3 November 2021

UNILEVER 9M2021 Results

In brief

Unilever Ghana (“UNIL” or the “Company”) released its unaudited 9M2021 results last Friday, and while the consumer giant reported substantial revenue growth of 34.3%, it was not enough to reflect in the bottom-line as the Company still battles with high production costs and declining gross margins.

Performance: Still in the red

  • Net losses increased by 62.4% y/y to ~GHS 20.9m on the back of elevated direct cost and inadequate margin insulators
  • The depreciation of the Cedi, as well as supply chain disruptions, impacted cost of sales which rose by 37.6% y/y to ~GHS 365.2m, contributing to margin compression
  • Consequently, despite the 34.3% y/y increase in revenue, gross margins decreased by 2ppts to 15.0% y/y
  • Although distribution and admin expenses were incredibly controlled, dropping by 11.0% y/y and 22.1% y/y respectively, branding & marketing expenses increased by 94.8% y/y due to efforts to integrate and market new variants
  • As a result, operating loss margins deteriorated further to -4.6% y/y from -2.2%, as did net loss margin, which worsened by 84bps to -4.9% y/y

Outlook: Tough to determine

  • While we understand the impact of COVID-19 on supply chain disruptions and a challenging operating environment for consumer firms, we still struggle to comprehend UNIL’s clear strategy for returning to profitability
  • However, we remain bullish on UNIL’s revenue growth momentum given the broad product portfolio and brand equity UNIL possesses as well as the further recovery of the economy
  • We expect the addition of the new Geisha Moringa Black soap, the very well received Pepsodent Charcoal and Herbal to contribute significantly to margin expansion given their premium price
  • UNIL has implemented cost-saving programs as reflected in the decline in admin and distribution expense, to mitigate rising input costs, but that may not be enough to save margins

Valuation: Under Review

We are in the process of re-initiating coverage on UNIL and have therefore placed our recommendation under review.