Unilever out of the red, expects first profit in 3 years

Unilever Nigeria Plc has maintained the course of a turnaround from a loss of N1.5 billion in the same quarter last year to a profit of over N1 billion at the end of the third quarter. The company traded at a profit of N368 million in the third quarter, consolidating its position after returning to profit in the second quarter.

Seasonal sales in the final quarter raise hopes further for increased earnings momentum for the company at full year. Unilever is expected to close the 2021 financial year with the first profit in three years after closing the preceding two years with major losses.

Sustained profit in the third quarter is a major enabling factor for the company. It began the financial year with a loss of N491 million in the first quarter, which it has overwritten with an after tax profit of N1.2 billion in the second quarter and topping up with the profit earned in the third quarter.

Among the favourable developments in the company’s operations in the third quarter is an increase in sales revenue and a slight decline in cost of sales. Sales revenue grew by 12.5 percent quarter-on-quarter in the third quarter, slowing down however from 46 percent increase in the first quarter and 41 percent growth in the second quarter.

Despite slowing down, the company has retained the strength of growing sales as a key factor in the turnaround move this year.

The good combination of improving revenue and a decline in input cost led to the outstanding growth of over 60 percent in gross profit in the third quarter. The strong growth in gross profit provided room to absorb moderate increases in selling/distribution expenses and marketing/administrative costs.

Other high points in the company’s operations in the third quarter include a drop in impairment loss on receivables, a complete absence of finance expenses and the appearance of a net finance income. The developments helped to improve a modest operating profit the company earned in the third quarter.

Unilever’s year-on-year earnings numbers show a turnover of close to N59 billion for the nine months ended September 2021. This represents an increase of 31 percent and a sustained upturn from a marginal increase of 1.3 percent in turnover at the end of the preceding financial year.

Sales revenue growth is led by home/personal care product segment of the company at the end of the third quarter. It recorded a year-on-year increase of 44 percent to close at over N28 billion at the end of September. This is a major recovery from a drop of 7 percent for the product segment at the end of last year.

Food products segment of the company’s market also recorded strong growth at 21 percent year-on-year to N30.5 billion, accelerating from a 9 percent growth in the 2020 full year.

The gains on the side of revenue are reinforced by a moderated behaviour on the side of cost. Led by input cost, expenses moderated generally for the company in the third quarter.

At about N43 billion, the cost of sales slowed down from a 37 percent increase year-on-year at half year to a 23 percent increase at the end of the third quarter. This is a continuing slowdown from 51 percent growth in the first quarter.

Sales revenue has been growing ahead of cost of sales since the second quarter. The slowdown in cost of sales is the critical factor in the company’s return to profit since the second quarter.

Cost saving from input expenses swelled gross profit at an increase of 60.5 percent at the end of the third quarter to almost N16 billion. The proportion of sales revenue claimed by cost of sales declined from 78 percent in the same period last year to 73 percent at the end of September 2021.

Other major costs of the company followed the moderated behaviour. Selling/distribution expenses keep slowing down from a 63 percent rise in the first quarter to 34 percent increase at half year and further to 24 percent growth at the end of the third quarter.

Marketing and administrative expenses also slowed down from a year-on-year growth of over 36 percent at half year to less than 29 percent increase to close at N12.4 billion for the third quarter.

Unilever Nigeria closed the third quarter operations with an operating profit of N675 million, marking a turnaround from an operating loss of over N2.8 billion in the same period last year. A net finance income of N738 million added up to a pre-tax profit of N1.4 billion at the end of the third quarter.

A turnaround from two preceding years of losses to profit looks as good as the summary of the earnings story for Unilever Nigeria for the 2021 operations.