Unilever Nigeria: Q2 Loss Dashes Recovery Hopes
Unilever Nigeria has opened one of the first shots of a stream of earnings disappointments expected to mark company operations generally in the second quarter of this year. The second quarter is expected to reflect the full impact of economic lockdown on companies by way of considerable loss of revenues against sticky costs.
For Unilever Nigeria, the hopes for rising from the plunge at which it closed trading last year have faded with a loss of N1.6 billion in the three months of the second quarter. The loss has wiped off the company’s hope-raising profit of over N1 billion in the first quarter, leaving the bottom line in the red at N519 million for the half-year.
The company had raised expectations for a good turn in fortunes this year with the first quarter result after a deep plunge into a loss of over N4 billion in 2019. A bad turn in fortune in the second quarter has set the conglomerate on the path of a loss for the second year.
Well before the breakout of the coronavirus pandemic, loss of sales revenue has been at the centre of the company’s troubles. The loss margin got quite extended in the second quarter to a height of 40 percent drop quarter-on-quarter. Input cost failed to go down as rapidly as sales revenue, leading to over 63 percent crash in gross profit within the three months.
Pressure from marketing and administrative expenses moderated slightly during the quarter but the figure still means a further significant incursion into sales revenue from the first quarter level. Selling/distribution cost and impairment loss on receivables changed course from drops in the first quarter to increases in the second. That gave rise to an operating loss of nearly N1.9 billion in the three months of the second quarter.
The only major favorable development in the second quarter is a drop in finance expenses from N263 million to N4.5 million quarter-on-quarter, which helped to contain the loss position for the quarter.
Unilever’s report for the half-year operations at the end of June 2020 shows a turnover of over N27 billion, which is a drop of 36 percent year-on-year. This is a sustaining revenue drop for the second year after losing 34 percent of turnover in 2019.
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 in the second quarter with home/personal care products leading the drop at 46 percent – increasing from 40 percent drop at the end of the first quarter.
At over N21 billion at the end of June 2020, input cost failed to maintain the moderated behavior in the first quarter. It dropped less rapidly than sales revenue at 32 percent year-on-year compared to the drop of 36 percent in turnover.
Input cost, therefore, claimed an increased proportion of sales revenue from 74 percent in the first quarter to over 77 percent at half-year. This overturned the improvement in gross profit margin recorded in the first quarter.
Gross profit margin declined from 26.6 percent to 22.5 percent year-on-year. Gross profit went down by 45.6 percent to a little over N6 billion at the end of June 2020.
Selling/distribution expenses declined by just 8 percent year-on-year to N1.7 billion against a drop of 28 percent in the first quarter and the 36 percent drop in sales. Marketing/administrative expenses, on the other hand, changed direction from a 53 percent forward jump in the first quarter to a 3 percent decline to over N5 billion at half-year.
Pressure from costs was reinforced by a year-on-year tripling of impairment loss on receivables to N646 million at half-year from only N49 million at the end of the first quarter.
The result is an operating loss of N1.4 billion for Unilever Nigeria for the half-year, down from an operating profit of N3.8 billion in the same period last year. The company had ended the first quarter with an operating profit of N453 million.
Finance income continued to disappoint at a drop of 29 percent year-on-year to over N849 million at the end of half-year operations. Finance expenses however maintained a downward direction from N357 million to N5 million over the review period.
Unilever Nigeria is therefore still maintaining a big net finance income position – which is one of its saving graces in the bad operating season. The company’s borrowings have dropped further to N494 million at the end of half-year.
Unilever Nigeria closed the first half of the 2020 financial year with a loss of N519 million. This follows a loss of N1.6 billion in the second quarter, which wiped off its opening net profit of N1.1 billion for the year in the first quarter. The company had closed half-year trading last year on a net profit of N3.5 billion.
The company lost 9 kobo per share at the end of half-year, down from earnings per share of 61 kobo for the half-year operations last year. It closed last year with a loss per share of 74 kobo.
The outlook for the year affirms Unilever Nigeria as unable to maintain profit in the face of falling sales revenue. Some strength in sales may be expected in the third quarter but not sufficient to overturn the loss position. Costs are likely to remain on the offensive, which seems to close the room for a rebound any time in 2020.