TheCable

Unilever Nigeria Plc has scaled through its operating challenges and returned to profit in the second quarter ended June 2021. It was a big leap forward for the company from a loss of N491 million in the first quarter to a profit of N1.2 billion in the second quarter.

It was also a hope raising result for the consumer goods manufacturer after trading in losses for the preceding two years. Last year, the company reduced its net loss of over N4 billion in 2019 to N1.6 billion and is stepping forward to profitable operations in 2021.

With the profit generated in the second quarter, the company has overwritten its first quarter loss and closed half year operations with an after tax profit of N715 million. This is a rebound from a loss of N519 million at half year in 2020.

From building losses for the third straight year, Unilever is back on track for building value for shareholders. There is a fundamental strengthening of operations that reflects in stepping up sales and stepping down costs. This is the major change in the company’s earnings story that enabled the return to profit in the second quarter.

Improving sales was observed in the first quarter, which was sustained in the second. This is a major change of direction for the company from a slight increase in turnover in 2020. The gains in revenue were boosted by significant costs moderation that elevated margins at the end of half year operations.

The ability of management to keep sales growing despite the challenges in the marketplace is a strong positive signal for Unilever Nigeria in the current financial year. The company recorded an increase of 41 percent in sales revenue quarter-on-quarter in the second quarter, which follows a 46 percent increase in the first quarter.

Growing sales was reinforced by moderated cost – which was a major operating strength the company gained in the second quarter. An increase of 27 percent in cost of sales was significantly below the sales revenue growth of 41 percent in the second quarter.

The moderated cost of input led to a near doubling of gross profit in the second quarter. Other operating costs also slowed down relative to turnover, which resulted in a major rebound from an operating loss of N1.9 billion in the same quarter in 2020 to an operating profit of N588 million for the company in the second quarter.

The combination of improving sales revenue and moderating cost holds the promise for profitable operations for Unilever Nigeria in the 2021 financial year.

A further improvement in the company’s cost-income balance came from an increase in finance income against modest finance expenses in the second quarter. The positive changes elevated the bottom line quarter-on-quarter from an after tax loss of N1.6 billion to an after tax profit of N1.2 billion for the second quarter.

The company’s year-to-date position shows a turnover of N39 billion for the half year ended June 2021. This represents an increase of 43 percent, which is a sustained upturn from a marginal increase of 1.3 percent in turnover at the end of the 2020 financial year.

There is a major recovery in the home/personal care product segment of the company from a drop last year to lead revenue growth so far this year. Sales revenue from the segment grew by over 51 percent to more than N18 billion at half year, rising from a drop of 7 percent at the end of 2020.

Revenue from food products segment of the company’s market grew at a slower pace of 37 percent to N21 billion year-on-year. This is a major acceleration from a 9 percent growth in the 2020 full year.

Cost increases recorded in the first quarter were diluted significantly by the moderated cost behaviour in the second quarter. Input cost rose by 37 percent year-on-year to N29 billion at half year, slowing down from 51 percent rise in the first quarter. This is a change of direction from growing ahead of sales revenue in the first quarter to growing below it at half year.

The slowdown in input cost powered gross profit – which grew by over 60 percent at half year to N10 billion. This is double the 30 percent increase in gross profit in the first quarter. Input cost claimed a reduced share of sales revenue from close to 78 percent at half year in 2020 to less than 75 percent at the end of June 2021.

Selling/distribution expenses also slowed down from a 63 percent surge in the first quarter to a 34 percent increase at the end of half year operations. Marketing and administrative expenses also slowed down at a year-on-year growth of over 36 percent to almost N8 billion.

The company closed the half year operations with an operating profit of N422 million, a turnaround from an operating loss of N1.4 billion in the same period last year. This was reinforced by net finance income of N605 million, which represents a drop 28 percent year-on-year.