November 21, (THEWILL) – Shareholders of Unilever Nigeria Plc, a major Fast-Moving Consumer Goods (FMCG) firm, will witness another dividend drought this year as the company wriggles out of the loss terrain it slid into about two years ago. Although the food and personal products giant returned to moderate profitability in the first half of the year (H1 2021), culminating in further improved results in the third quarter (Q3 2021), data from its website shows a trend of elongated dividend drought that will attend the multinational firm at the end of 2021.
Evidently, Unilever has not fully recovered from the two recessions that struck Nigeria during the past five years (2016 and 2020). Except in 2018 when it gained the muscle to pay a dividend of N8.61 billion translating to N1.50 per share, the narrative has been a mixture of paltry and moderate returns for the investors.
In 2016, the firm recorded a Profit After Tax (PAT) of N3.07 billion and paid a dividend of N378 million, amounting to 10 kobo per share; it paid 50 kobo per share in the following year, 2017, from a total dividend of N2.87 billion before the 2018 ‘largesse’ made possible by a PAT of N10.55 billion. The profit chapter closed for a while thereafter.
The company began to show signs of post-2016 recession pains after two years when it slumped into the loss trench, booking red in 2019 with a loss of N7.41 billion and another loss of N3.96 billion when COVID-19 struck almost at the time the Nigerian economy suffered the agony of a 15-month land border closure. Like most FMCG firms, Unilever was caught up in the border closure that left a sour taste in the mouths of manufacturing firms.
While there is moderate improvement in revenue, the company battled with high operating expenses as Cost of Sales and administrative expenses escalated. As expected, the firm followed the footprint of its global parent company by effecting an upward adjustment of its product prices the high inflationary trend, which weakened consumers’ purchasing power, resulted in low revenue and a dip in profits.
According to the reports posted on its website, the company’s revenue rose from N69.77 billion in 2016 to N90.77 billion in 2017 representing 30 percent, before it peaked at N92.89 billion in 2018 – an increase of 2.3 percent. It thereafter dropped to N60.48 billion and N61.95 billion in 2018 and 2020 respectively – the two years it booked losses.
Cost of Sales has also shown the effect of the firm’s mixed fortune. In 2016, the company recorded N49.48 billion, which climbed to N57.67 billion in 2017, representing 16.55 percent rise in Cost ot Sales. It rose further to N64.67 billion in 2018 or 12.13 percent before dropping to N55.73 billion and N49.15 billion in 2019 and 2020, respectively.
While the Q3 2021 figures are now in the green and look better than the corresponding period of the previous year’s, they do not show the strength that could create a robust year-end result for the company to declare a dividend in 2021.
Compared to a loss of N1.54 billion in Q3 2020, Unilever posted a PAT of N368 million in Q3 2021. Revenue climbed from N17.39 billion to N18.57 billion in Q3 2020 and Q3 2021, respectively. Cost of Sale showed a slight increase of 0.58 percent from N13.58 billion in Q3 2020 to N13.66 billion in Q3 2021.
Like its global parent company, Unilever, the Nigerian subsidiary is battling with high cost of raw materials and a lot of it is imported. Its case is compounded by the fact that Nigeria has one of the most volatile foreign exchange markets. With the lingering acute dollar shortage, the company passes through the valley of shadow of death to obtain foreign exchange to import raw materials and machinery.
Unilever Nigeria revealed during an investor conference call in Lagos last July that it was being forced to buy dollars above the official market rate in the country. This was attributed to the rationing of foreign exchange by the Central Bank of Nigeria (CBN) due to the shortage of the greenback. The challenge was exacerbated by the COVID-19-induced lockdown and the crash in global oil prices which negatively impacted the country’s external reserve.
Quoting the Unilever Nigeria Finance Director, Adesola Sotande-Peters, Bloomberg said that the company bought the foreign exchange from currency traders and banks at an average of between N440/$1 to N450/$1 in the first half of 2021, as against the N410.80/$1 that it closed on the last working day, representing over 9.5 percent overpayment. The exchange rate has deteriorated as the Naira now exchanges N520/$1.
Sotande-Peters was quoted as saying that Unilever had not seen an increase in dollar supply since the CBN stopped the sales of forex to Bureau De Change (BDC) operators. “We are still waiting to see how liquid banks will be to meet a lot of customers’ demand,” Bloomberg said, adding that Unilever needs foreign exchange to import petrochemicals, a raw material for many of its products.
Speaking at the conference call, the Managing Director of Unilever Nigeria, Carl Cruz, said that in order to ameliorate the impact of the dollar shortage on operations, the company is increasing local sourcing of raw materials to enable it to be forex neutral in the very near future. Like many of its peers, Unilever has intensified efforts at implementing the backward integration policy of the Nigerian government.
The global parent company Unilever, which holds 76 percent stake of Unilever Nigeria, said last July that increasing commodity costs would harm its full-year operating margin, driving shares down on the London Stock Exchange.
Analysts had said that Unilever Nigeria’s inability to source raw materials locally may hamper its growth amid increased insecurity threatening the farmers who belong to the supply chain of the health firm. The company has increased its spending on marketing and distribution with a positive impact on revenue. But the improved figures must be seen in the context of the 2020 results, which were largely affected by COVID-19 lockdowns and border closures.
In December 2017, Unilever opened a $12 million Blue Band margarine factory in Agbara, Ogun state so that it does not have to import margarine from Ghana, as it did in previous years. It also initiated talks with suppliers to switch to a locally-sourced flavoring agent for its toothpaste.
“These are examples of how the Anglo-Dutch group, l rivals, has been forced to adapt its business to cope with a central bank decision to restrict access to foreign currency for the import of certain products since 2015 to boost the economy”, Reuters reported in January 2018.
Major FMCG firms listed on The Exchange recorded significantly impressive performances in their half year (H1 2021) operations, a performance that was far beyond industry expectations. A significant point was that these firms had been waging a battle of dwindling returns since 2018 before the pandemic struck.
The fast recovery of the firms after the double tragedy of the 2020 COVID-19-induced recession and the 15-months land border closure offers hope for the small firms engaged in the backward integration policy.
Backward integration is a practice where companies are encouraged to cultivate their own raw materials by purchasing their suppliers or establishing farms to grow produce for their factories. Though conceived in the 80’s, the policy gained momentum in Nigeria following the crash in crude oil prices which started in the fourth quarter of 2014. The government put the measure in place to save foreign exchange, create jobs, productivity and grow the GDP.
Operators in the SME space belonging to various sectors, especially agriculture and transportation, have benefited from the policy as the FMCG firms take giant strides in supporting and implementing the policy. Governments at the three levels have also benefited from the measure by way of tax revenue, skill acquisition, infrastructure and technology.
Data from the firms’ H1 reports showed that the combined profit of Unilever, Nestle Nigeria, Dangote Sugar, Nascon and Flour Mills of Nigeria hit N52 billion as against N42.6 billion in the corresponding period of 2020, representing a 22 percent up-jump.
Analysts at Investdata believe that Unilever could pay a dividend in 2021. “The company will pay a dividend commensurate with their full year earnings,” Ambrose Omorodion, Chief Investment Officer at Investdata told THEWILL in a note.
The comment of Unilever Corporate Communications Department, which it said would be forwarded through e-mail, was not received at the time of going to press.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
