Onome Amuge
Unilever Nigeria Plc (UNILEVER) recently reported its unaudited results for the third quarter of 2024, recording a 58.5 percent year-on-year growth in profit before tax to N7.68 billion, reflecting a notable improvement from the profit before tax of N4.84 billion reported in the same quarter of the previous year.
Notably, UNILEVER’s profit after tax for the third quarter N6.57 billion was achieved after accounting for a tax expense of N1.11 billion, a substantial decline from the N1.48 billion tax expense incurred in Q3 ’23.
The improvement in tax expense contributed to the company’s improved financial performance, enabling it to post a profit after tax of N6.57 billion in Q3-24, compared to the N1.09 billion loss after tax reported in the third quarter of 2023.
UNILEVER’s outstanding Q3-24 performance was further evident in the company’s earnings per share (EPS), which surged to N1.14 from N0.59 in the same period of the previous year.
This trend continued in the first nine months of 2024, with UNILEVER reporting an EPS increase to N1.92, significantly higher than the N1.30 EPS recorded in the same period of the previous year.
UNILEVER reported a 54.5 percent year-on-year growth in revenue for Q3-24, and a 45.8 percent year-on-year increase in revenue for the first nine months of 2024, largely fueled by significant gains in the Food Products, Personal Care, and Beauty & Wellbeing segments, with Food Products contributing 60.8 percent of total revenue with a 60.4 percent year-on-year increase, Personal Care contributing 31.2 percent of revenue with a 43.7 percent year-on-year increase, and Beauty & Wellbeing contributing 8.0 percent of revenue with a 56.1 percent year-on-year surge.
As highlighted by analysts at Cordros Securities, UNILEVER’s strong revenue performance in Q3-24 was primarily driven by higher pricing across its product portfolio, with prices reportedly increased by approximately 35.0 percent.
In addition, the company’s export sales registered a 270.9 percent year-on-year growth, contributing 6.1 percent of the total revenue and supported by favorable FX rates. The company’s revenue also recorded a 26.4 percent quarter-on-quarter growth, reflecting the impact of the price adjustments.
Despite the significant increase in cost of sales, driven by inflationary pressures and naira depreciation, UNILEVER’s gross margin recorded a 435 bps improvement, reaching 41.7 percent in Q3-24 from 37.4 percent in the same period of the previous year.
The improvement in gross margin was attributed to the robust revenue growth of 54.5 percent year-on-year, which mitigated the negative impact of the rising cost of sales, which grew by 43.7 percent year-on-year.
UNILEVER’s Earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins experienced a decline in Q3-24, largely due to an increase of 111.3 percent year-on-year in operating expenses, which was primarily driven by a substantial 14.4x year-on-year increase in brand and marketing expenses.
The substantial rise in OPEX was attributed to the effects of naira devaluation on foreign-denominated obligations, as well as inflationary pressures, which increased the costs of conducting business operations.
Meanwhile, UNILEVER’s net finance income recorded a 10.4x year-on-year growth in Q3-24, reaching N1.00 billion from N87.94 million in Q3-23, as a 210.3 percent year-on-year growth in finance income outweighed the 115.8 percent year-on-year rise in finance costs.
The major factor behind the significant growth in UNILEVER’s finance income was a substantial foreign exchange gain on bank balances, amounting to N1.85 billion in Q3-24, compared to an exchange loss of N127.74 million in the same quarter of the previous year.
Analysts at Cordros Securities commended UNILEVER’s commendable revenue growth and significant improvement in gross margin in Q3-24, but also acknowledged that the company’s financial performance remains under pressure from rising operating expenses, largely attributable to the impact of naira devaluation and inflation on its business operations.
While UNILEVER’s revenue growth and gross margin expansion are expected to remain solid in Q4-24, driven by continued price increases and increased consumer demand during the festive season, particularly in the Food Products segment, the persistent rise in operating expenses and currency challenges could threaten margin sustainability.
Nevertheless, Cordros Securities anticipates that UNILEVER will conclude the year on a positive note, buoyed by its robust revenue growth, low debt levels, and beneficial exposure to rising interest rates, which are expected to provide a strong foundation for earnings.
