Finances and tax burdens dry up Unilever’s Q2 earnings


Unilever Nigeria Plc has made two major changes on the cost side which dried up profits from more than N1 billion in the second quarter of last year to N110 million for the three months ending June 2022.

The homecare and personal care company’s semi-annual interim report completed in June shows a rise in net financial income from N453 million to N335 million during the reporting period. There was also a shift from a N353 million tax credit to a N518 million tax burden over the same period.

The company saw a sharp decline in finance revenue of 63% quarter-on-quarter to N172 million, while finance charges increased nearly 46 times to N507 million during the same period.

Net financial income contributed more than 60% of the pre-tax profit of about 751 million naira that the company reported in the second quarter of last year. This year’s decline resulted in a more than 16% drop in pre-tax profit to N628 million for the second quarter.

Tax charges consumed 82.4% of pre-tax profit, leaving the company N110 million in net income. This is a tiny fraction of the over N23 billion in revenue generated by the company for the quarter.

The second quarter results take a heavy toll on the company’s impressive first quarter performance which ended in a turnaround from a loss of N492m in the first quarter of last year to a profit of N1.8bn. naira.

The profit figure for the first quarter was already more than two and a half times the full year profit from continuing operations of N688 million that the company was posting at the end of 2021.

The year-on-year reading shows only an add-on to N1.9 billion after-tax on the company’s profit at the end of the half-year. Revenue continues to improve for the second year, rising from 20.6 billion naira in the first quarter to over 23 billion naira in the second, totaling around 44 billion naira for the half year.

Revenue for the period represents accelerated growth of 35% year-on-year, compared to a 24.5% improvement in the first quarter. Management is pushing sales at a lower cost of inputs than realized in the prior year.

Cost of sales rose at a slower pace than sales at 22% to N29.6 billion for the half. This brought the cost per unit sold down from 75 kobo in the same period last year to 67.5 kobo at the end of the semester in June 2022.

The cost of inputs per naira of sales moderates for the second year for Unilever, falling from 79 kobo in 2020 to 71 kobo at the end of 2021 and 67.5 kobo at the end of June this year.

This reduction is the main driver of the turnaround, moving from a loss of nearly N4 billion recorded by the company in 2020 to a moderate recovery in 2021 and a sustained recovery in the current financial year.

Cost savings from spending on inputs boosted gross profit by almost 73% to over N14 billion during the reporting period. The strong growth provided sufficient headroom to absorb the increase in sales and distribution expenses of 55% to 2.3 billion naira and marketing and administration expenses, which increased by 32% to reach almost 9 billion naira year-on-year.

The developments have reloaded operating profit from just 26 million naira during the same period in 2021 to over 3 billion naira at the end of the half year in June 2022.

Unilever had no interest-bearing debt on its balance sheet at the end of half-year operations, while the surge in financial expenditure stemmed mainly from foreign exchange losses of more than 430 million naira.

The half-yearly reading shows a nearly 30% drop in finance income to N456.5 million and a roughly 14-fold jump in finance costs to around N629 million. This led to a drop in net financial income from N605 million to net financial expense of N172 million during the reporting period.

The sharp increase in operating profit dampened the surge in financial expenses and helped boost pre-tax profit five-fold to around N3 billion.

Tax charges claimed more than 1 billion naira on that figure, leaving after-tax profit virtually unchanged from the first quarter level at 1.9 billion naira.

The company’s half-year closing profit figure remains a record 167% year-on-year growth from profit of N715 million in the same period last year.


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