Unilever: Battling rising costs in highly competitive market

Background

Unilever Nigeria plc was incorporated as Lever Brothers (West Africa) Limited on April 11, 1923, by Lord Leverhulme. It began as a soap manufacturing company and is today one of the oldest manufacturing firms in Nigeria.

After series of mergers/acquisitions, the company diversified into manufacturing and marketing of foods, non-soapy detergents and personal care products. These mergers/acquisitions brought in Lipton Nigeria Ltd in 1985 and Cheesebrough Ponds Industries Ltd in 1988. The company changed its name to Unilever Nigeria plc in 2001.

Unilever Nigeria is a public liability company quoted on the Nigerian Stock Exchange (NSE) since 1973, with Nigerians currently having 49 percent of equity holdings.

Product variety

As one of the oldest surviving manufactures in the country, Unilever thrives on variety. Its products include Blue Band butter, Close Up tooth paste, Knorr cubes, Lipton, Lux soap, Omo detergent, Pears pomade for children, Pepsodent tooth paste, Royco cubes, Vaseline and Lifebuoy.

Financial standing

Un-audited financial statements for nine months ended September 30, 2013, released by the firm and obtained from the website of the NSE showed 9.49 percent increase in revenue from nine months to 2012. Total revenue as of September 30, 2012, was N41, 660,113 as against N45, 614,065 obtained in the same period in 2013. But there was 11.1 percent rise in cost of sales as it surged from N26, 062,996 to N28,958,620 in the corresponding period. Gross profit upped by 6.79 percent, rising from N15, 597,117 to N16, 655,445. Operating profit within the period nosedived by 6.5 percent, from N6, 183, 001 to N5, 783,305. Profit before tax fell by 12.8 percent, from N5, 774,533 to N5, 037,592. Profit for the period, however, fell from N1,173,388 to N760,275, signifying 35.2 percent decrease.

The financial statement also showed that taxes were reduced by 13.09 percent, falling from N1, 767,929 to N1,536,466.

Comment

The financial analysis shows that q-in-q revenue rose by 9.49 percent in 2013. But cost of sales rose by 11.1 percent, showing 1.61 percent difference between revenue and cost. Though gross profit rose by 6.79 percent in 2013, operating profit fell by 6.5 percent.

However, the greatest concern for the company is that there was a 35.2 percent decrease in profit between 2012 and 2013, even though taxes were reduced by 13.09 percent.

By implication, there are concerns on rising cost. Unilever is expected to embrace measures aimed at cutting rising costs at different levels.

Opportunities

There are stiff competitions for Unilever products owing to imports and competition by other emerging companies. It variety should be extended to the manufacture of medicated soap and measures should be mapped out to adopt price discrimination mechanism. Products that incur higher costs should be phased out and those with lesser costs and higher profits should have their quantities increased. Moreover, new markets also need to be found.

By: ODINAKA ANUDU