Finance Cost, Others Plods Unilever’s Profit

Kayode Tokede

Unilever Nigeria Plc unaudited half year (H1) ended June 30, 2022 showed a significant increase in finance cost, cost of sales, and operating expenses that weaken profit before tax to N2.98billion.

The multinational consumer goods company had reported N434.12 million profit before tax in H1 2021 amid steady increase in revenue.

The H1 2022 results showed N628.6million finance cost from N4.47million in H1 2021, driven by N122.5million interest on third-party bank loan and N430.35million exchange difference on bank accounts.

Unilever closed the H1 2022 under review with 22.3 per cent increase in cost of sales to N29.61billion from N24.2billion reported in H1 2021, while total operating expenses rose by 36.4per cent to N11.17billion in H1 2022 from N8.19billion in H1 2021.

The cost pressures is connected with the heightened inflationary pressures on key raw materials, logistics issues and foreign currency constraints faced by companies in that sector.

However, the revenue performance that gained 35.11 per cent to N43.81 billion from N32.42 billion reported in H1 2021, was buoyed by sustained broad-based increase in the Home and Personal Care (HPC) (+31.7 per cent) and Food Segment (+39.5 per cent) respectively.

Sales generated from Home and Personal Care moved to N23.93billion in H1 2022 from N18.18billion in H1 2021, while Food segment sales moved from N14.24 billion in H1 2021 to N19.87 billion in H1 2022.

Unilever’s H1 2022 PBT margin moved to 6.8 per cent from 1.34 per cent in H1 2021.

The company had recovered in its 2021 financial as the global and domestic economy emerged from the Covid-19 pandemic.

The company emerged from 2020 losses to impressive performance in 2021, driven by significant increase in revenue and dividend payout to shareholders but cost of sales and operating expenses remained a threat, calling for caution.

The Directors recommend to the shareholders the payment of a dividend in respect of the year ended 31 December, 2021 of N2.87billion that is, 50 kobo gross per share.

Unilever Nigeria grew its revenue by 35.07 per cent to N70.52billion in 2021 from N52.21billion in 2020, primarily driven by the company’s HPC that gained 47.1per cent, while the Food segment dropped by 10.6 per cent.

Suitably, the HPC segment in 2021 contributed 56 per cent to revenue from 43.6 per cent, while that of the food segment contributed 44 per cent from 56 per cent in 2020.

Unilever with 93 distributors in 2021 as against 102 in 2020, the company reported a domestic revenue (within Nigeria) growth of 37.1 per cent to N69.8billion in 2021 from N50.89billion in 2020, while Export (outside Nigeria) revenue dropped by 42.7per cent to N756.5million from N1.32 billion reported in 2020.

The company’s revenue growth might be supported by higher volumes from its tier four products (launched in 2020), increased investment in its distribution network and marginal price increases in some products.

With the growth in revenue, the company closed 2021 financial year with profit before tax of N1.88billion from N4.54billion loss before tax reported in 2020. Unilever Nigeria’s profit for the year migrated from a loss of N3.97billion to N3.41billion in 2021.

As Unilever Nigeria grew total assets by 9.9 per cent to N118.99billion as of June 2022 from N108.3billion reported in full year ended December 31, 2021, as contribution from trade and other payables played a critical role.

Although the company’s long-term assets dropped by 2.8per cent to N21.76billion inn H1 2022 from N22.4billion in 2021, short-term assets grew by 13 per cent to N97.24billion as of June 2022 from from N85.91billion in 2021.

Trade and other receivables from short-term assets rose by 27 per cent from N18.99billion as of June 2022 from N14.99billion in 2021.

Unilever Nigeria disposed of its tea business to Unilever Tea MSO Nigeria Limited, a related party within the Unilever Group, for a considerable amount of N5.4 billion in 2021.

The Unilever tea business was included in the discontinued operations segment of the financial statement, which revealed that the company had also disposed of property, plants and equipment as well as long service award obligations.

Before the company’s business was discontinued in October 2021, it had a turnover of N9.05 billion from January – to September 2021, a 7.17per cent decline from what it generated in the corresponding period of 2020. However, the tea business moved from a loss position to rake in a profit of N2.72 billion in the nine-month period of 2021.

Conclusion

According to analysts at InvestmentOne research,  “Going forward, we opine that the ability to further increase the prices of product offerings may be constrained due to the intense competition in that space and declining purchasing power of the consumer.

“However, we think that some positivity may be reaped from election spending and volume growth due to management strategy to focus on the mass segment.

“We are less optimistic about the bottom-line performance due to the increased cost pressures emanating from heightened commodity prices locally and globally, high finance cost and FX illiquidity and depreciation, thus, earnings should remain pressured in the near term.”