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.