Unilever Nigeria built up another loss of N1.5 billion in the third quarter, on the N1.6 billion it posted for the second quarter operations.
The losses for the two quarters have wiped off the company’s profit of over N1 billion in the first quarter, leaving the bottom line in the red at over N2 million at the end of September 2020.
The performance is fully in line with our position on the company at the end of half-year – that “the outlook for the year affirms Unilever Nigeria as unable to maintain profit in the face of falling sales revenue.
Some strength in sales may be expected in the third quarter but not sufficient to overturn the loss position. Costs are likely to remain on the offensive, which seems to close the room for a rebound any time in 2020”.
The company’s first-quarter performance raised hopes for a turnaround in fortunes this year after it plunged into a loss of over N4 billion at the end of 2019. The losses that have followed in the last two quarters have changed the corporate course from recovery to the path of loss for the second year.
There is however a strong upturn for the company in the third quarter relative to the position in the same quarter last year, which was driven by sales revenue just as we anticipated. Sales revenue came near to doubling on quarter-on-quarter reading at N17.4 billion.
This powered a big leap from a gross loss of N1.7 billion in the third quarter of 2019 to a gross profit of N3.9 billion in the three months to September 2020.
Loss of sales revenue has been at the centre of the company’s troubles and the leap in the third quarter gives a positive signal of management addressing the challenge.
A shift from as high as a 40 per cent drop in sales in the second quarter to a 94 per cent advance quarter-on-quarter in the third quarter represents a lot of ground covered in engineering a turnaround so far.
While the loss of sales revenue was the main cause of the loss in the second quarter, rising costs ahead of even the high growth in turnover explain the loss in the third quarter.
Leading the cost increases in the third quarter are finance expenses, which multiplied more than seven times, impairment loss on receivables, which grew more than four times and marketing and administrative cost which rose by 80 per cent quarter-on-quarter.
Unilever’s report for the nine months of operations ended in September 2020 shows a turnover of over N44.7 billion, which is a drop of 13 per cent year-on-year.
The high growth in sales in the third quarter has elevated the year-on-year position from a drop of 36 per cent at half-year. A further upbeat in the final quarter could level up the shortfall in sales revenue at full year.
The company’s sales are generated from two broad market segments – food products and home/personal care products.
Sales recovered at both fronts in the third quarter with home/personal care products leading the growth. On a year-on-year basis, home/personal care products still accounted for most of the drop in sales revenue.
At almost N35 billion at the end of September 2020, input cost showed a moderated behaviour it lacked in the second quarter. It dropped by 17 per cent year-on-year, which is ahead of the 13 per cent drop in turnover over the same period.
The slowdown in input cost enabled the company to reduce the proportion of sales revenue devoted to the cost of sales from over 81 per cent to slightly below 78 per cent over the review period. Gross profit recovered from a drop of 45.6 per cent at the end of June to a moderate improvement of 2.6 per cent at the end of the third quarter.
Gross profit margin improved from 18.7 per cent to 22.3 per cent year-on-year.
Selling/distribution expenses dropped by 18.7 per cent year-on-year to over N2 billion, also affording some cost saving to the company. Marketing/administrative expenses, on the other hand, rose by 27 per cent to N9.6 billion year-on-year and impairment loss on receivables jumped by 239.6 per cent to over N1 billion at the end of the period.
The cost increases more than consumed the cost savings, resulting in an operating loss of N2.8 billion for Unilever Nigeria at the end of the third quarter. This is a rise of more than three and a half times in operating loss year-on-year.
Finance income continued to disappoint at a drop of almost 70 per cent year-on-year to N561 million at the end of the third quarter. Finance expenses still maintained a downward direction but an upsurge in the third quarter has pushed up the year-on-year figure to N301 million.
Unilever Nigeria still maintained a net finance income position – which is a major saving grace in the bad operating season. The company’s borrowings have not changed at N494 million at the end of September.
The company closed the third quarter with a loss of over N2 billion, a plunge from a net profit of N541 million in the same period in 2019. A tax credit of N539 million lowered the figure from a pre-tax loss of N2.6 billion.
The company lost 36 kobo per share at the end of the third quarter, down from earnings per share of 9 kobo for the same period last year. It closed last year with a loss per share of 74 kobo.