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.

Cost Savings

Much of the cost savings was however consumed by an 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 combinations 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.

Foreign Exchange

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 absorb 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

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 costs 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 maker 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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The performance keeps hope alive that the home/personal care products producer could thread the path of recovery and growth for the third straight year, after returning to profit in 2021 from two years of major losses.

The Q1 financial report of the company for the period ended March 2023, shows that costs grew generally at a slower pace than revenue, which stretched out margins and enabled profit to advance two and half times as fast as sales revenue.

The company is maintaining the turnaround strategy of aggressive trimming of input cost that worked for it in the final quarter of last year when a break-out profit of N6.3 billion overturned a third quarter (Q3) loss to deliver profit for the second year.

Sales revenue grew by 19.7 percent quarter-on-quarter to N24.6 billion in Q1, while cost of sales slowed down at an increase of 4.6 percent to N14 billion over the same period.

This is the critical test for the company’s profit capacity — the ability to keep input cost below sales revenue growth. Any time the company misses the balance such as in the Q3 of last year, the bottom line goes red.

The stronger growth in sales than input cost lifted gross profit by 47.8 percent quarter-on-quarter to N10.6 billion. In effect, the company was able to convert N3.4 billion of the N4 billion increase in sales revenue into gross profit during the quarter.

This indicates the ability to realise the naira of sales with a significantly reduced production cost.

The cost trimming strategy was also maintained in the company’s second major expenditure line — administrative expenses but selling and distribution cost failed to comply.

Administrative expenses moderated at an increase of 12 percent to N4.5 billion while selling and distribution cost grew ahead of sales at 24.5 percent to N1.26 billion.

The cost saving from administrative expenses was, however, more than sufficient to absorb the incursion from selling and distribution cost as well an increase in net impairment loss on trade and intercompany receivables to N262 million.

It, therefore, extended the cost saving from input cost, and enabled operating profit to more than double quarter-on-quarter to N5.56 billion at the end of Q1.

A drop of 35.4 percent in finance income to N183 million and an increase of 232.2 percent in finance expenses to N391.5 million during the period created a net finance cost of N208 million — down from net finance income of N163 million in the same period in 2022.

Pre-tax profit grew by 93.6 percent quarter-on-quarter to N4.3 billion while a major increase in tax expenses from N450 million to N1.68 billion, lowered the increase in after-tax profit to 48.7 percent to close at N2.67 billion for the quarter.

Unilever closed last year’s operations with sales revenue of N88.6 billion, which is an increase of 25.6 percent. The revenue figure remains down from the company’s over N95 billion turnover in 2018.

The firm’s after-tax profit grew from N3.4 billion in 2021 to N4.5 billion in 2022, but remains considerably down from N10.67 billion posted in 2018.

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Soromidayo George, director, corporate affairs and sustainable business, Unilever, Ghana and Nigeria, announced the development in a statement.

Cruz is expected to assume management and leadership of the company effective February 1.

He is taking over from Adesola Sobande-Peters who was appointed interim director following the resignation of Yaw Nsarkoh in November.

Until his appointment, Cruz served as chairman, Unilever Sri Lanka.

“Carl has over 26 years’ experience working in Customer Development, and in Marketing roles across Home Care, Beauty & Personal Care and Foods,” the statement read.

“He comes with extensive career in Unilever D & E Markets in Asia (Philippines, Thailand, India and Sri Lanka).

“As Chairman of Unilever Sri Lanka, Carl successfully steered the business to a sustainable and competitive growth trajectory. Mr. Carl holds a Bachelor of Science degree in Marketing from De La Salle University, Philippines.

“The new leadership reflects Unilever’s focus on strengthening its operational effectiveness and reinforces the commitment of the company to its contribution to the socio-economic development of Nigeria.”

Speaking about the business, Cruz said: “Nigeria is an important market with exciting opportunities. Unilever Nigeria has a great team and our ambition is to satisfy consumers’ needs and make sustainable living commonplace.”

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The companies, which also includes Lafarge Africa Plc, Unilever Nigeria Plc, Flour Mills of Nigeria Plc, and China Road and Bridge Corporation Nigeria Limited, will build 19 roads, totaling 794.4km in 11 states across each of the six geopolitical zones of the country.

This is made possible with the signing of executive order 007 2019, which was signed by President Muhammadu Buhari to allow private companies construct and refurbish roads across the country.

Following the order, the two-year-old Nigeria Industrial Policy and Competitiveness Advisory Council (Industrial Council) has chalked a landmark achievement in accelerating infrastructure development for economic growth.

Zainab Ahmed, the minister of finance, who listed the roads at the signing ceremony said the scheme is the outcome of efforts to think outside of the box and deploy new techniques to develop critical road infrastructure in the country.

The executive order is a Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme that enables the federal government of Nigeria leverage private sector funding for the construction or refurbishment of eligible road infrastructure projects.

It focuses on the development of eligible road infrastructure projects in an efficient and effective manner that creates value for money through private sector discipline; and guarantees participants in the scheme timely and full recovery of funds provided for the construction or refurbishment of eligible road infrastructure projects through tax credits.

This executive order is one of the initiatives midwived by the Policy and Regulation Subcommittee of the Industrial Council, which is focused on implementing initiatives to incentivize investment; and reduce smuggling.

Industrialists in the council expressed their willingness to intervene in road rehabilitation and construction in their areas of operation in a thorough and transparent process that ensures the cost of construction/rehabilitation can be recouped, the Federal Ministry of Finance had conceived the idea. It promptly proposed the scheme for the Industrial Council to develop.

The Scheme is widely viewed by stakeholders who have been engaged in the public and private sectors as a quick-win in road construction and enjoys wide-spread acceptance as a means of accelerating growth within industrial clusters.

In his speech at the signing ceremony, Aliko Dangote, president and CEO of Dangote Group, stated that, “the impact is huge because it will allow private sector to use their capital, their know-how and also their efficiency in terms of delivering roads in time and the Nigerian government will be saving billions of naira.”

The Federal Executive Council approved the Industrial Council in March 2017 as a vehicle for partnering with the private sector on the industrialisation agenda to address key hindrances to the growth of manufacturing in the country.

The council, chaired by Vice-President Yemi Osinbajo, aims to increase the contribution of the manufacturing sector to gross domestic product and establish Nigeria as the manufacturing hub for Africa by implementing initiatives aimed at accelerating industrialization by leveraging private sector expertise and capital.

Okechukwu Enelamah, minister of industry, trade, and investment, who is one of its vice chairmen of the council, explained that, “the council’s mandate is to assist the government in implementing initiatives that will enhance the performance of the industrial sector through partnerships with the private sector.”

The leadership of the Industrial Council consists of Vice-President Yemi Osinbajo (Chairman); Enelamah (vice-chairman, public sector); Aliko Dangote (vice-chairman private sector); Aisha Abubakar, minister of state, industry, trade and investment, (Alternate vice-chairman, public sector); and Atedo Peterside (alternate vice-chairman, private sector).

Other infrastructure initiatives which the Industrial Council is facilitating their implementation include the ongoing the deployment of 18,000 KM of fibre across the country to improve broadband penetration; and the generation of additional 4.2GW of power to the national grid.

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