Unilever Nigeria: Rising From The Plunge
Unilever Nigeria has raised hopes of rising from the plunge at which it closed trading in 2019. It had plunged from a peak profit of N10.5 billion in 2018 into a loss of over N4 billion in the year. The conglomerate resurfaced in the first quarter of 2020 with a profit of over N1 billion for the period, raising expectations for a good turn in fortunes this year.
Operating pressures that scathed the company last year are partly persisting and partly abating. The company is still losing sales revenue, which is the centre of its troubles. Input cost, however, has toned down from the excessive turn seen in the second half of last year. That has created a little room to strengthen gross profit.
Overall operating performance is still ruled by the sustaining loss in sales revenue, setting the year-on-year numbers declining from gross profit to the bottom line. That is nevertheless something to cheer compared to gross losses recorded in the last two quarters of 2019.
The pressure from marketing and administrative expenses is persisting and claimed an increased share of turnover in the first quarter. That is partly countered by drops in selling/distribution cost and impairment loss on receivables. Operating profit was down to about one-third of the corresponding figure last year.
The company also lost significant finance income despite a major improvement in cash flow position. The already insignificant finance expenses declined further in the first quarter, which was reinforced by a shift from a tax expense in the same period last year to a tax credit.
Unilever’s report for the first quarter of 2020 shows a turnover of N13.3 billion, which is a drop of close to 31 percent year-on-year. This is further to a drop of 34 percent in sales revenue to about N60 billion in 2019. It was the first revenue drop for Unilever Nigeria in several years last year, which is sustaining into the second year.
The company’s sales are generated from two broad market segments – food products and home/personal care products. It continued to lose sales at both fronts and home/personal care products also continued to lead the drop at 40 percent at the end of the first quarter.
At N9.9 billion in the first quarter, input cost moderated from the excessive level of exceeding turnover in the second half of last year. It dropped more rapidly than sales revenue at 35.6 percent year-on-year at the end of the first quarter compared to the drop of 31 percent in turnover.
Input cost, therefore, claimed a reduced proportion of sales revenue at 74 percent in the first quarter compared to 80 percent in the same period in 2019. This means the company improved gross profit margin over the review period after a sharp drop of 76 percent in gross profit at the end of 2019.
Selling/distribution expenses dropped by 28 percent to N618 million at the end of the first quarter and still claimed a slightly increased share of revenue over the period. Marketing/administrative expenses, on the other hand, kept on growing rapidly at 53 percent to N2.3 billion against the dropping sales revenue. The cost increases were partly remedied by a drop of over 75 percent in impairment loss on receivables to N49 million.
The result is an operating profit of N453 million at the end of the first quarter, which is a drop of 65.6 percent year-on-year but a big leap from an operating loss of N10.3 billion at the end of 2019. Finance income continued to disappoint at a drop of 38 percent year-on-year to over N495 million in the first quarter after a drop of 20 percent at the end of last year.
Finance expenses have changed direction from an 82 percent upsurge to N824 million at the end of last year to a drop from N94 million to N0.6 million year-on-year at the end of the first quarter. The company is therefore still maintaining a net finance income position – which is one of its saving graces in the turbulent times. The company’s borrowings are quite low at N706 million.
Unilever Nigeria closed the first quarter trading with a pre-tax profit of N948 million. A tax credit of N166 million bridged the figure to an after-tax profit of N1.1 billion for the period. This is still a drop of 27 percent from the same period in 2019.
The company earned 19 kobo per share at the end of the first quarter, down from 26 kobo per share in the first quarter of last year. The company closed last year with a loss per share of 74 kobo.
The outlook for the year ranks Unilever Nigeria a watch candidate to see the ability to maintain profit in the face of falling sales revenue. The extent the moderation of input cost in the first quarter will be maintained in the course of the year is also a critical development to watch. The prospects for a repeated pattern of building profit in the first half and losses in the second also need to be placed under check.
Comments are closed.