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Unilever H1 ‘20 result waves warning flag for FMCGS

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Unilever Nigeria posted its first half- year loss since at least 2013, according to available NSE records, suggesting that Fast Moving and Consumer Goods companies (FMCGS) in Nigeria may be up for a significantly challenging year, no thanks to the coronavirus pandemic.

READ ALSO:  Here’s how Unilever performed in the first quarter of 2020

Unilever Nigeria in the six months of the year to June 30 made a loss of N519 million, an anomaly for the household brand that made over three billion profit in the same period last year.

Food Product and Home & Personal Care (HPC) segments in the period came under pressure, especially the latter, as Nigerian consumers held back spending and adjusted their consumption patterns in the light of the coronavirus impact on their income.

“The second- quarter numbers give us an idea of how bad the lockdown was and how it affected some of the players in the industry,” said Abiodun Keripe, Head of Research, Afrinvest Limited. “I am not surprised, these second-quarter numbers are worse off. I expected this.”

On March 31, 2020, the president announced a total lockdown of economic activities in Lagos, Abuja and Ogun states in order to combat the COVID- 19 pandemic. The lockdown was gradually eased starting from May 4.

During that period (April and May), 38 percent of workers stopped working due to disruptions across sectors of the economy, the National Bureau of Statistics (NBS) estimated. The poorest households formed the highest of workers that stopped working ( 45 percent) but the rate was also high for the wealthiest households (39 percent). The middle-class saw a rate of 42 percent, the second-highest.

The impact of the COVID- 19 pandemic had a negative effect on Nigeria households’ total income, as a high rate of households reported income loss since mid- March. 79 percent of households reported that their total income decreased.

The performance of Unilever “continues to reflect the challenging operating conditions as pressured consumer wallet continues to impact sales, while weaker exchange rate, poor FX liquidity and rising inflation continue to impact input and fixed costs,” said analysts at Cordros Securities.

The analysts, however, noted the company-specific issues like unsustainable high marketing and admin expenses, as well as its management plans to sustain investment behind their brands in order to boost volumes.

Consumer analysts like Ayorinde Akinloye at Lagosbased CSL Stockbrokers are looking beyond the pandemic lockdowns to the agelong issue of product elasticity in the sector. “Home and Personal care products are highly competitive now with several alternative brands,” Akinloye said. “For example, Unilever themselves alluded to this when they stated that the consumer market is developing a 4th tier.”

Also, the underwhelming q2 performance of Unilever wiped its q1 2020, thereby affecting its half year ( H) performance. It recorded a 35.9 percent decline in revenue to N27.3billion from N42.7billion in H1

The lockdown of economic activities in Nigeria had a negative impact on Unilever Nigeria Plc, a Fast-moving and Consumer goods company revenue in the three months period ended June 2020.