Over the last one year, it has been relatively easy for companies to blame the ravaging health pandemic for their poor business performance. While for some this has been rightly so, for others the challenging business performance had very little to do with the pandemic and a lot more to do with blatant cost mismanagement in the organization.
Unilever Nigeria is one good example of terrible cost mismanagement by the operators of the business costing investors billions in dividends.
When Unilever reported a net loss of N110 million in the first quarter of 2021, it would have been so easy to sweep it under the Covid carpet as yet another victim of the deadly disease. However, a closer look at the company’s financials reveals shocking insights.
Unilever reported revenue of around N19.4 billion in Q1 2021, from N13.3 billion in Q1 2020, representing a growth of around N6.1 billion. However rather than see profitability grow from N948 million in Q1 2020 to over N1 billion induced by the super growth in revenue, the company managed to finish the quarter with a loss of N110 million.
The loss performance can be traced to 2 main lines. The erosion of the gross profit margin over the past year as a result of rising inflationary pressures causing gross profit margin to decline from 26 percent in Q1 2020 to 23 percent in Q1 2021. However, the main factor that caused the loss was the N1.5 billion growth in marketing and administrative expenses at a time when most companies have been cutting or maintaining cost efficiency in a bit to protect company profitability.
Unilever reported that its marketing and administrative expenses grew from N2.3 billion from Q1 2020 to N3.8 billion in Q1 2021, representing a growth of around 65 percent. Analysts were all bemused by the growth in company overheads at such a breathtaking space.
Analysts from MoneyCentral find that if the company had not increased its spending unnecessarily in this manner, the company would have posted a net profit more than N1.3 billion in the first 3 months of the year.
A breakdown of the marketing and administrative expense shows that the company grew its spending on brand and marketing from N800.6 million Q1 2020 to N1.3 billion in Q1 2021, representing an addition of nearly half a billion Naira to marketing spend in the first 3 months of the year.
Company Overheads increased from N1.3 billion in Q1 2o20 to N2 billion in Q1 2021, representing a growth of around N700 million while Service Fees more than doubled from N215.2 million to N483.2 million year on year.
Shareholders are not the only losers of this irresponsible increase in the spending on marketing and administrative expense of the company, the government also suffer lower taxation this year than could have been realized from Unilever had the company been more responsible with its spending which would have helped boost profitability.
The company stock is down 6.83 percent year to date and could likely continue its downward trajectory if responsible spending does not return to the company in subsequent quarters.