Unilever Nigeria: Is first half-year loss in over 5 years bad omen for FMCGS? - Businessday NG
  • Monday, December 30, 2024
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Unilever Nigeria: Is first half-year loss in over 5 years bad omen for FMCGS?

Unilever Nigeria closes Homecare, Skin Cleansing businesses

Unilever Nigeria

Unilever Nigeria posted its first halfyear 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.

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.

Read also: Unilever see share price and gross profit drop by 60 percent in 3 years

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 Lagos- based CSL Stockbrokers are looking beyond the pandemic lockdowns to the age-long 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.”

The declining spending power of households following the recession in 2016 led to a shift in consumer demand patterns in favour of value brands. As a result, some listed FMCG brands faced new fierce competitions from smaller players that appealed to the needs of Nigerian customers for products that were more affordable given lower income levels.

This trend also affected other segments of the consumer goods market like the beer industry and forced some older players to change their competitive strategies and also create new products or repackage existing ones (sachetization).

Add new worries like rising inflation and recent currency devaluations, which erode consumer purchasing power further and raise the cost of production for manufacturers, the odds seem to be stacked up against FMCGS as adjusting prices might lead to further loss of market share to cheaper brands.

Last year the portion of production cost in sales revenue for seven Nigerian listed FMCGS, which is simply the direct cost margin, rose 300 basis points to 72 percent in the first six months compared to 69 percent in the corresponding period of 2018. This implies players paid more on actual cost-related expenses relative to their revenue.

Also, the underwhelming second quarter performance of Unilever wiped its q1 2020, thereby affecting its half year 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.

According to its 2020 half-year financial report, the company reported a revenue decline on a year- on- year basis of 39.1 percent to N14 billion in the second quarter (q2) of 2020 from N23.4 billion in the same period of 2019. But on a quarter- onquarter basis, revenue increased by 5.1 percent to N14.0billion in q2 2020 from N13.3bn in q1 2020.

Company Financials Highlight

Revenue fell 35.9 percent year-on-year to N27.3bn in the first half of the year. Between April and June, Unilever sales rose 5 percent on a quarterly basis but slumped around 40 percent compared to the same period last year.

The company suffered more decline (-43 percent) in Home/ Personal Care ( HPC) segment than in its food business (- 29 percent).

Unilever Nigeria Plc manufactures and markets consumer products primarily in the home, personal care and foods categories. The Company sells products such as Omo washing powder, Key soap, Royco bouillon, Lipton tea, Pears baby care goods, Vaseline petroleum jelly, Lux soap, and Close Up toothpaste.

The faster decline in revenue meant Unilever made N26 from every N100 sales as gross profit, almost N3 less from last year.

In the period, Unilever managed its operating expenses better but was unable to turn the tide as it suffered impairment loss on its trade receivables.

Other income rose to N48.5 million from N28.9 million in the first halves of 2020 and 2019 respectively.

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