Performance: Weak revenue performance but efficient cost control 

• UNIL’s net loss increased by 36.1% y/y to GHS 8.0m in HY2022, on the back of weak revenue performance, a surge in restructuring costs and an increase in finance costs
• UNIL’s revenue increased marginally by 1.6% y/y to 304.7m. We believe this subdued revenue performance is due to lower sales volume, as UNIL implemented upward price adjustments across most of its brands in HY2022
• Despite the prevailing inflationary pressures, UNIL kept its cost of sales under control, increasing marginally by 0.2% y/y to GHS 241.6m
• With cost of sales controlled, coupled with upward price adjustments, gross margin improved by 1.1pp to 20.7% y/y
• Operating expenses also increased marginally by 4.1% y/y, led by restructuring cost which increased a little over ninefold (+939.8% y/y) to GHS 7.7m
• Resultantly, operating loss narrowed by 54.9% y/y to a loss of GHS 2.8m. Operating loss margin improved by 1.2pp y/y, declining from -2.1% in HY2021 to -0.9% in HY2022
•  Finance costs increased a little over thirteenfold (+1,332.8% y/y) to GHS 6.8m, as bank overdraft jumped from GHS 19.3m in HY2021 to GHS 85.8m in HY2022. (+345.5% y/y)
• Consequently, net loss margin increased by 0.75pp, from -2.2% in HY2021 to -2.9% in HY2022

Outlook: Inflationary pressures to weigh on sales outturn, while gross margins improve on cost-saving strategies

• We expect the rising inflationary pressures and the growing competition in the FMCG industry to weigh on UNIL’s sales volume outturn in the near term
• Our gloomy outlook is hinged on the basis that, the prevailing inflationary pressures will squeeze consumers’ disposable income, causing them to seek out cheaper alternatives in a highly competitive market
• However, we expect UNIL to aggressively pursue the necessary marketing initiatives to help drive sales. This will also impact the company’s branding and marketing expenses in the coming quarters
• Despite the above, UNIL’s aggressive cost-cutting measures have been effective in both quarters of the year. Moreover, UNIL has reduced its distribution costs by 12.7% y/y and increased its operating efficiency by 1.0pp, by switching to a demand-based distribution model for key distributors and engaging in secondary sales
• In subsequent quarters, we expect these cost-cutting measures coupled with price increases to improve gross margins

Valuation: Under Review 

• UNIL is currently trading at a P/Sales of 1.21x, and we intend to re-initiate coverage in 2H2022