Unilever Nigeria Plc is back in the red with a loss of N2.3 billion in the third quarter that ended September 2022. The company only returned to a profit of N3.6 billion in 2021 from two years of losses – N7.6 billion in 2019 and N4.5 billion in 2020.
This is a worse performance for the company than a marginal profit of N110 million eked out of the second quarter. The third quarter has wiped off the company’s closing profit of N1.9 billion at half a year and created a net loss of N338 million for the nine months of operations.
The third quarter interim earnings report of the home/personal care company at the end of September 2022 shows a further loss of the cost-income balance with which it built an after-tax profit of N1.8 billion in the first quarter.
Sales revenue slowed down in the quarter at an increase of 21.5 percent quarter-on-quarter to almost N21 billion but the cost of sales grew two and half times faster at 54 percent to about N18 billion over the same period.
The development has overturned the operating advantage of growing sales revenue at a lower input cost seen at the half year when a significant cost saving from cost of sales was made.
This is a reversal of some progress made in the second quarter when quarterly turnover accelerated from 24.5 percent improvement in the first quarter to 42 percent growth quarter-on-quarter to over N23 billion in the second.
The company’s closing sales revenue of N64.8 billion at the end of the third quarter represents a year-on-year increase of 30.4 percent, which is a slowdown from the 35 percent growth recorded at the half year.
The high growth in the cost of sales slashed gross profit by 46.6 percent quarter-on-quarter in the third quarter to less than N3 billion. The further incursion came from over 46 percent rise in selling and distribution costs in the quarter, which alongside marketing and administrative expenses, built an operating loss of N2.6 billion.
Unilever’s nine-month position shows that cost of sales grew by 32.6 percent year-on-year to N47.6 billion, speeding up from 22 percent growth at half a year. This is ahead of the 30.4 percent increase in sales revenue over the same period.
While sales revenue slowed from 35 percent growth at the half year, cost of sales accelerated, which created room for the loss in the third quarter. The cost per unit of sales went up from 67.5 kobo at the end of half year to over 73 kobo at the end of the third quarter.
The company has therefore lost its key turnaround strategy – cost saving from input expenses that powered the recovery in 2021 and the upturn in the first quarter.
This is reflected in a sharp slowdown in gross profit from a big leap of about 73 percent at half year to a 24.5 percent increase to N17 billion at the end of the third quarter. The slowdown provided insufficient room to absorb increases in selling and distribution expenses at 51.7 percent to N3.5 billion and marketing and administrative expenses, which grew by 20.9 percent to over N13 billion.
The changes lowered operating profit from over N3 billion at the end of half year to about N544 million at the end of September 2022.
Another adverse development is a change from a net finance income of N666 million in the same period last year to a net finance cost of over N70 million at the end of the third quarter.
The resulting pre-tax profit of N473 million could not absorb fully a tax expense of N821 million, leading to a net loss of N348 million at the end of the third quarter. This is against an after-tax profit of N706 million the company posted in the same period last year.
The company’s earnings outlook for the full year is uncertain, as there are no indications of reversing the loss-leading cost-income imbalance in the final quarter.
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