Unilever Nigeria Plc lost the operating steam with which it built an after-tax profit of N1.8 billion in the first quarter and finished the second quarter with only N110 million in the bottom line in the quarter. This keeps the company’s profit unimproved at N1.9 billion in the half year.
Despite the dismal performance in the second quarter, however, the company’s profit at half year is an outstanding growth of 167 per cent year-on-year from N715 million profit in the same period in 2021.
The half-year interim earnings report of the home/personal care company at the end of June 2022 shows a sustainable growth in sales revenue for the second year. Quarterly turnover improved from N20.6 billion in the first quarter to over N23 billion in the second, which make up a closing sales revenue of about N44 billion for the company at the half year.
The second quarter recorded an accelerated growth of over 42 per cent in sales revenue quarter-on-quarter compared to a 24.5 per cent improvement in the first quarter. That pushed up the year-on-year revenue growth margin to 35 per cent at the half year.
Profit drought in the second quarter against a stronger sales revenue performance is explained by two major cost increases during the quarter. One is net finance cost of N335 million for the quarter against net finance income of N453 million in the same quarter last year.
The shift is explained by a sharp drop of 63 per cent in finance income quarter-on-quarter to N172 million and an upsurge in finance cost to N507 million over the same period.
The effect on profit reflects the significant contribution of net finance income to profit at over 60 per cent of the pre-tax profit of about N751 million in the second quarter of last year. Conversely, the shift to net finance cost also caused a drop of over 16 per cent in pre-tax profit to N628 million for the second quarter of the current financial year.
The other rising cost line is tax expense of N518 million for the quarter in place of a tax credit of N353 million in the same period in 2021. Tax expenses claimed more than 82 per cent of the pre-tax profit, leading to a drop in after-tax profit from over N1 billion in the second quarter of last year to N110 million in the second quarter ended June 2022.
The results for the second quarter have slowed down the company’s high growth momentum of the first quarter which saw a major turnaround from a loss of N492 million in the same period last year to a profit of N1.8 billion.
An operating advantage for the company is that it is growing sales revenue at a lower input cost than achieved in the preceding financial year. Half-year position shows significant cost saving from cost of sales.
At N29.6 billion, the cost of sales grew by 22 per cent year-on-year, a slower pace than the 35 per cent growth in sales. The cost per unit of sales, therefore, went down from 75 kobo in the same period last year to 67.5 kobo at the end of half year in June 2022. This is a sustaining decline in input cost per naira of sales from 79 kobo in 2020 to 71 kobo at the end of 2021.
Management’s ability to slow down input costs is its key turnaround strategy from a loss of nearly N4 billion in 2020 to a moderate recovery in 2021 and sustaining growth in the current financial year.
With cost savings from input expenses, Unilever achieved a big leap of about 73 per cent in gross profit to over N14 billion in the half year. The strong growth provided adequate room to absorb increases in selling and distribution expenses at 55 per cent to N2.3 billion and marketing and administrative expenses, which grew by 32 per cent to almost N9 billion.
Operating profit is also elevated from only N26 million in the same period in 2021 to over N3 billion at the end of half year in June 2022.
Unilever recorded an upsurge in finance expenses to about N629 million in the half year, which constitute mostly exchange losses of over N430 million. Also, finance income went down by almost 30 per cent to N456.5 million over the period, resulting in a plunge from net finance income of N605 million to net finance cost of N172 million.
The strong growth in operating profit afforded room to absorb the increase in finance expenses and enabled close to five times a jump in pre-tax profit to roughly N3 billion.
Tax expense claimed more than N1 billion of the figure, leaving an after-tax profit of N1.9 billion, virtually unchanged from the first quarter figure. Unilever closed the half-year operations in June 2022 with earnings per share of 33 kobo, up from 12 kobo per share in the same period last year.
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