a steady decline in its total asset turnover ratio since H1 2017 when it was 0.55, the ratio dropped a few notches to 0.38 in H1 2018 and 0.33 in H1 2019 before dipping to 0.26 in H1 2020. The H1 2021 figure represents a desirable reversal in the downward trend and it implies that each N1m invested in the company's total assets generated sales revenue worth N420,000. Being a manufacturing company, Unilever's asset turnover ratio satisfies analysts expected ratio of between 0.25 and 0.5 (See chart 11 below).

Chart 11: Unilever Nigeria Working Capital Turnover Ratio 2017 - 2021

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Source: Unilever Nigeria s Financial Statement, Proshare Research

Far from the Past but not at the Future

Unilever is a long way from a checkered past where its assets were propped by dubious accounting practices which included overstatement of stock and the understatement of poor-quality receivables (trade debtors), a phenomenon that plagued its financial records between the mid-1980s and the mid to late 1990s. In more recent times the company has become noticeably transparent and accountable, with the books less fragile and opaque. Nevertheless, the future will be less about the books than about the brittle local market for FMCG products.

The increasing dominance of millennials and post-millennials in consumer markets means that the company will have to be more creative, dynamic and forward-thinking if it must ensure sustainability. The baby boomers that were the traditional bellwether patrons of the company's products are fast aging and will soon become a smaller slice of the buying populace. For the Unilever group to maintain relevance it must break into a phase of dynamic consumer responsiveness anticipating future demand rather than responding to old preferences.

The fast moving consumer products group has had its tail up between 2020 and 2021 but a tree does not make a forest as analysts keep a close watch on not just the numbers but also on corporate governance and strategic positioning.

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