Unilever Nigeria: On the Road to Profitability?
On the heels of growing revenue, and reduction in impairment loss on trade and intercompany receivables, Unilever Nigeria Plc recorded growth in profit and may return to profit in 2021 full year results.
The company with the growing profit in years ahead might commence dividend payout to shareholders as its failed in paying shareholders dividend between 2019 and 2020.
Previous years dividend to shareholders revealed that the Directors in 2018 financial year recommend to the shareholders, payment of N8.62billion that is, 1.50 Naira gross per share dividend.
In 2017, the directors recommend to the shareholders the payment of a dividend in respect of the year ended 31 December, 2017, of N2.87billion that is, 50 kobo gross per share and in 2016, the directors had recommend to the shareholders the payment of a dividend N378.3million that is, 10 kobo gross per share.
However, the household company in its nine months unaudited result and accounts for period ended September 30, 2021 recorded 31.3 per cent increase in revenue to N58.72billion as against N44.73billion in prior nine months of 2020.
The household company was able to grow revenue domestically in the period, as its strategically positioned to capture market shares.
Drivers’ of Unilever Nigeria’s revenue comprises of Food Products and Home & Personal Care.
Analysis of its results showed that revenue from Home & Personal Care rose by 44 per cent to N28.3billion in nine months of 2021 from N19.6billion in nine months of 2020, while revenue from Food Products gained 21.4 per cent to N30.5billion in nine months of 2021 from N25.1billion recorded in nine months of 2020.
The growth in revenue matched with the company’s 101 key distributors, and one key distributor accounted for more than 10per cent of the Company’s revenue.
Cost of sales for the period rose by 23 per cent to N42.9billion in nine months of 2021 from N34.85billion in nine months of 2020 to position gross profit at N15.9billion in nine months of 2021, a 61per cent increase from N9.88 billion recorded in nine months of 2020.
Consequently, the company’s proportion of CoS/Revenue closed nine months under revenue at 72.89 per cent as against 73.49 per cent in prior nine months under review.
In the unaudited result and accounts, the company’s Total Operating expenses rose by 28 per cent to N14.98billion in nine months of 2021 from N11.7billion recorded in nine months of 2020.
The growth in OPEX was driven by 28.8 per cent increase in Marketing and administrative expenses to N12.4billion in nine months of 2021 from N9.63billion in nine months of 2020, while Selling and distribution expenses rose by 24 per cent to N2.58billion from N2.08billion in nine months of 2020.
Brand and marketing was the major contributing factor to the company’s Marketing and administrative expenses growth in the period, followed by Royalties and Service Fees and overhead.
Brand and marketing rose by 72.6 per cent to N4.66billion from N2.7billion in nine months of 2020, while Royalties grew by 58.99 per cent to N1.43billion from N898.67million recorded in nine months of 2020.
In addition to brand and marketing expenses, the company recorded N6.32billion overheads in nine months of 2021 from N6.03billion recorded in nine months of 2020.
Unilever Nigeria’s impairment loss on trade and intercompany receivables, however, dropped to N205.43million in nine months of 2021 from N429.4million in nine months of 2020.
On finance management, its finance income recorded N133.03million in nine months of 2021 from N34.64million in nine months of 2020 to eventually supported growth in profits.
The bottom line results showed Profit before taxation of PZ Cusson migrating from N2.03billion loss in nine months of 2020 from N286.6million recorded in nine months of 2021.
With tax expenses of N367.98million in nine months of 2021 from N491million in nine months of 2020, the company’s profit closed the nine months under review at N367.98million from a loss of N1.54billion recorded in nine months of 2020.
The nine months results showed a recover for the company as its full year result and accounts marked its recent performance to underline challenging business environment most listed are facing.
The company maintained its poor performance for the second consecutive year amid making provision for bad trade receivable.
The household company reported N1.08billion impairment loss on trade receivables in its financial year ended December 31, 2020 unaudited results as against N721.85million reported in full year ended December 31, 2019.
The household company had reported impairment loss on trade receivables that grew by 131.8 per cent to N721.85 million in 2019 from N311million in 2018.
As the company continued to make provision for its trade receivable, our correspondent gathered that trade and other receivables dropped by 17.2 per cent to N19.9billion in 2020 from N24.13billion reported in 2019.
Unilever’s revenue increased by 1.34 per cent to N61.57billion in 2020 as against N60.76billion reported in 2019.
The multinational company had report 40.2 per cent and 35.9 per cent y/y decline in revenue in Q2 2020 and H1 2020 results respectively.
Unilever’s reported revenues from two major segments, Food Products, and Home & Personal Care. Each division showed mixed performance in the year under review.
Essential Food segment
As expected, the more essential Food segment gained nine per cent to N34.7billion in 2020 as against N31.91billion reported in 2019 while Home and Personal Care (HPC) segment dropped by about seven per cent to N26.9billion in 2020 from N28.8billion reported in 2019.
Unilever reported decline in its HPC revenue, to signal severe competition going in the Fast-Moving Consumer Goods (FMCG) market 2020 year amidst weak consumers’ purchasing power, coupled with double-digit inflation rate.
Beyond the obvious challenging operating conditions that characterized the period, amid lockdown in the two states where the company’s factories are located (Lagos and Ogun state) in April and May-2020, management’s decision to tighten credit terms in 2020 in order to address rising trade receivables and excess stock-in-trade, remains a key driver of losses reported in 2020.
Overall, competition in the trading environment remained intense, during the period amid declining purchasing power mar the company 2020 performance and the management might not declare dividend.
In Nigeria, Unilever operates in an FMCG market that is dominated by other big names like Nestle Nigeria Plc and Cadbury Nigeria Plc.
The stiff competition this entails, coupled with other factors such as high operating costs and a difficult economy, caused the company’s underperform in the period under review..
The 2020 results reflect challenging trading conditions and the management decision in third quarter to prioritize tightening of credit terms and minimize exposures on trade receivables. The adverse impact on revenue spill over into subsequent quarters.
Cost of sales
Amid increase in revenue, the company’s cost of sales also dropped by 11.6 per cent to N47.79billion in 2020 from N54.09billion in 2019, thanks to lower commodity prices induced by the COVID-19 pandemic as well as weaker production activity on the back of weaker demand.
This brings the company’s gross profit to N13. 8billion in 2020, 106.5 per cent higher than N6.67billion reported in 2019. Similarly, COS/Revenue increased from 89.02 per cent to 77.6 per cent in 2020.
Unilever Nigeria’s OPEX dropped by 3.39 per cent to N15.8 billion in 2020 from N16.4 billion reported in 2019.
The breakdown revealed that Selling and distribution expenses declined by 10.5 per cent to N2.82billion in 2020 from N3.15 billion in 2019, as did marketing and administrative expenses which collectively stood at N12.99 billion; representing a 1.68 per cent reduction compared to N13.2billion in 2019.
For the year under review, Unilever Nigeria reported 20.4 per cent decline in finance income to N1.47 billion in 2020 as against N2.86billion in 2019 while finance costs dropped by 73 1 per cent to N223.3million compared with N824.15million reported in 2019.
In the year under review, the company reported a loss before taxation of N1.96billion in 2020 as against N8.64billion reported in 2019.
Unilever Nigeria paid N363.9 million tax in 2020 as against N4.42billion in 2019 to position 2019 loss of N1.59 billion in 2020 as against N4.2 billion reported in 2019.
Due to the foregoing, it is not surprising that the company’s earnings per share attributable to shareholders closed at negative N0.28 in last year as against N.74 in prior year.
Total assets not left out from 2020 FY weak performance
Unilever Nigeria’s total assets also showed weaker performance over decline in current assets that includes Inventories, trade and other receivables. For the year under review, the company reported 18.4 per cent decline in total assets to N97.96 billion in 2020 as against N103.7 billion in 2019.
As current assets dropped by 2.4 per cent to N69.7billion in 2020 from N71.5billion reported in 2019, Non-Current Assets moved from N32.22billion in 2019 to N28.23bnillion reported in 2020.
Meanwhile, total equity also dropped by 2.4 per cent to N64.94billion in 2020 from N66.53 billion reported in 2018.
Given the stability of both selling prices and the naira exchange rate during the period, we should mention that production costs, and consequently gross margin rose to 22.37 per cent in 2020 from 10.98 per cent in 2019.
Footprint in emerging markets
Unilever is one of the world’s leading suppliers of Beauty & Personal Care, Home Care, and Foods & Refreshment products with sales in over 190 countries and reaching 2.5 billion consumers a day.
Over half of the company’s footprint is in developing and emerging markets. Unilever has around 400 brands found in homes all over the world, including Close-Up toothpaste, Pepsodent toothpaste, LUX beauty soap, Lifebuoy soap, Rexona, Vaseline lotion and Vaseline Petroleum Jelly in the Personal Care division of the business; Lipton Yellow Label Tea and Knorr bouillon cubes in the Foods division; and OMO Multi-Active Detergent, Sunlight washing powder, Sunlight washing bar soap and Sunlight Dish washing liquid and Sunlight Multipurpose washing liquid in the Home Care division.
Other Regional and local jewels include the Pears Baby Products range, Glen Tea and Royco bouillon cubes. The Company provides sources of income to tens of thousands of Nigerians who are shareholders, distributors, suppliers, service providers and employees.
However, it is very critical that the company maintain its impressive performance to boost investors’ confidence and declare dividend.
The management of Unilever needed to find means to grow topline to further compete in the FMCG sector and gain more market shares.
There are bound to be tough decisions in the coming last quarter of 2021 to grow revenue and profit in order to commence dividend payout to shareholders by 2022 financial year.