Unilever Nigeria: Increase in provision for bad trade receivables despair performance

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By Kayode Tokede

Despite improving revenue and hike in impairment loss on trade receivables, Unilever Nigeria Plc reported another poor performance in its 2020 unaudited result and accounts to underline difficult operating environment.

The company maintained its poor performance for the second consecutive year amid making provision for bad trade receivable.

Nigerian NewsDirect gathered that the household company reported N1.08billion impairment loss on trade receivables in its financial year ended December 31, 2020 unaudited results as against N721.85million reported in full year ended December 31, 2019.

The house hold company had reported impairment loss on trade receivables that grew by 131.8 per cent to N721.85 million in 2019 from N311million in 2018.

As the company continued to make provision for its trade receivable, our correspondent gathered that trade and other receivables dropped by 17.2 per cent to N19.9billion in 2020 from N24.13billion reported in 2019.

Unilever’s revenue increased by 1.34 per cent to N61.57billion in 2020 as against N60.76billion reported in 2019.

The multinational company had report 40.2 per cent and 35.9 per cent y/y decline in revenue in Q2 2020 and H1 2020 results respectively.

Unilever’s reported revenues from two major segments, Food Products, and Home & Personal Care. Each division showed mixed performance in the year under review.

As expected, the more essential Food segment gained nine per cent to N34.7billion in 2020 as against N31.91billion reported in 2019 while Home and Personal Care (HPC) segment dropped by about seven per cent to N26.9billion in 2020 from N28.8billion reported in 2019.

Unilever reported decline in its HPC revenue, to signal severe competition going in the Fast-Moving Consumer Goods (FMCG) market 2020 year amidst weak consumers’ purchasing power, coupled with double digit inflation rate.

Beyond the obvious challenging operating conditions that characterized the period, amid lockdown in the two states where the company’s factories are located (Lagos and Ogun state) in April and May-2020, management’s decision to tighten credit terms in 2020 in order to address rising trade receivables and excess stock-in-trade, remains a key driver of losses reported in 2020.

Overall, competition in the trading environment remained intense, during the period amid declining purchasing power mar the company 2020 performance and the management might not declare dividend.

In Nigeria, Unilever operates in an FMCG market that is dominated by other big names like Nestle Nigeria Plc and Cadbury Nigeria Plc.

The stiff competition this entails, coupled with other factors such as high operating costs and a difficult economy, caused the company’s underperform in the period under review..

The 2020 results reflect challenging trading conditions and the management decision in third quarter to prioritize tightening of credit terms and minimize exposures on trade receivables. The adverse impact on revenue spill over into subsequent quarters.

Amid increase in revenue, the company’s cost of sales also dropped by 11.6 per cent to N47.79billion in 2020 from N54.09billion in 2019, thanks to lower commodity prices induced by the COVID-19 pandemic as well as weaker production activity on the back of weaker demand.

This brings the company’s gross profit to N13. 8billion in 2020, 106.5 per cent higher than N6.67billion reported in 2019. Consequently, COS/Revenue increased from 89.02 per cent to 77.6 per cent in 2020.

Unilever Nigeria’s Total Operating Expenses (OPEX) dropped by 3.39 per cent to N15.8 billion in 2020 from N16.4 billion reported in 2019.

The breakdown revealed that Selling and distribution expenses declined by 10.5 per cent to N2.82billion in 2020 from N3.15 billion in 2019, as did marketing and administrative expenses which collectively stood at N12.99 billion; representing a 1.68 per cent reduction compared to N13.2billion in 2019.

For the year under review, Unilever Nigeria reported 20.4 per cent decline in finance income to N1.47 billion in 2020 as against N2.86billion in 2019 while finance costs dropped by 73 1 per cent to N223.3million compared with N824.15million reported in 2019.

In the year under review, the company reported a loss before taxation of N1.96billion in 2020 as against N8.64billion reported in 2019.

Unilever Nigeria paid N363.9 million tax in 2020 as against N4.42. billion in 2019 to position 2019 loss of N1.59 billion in 2020 as against N4.2 billion reported in 2019. Due to the foregoing, it is not surprising that the company’s earnings per share attributable to shareholders closed at negative N0.28 in last year as against N0.74 in prior year.

Total assets not left out from weaker performance

Unilever Nigeria’s total assets also showed weaker performance over decline in current assets that includes Inventories, trade and other receivables.

For the year under review, the company reported 18.4 per cent decline in total assets to N97.96 billion as against N103.7 billion in 2019.

As current assets dropped by 2.4 per cent to N69.7billion in 2020 from N71.5billion reported in 2019, Non-Current Assets moved from N32.22billion in 2019 to N28.23bnillion reported in 2020.

Meanwhile, total equity also dropped by 2.4 per cent to N64.94billion in 2020 from N66.53 billion reported in 2018.

Given the stability of both selling prices and the naira exchange rate during the period, we should mention that production costs, and consequently gross margin rose to 22.37 per cent in 2020 from 10.98 per cent in 2019.

Conclusion 

Unilever is one of the world’s leading suppliers of Beauty & Personal Care, Home Care, and Foods & Refreshment products with sales in over 190 countries and reaching 2.5 billion consumers a day. It has 150,000 employees and generated sales of €52 billion in 2019.

Over half of the company’s footprint is in developing and emerging markets. Unilever has around 400 brands found in homes all over the world, including Dove, Knorr, Dirt Is Good, Rexona, Hellmann’s, Lipton, Wall’s, Lux, Magnum, Axe, Sunsilk and Surf.

However, local investors will want to know how much of the N19.9 billion in receivables can be recovered and how much further write-downs the company might need to take next year.

They will also want to know how it intends to compete now following its new stiff credit policies.

The management of Unilever needed to find means to grow topline or it will need to cut down severely on operating expenses. There are bound to be tough decisions in the coming year to grow revenue and profit in order to commence dividend payout to shareholders.