Production Cost Gulps Unilever’s Revenue, Profit In Q2


Rising production cost outmatched growth in sales revenue for Unilever Nigeria Plc by close to two and half times, which dried up profit in the second quarter. Input costs grew by about N11 billion in the quarter or 67 percent to over N27 billion compared to N6.5 billion or 27 percent improvement in turnover.

The cost-income mismatch of the home/personal care products producer slashed gross profit by 64.6 percent to N2.5 billion and created an operating loss of over N3 billion for the quarter.

Profit after tax dried up from about N2.7 billion in the first quarter to N91 million in the second – down from N110.4 million year-on-year.

Unilever’s half-year interim financial report for the period ended June 2023 shows a reverse of the elevated first quarter performance when sales revenue grew more than four times ahead of production costs – stretching out margins and lifting profit two and half times ahead of turnover.

The company’s management laboured to keep other operating costs in check, cutting down marketing and administrative expenses by as much as 36 percent to N3 billion for the quarter.

Much of the cost saving was however consumed by impairment loss on receivables that surged up from a net write-back of N7 million in the same quarter last year to N1.4 billion in the second quarter.

The huge drop in gross profit and the upsurge in impairment loss are the bad combination that plunged the company’s operating results in the second quarter from an operating profit of over N963 million in the same period last year to an operating loss of N3.3 billion in the second quarter.

A saving grace that prevented a loss for the quarter came from interest income and foreign exchange gains. There was an apparent windfall from finance income that soared from only N172 million in the same quarter last year to over N1.6 billion.

Also, foreign exchange gain changed the reading from a finance cost of over N507 million to a finance gain of roughly N1.9 billion over the same period.

Unilever therefore ended the second quarter operations with a net finance income of N3.4 billion against a net finance cost of N335 million in the same period last year. This enabled it to adsorb its operating loss of N3.3 billion and produce an after-tax profit of about N170 million for the quarter.

The company’s half-year position reflects its poor outing in the second quarter – which added less than N91.5 million to the first quarter profit of under N2.7 billion to close the six months of trading with a bottom line of less than N2.8 billion.

Sales revenue closed at a little over N54 billion, which is an increase of 23.7 percent year-on-year. The cost of sales grew well ahead of turnover at about 39 percent to N41 billion over the same period.

Gross profit went down from N14 billion to N13 billion over the review period. Other operating costs stayed moderated but an impairment loss of about N1.7 billion at the half year against a write-back of N52 million last year slashed operating profit from over N3 billion to less than N1.3 billion at the end of June 2023.

The drop in operating profit was remedied by close to four times lifting of finance income to over N1.7 billion at half year and a foreign exchange gain that absorbed finance cost of about N1.4 billion and added N1.5 billion to finance income – creating net finance income of N3.2 billion at half year.

Unilever was, therefore, able to raise pre-tax profit by a comfortable margin of 51.7 percent year-on-year to N4.5 billion at half-year.

After-tax profit grew by 44.8 percent to N2.76 billion at the end of half-year operations in June 2023.

The company’s poor outing in the second quarter has placed a question mark on whether the home/personal care products makers can maintain the path of recovery and growth for the third year running this year since it returned to profit in 2021 from two years of huge losses.

The company earned 48 kobo per share at the end of half-year operations, which is an improvement from 33 kobo per share in the same period in 2022.

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