The announcement by Unilever Nigeria Plc that it is stopping the production of the legendary OMO, Sunlight and Lux home care brands will be received with shock by most Nigerians because of the popularity of the detergent to the citizens.
The products, especially OMO, an acronym that stands for Old Mother Owl, is Unilever’s largest detergent brand and has become a household name, gaining traction among buyers for over five decades.
The company said it is stopping the production of the most popular detergent in the country because it struggles to sustain its operations in Nigeria.
According to ICIR, the company said it is “exiting the Home Care and Skin Cleansing categories to concentrate on higher growth opportunities,” according to a statement it issued on March 17.
Unilever began trading in Nigeria in 1923, introduced the OMO brand in 1960, and opened a production facility to manufacture the popular laundry brand locally in 1964. In 1982, it opened a factory in Agbara, which still operates to date.
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Formerly known as Lever Brothers (West Africa) Limited, the company changed its business name to Unilever Nigeria Plc in 2001.
“We’re the longest-serving manufacturing company in the country, marking 100 years in Nigeria in 2023,” the company stated.
Sunlight detergent is also popular, but not as OMO, while Lux, another brand of Unilever, has since 1925 been serving consumers, especially women, who take pride and pleasure in their beauty.
The consumer goods company has said it would repurpose its portfolio while putting in place measures to make the business more efficient and future-fit, to meet the needs of consumers, shareholders, and employees.
“The exit of these two categories over 2023 will boost the vision to make Unilever Nigeria great, building on the impressive progress made in other key aspects of the business, and is envisaged to result in overall improvement in profitability, growth and a more sustainable Unilever Nigeria Plc business.
“The Company will in due course review the optimal treatment of redundant resources and assets, in accordance with due process,” Unilever stated.
Move to cut back operations
Unilever had shocked most Nigerians when it announced it was cutting back operations of some of its production in the country.
The announcement to cut production of the key product lines came just two years after the fast-moving-consumer-goods (FMCG) spun off its tea businesses (e.g. Lipton) to a separate legal entity under the Unilever global group.
Stopping operations in some product lines is part of a global brand strategy for Unilever’s parent company to improve profit margins.
Stears, an online new medium, reported that the group had sold off its entire tea business for €4.5 billion, and the Nigerian unit, Unilever Nigeria Plc, earned a one-off income of €6.3 million (i.e. N2.8 billion) — which helped boost profitability in 2021.
In 2017, Unilever had sold off its spreads business, the Blue Band butter, for €6.8 billion, and in February 2023, the British-owned FMCG warned that customers would buy fewer of its products, following a 2.1 per cent decline in volume growth in 2022 and expectations of worse volume growth this year, the reported added.
Inflation, foreign exchange, others take a toll on Unilever’s profit
The ICIR check on the financial position of Unilever showed that the company’s profit margins dwindled in the past two years.
A look into Unilever’s audited financial statement for the year ended December 31, 2022 showed that the company posted a net profit margin of 4.83 per cent and 5.04 per cent in 2021 and 2022 respectively.
Rising interest rates, surging inflationary pressure, and foreign exchange volatility, among other factors, are impacting input costs, operating expenses, and, of course, the general profitability of businesses.
For instance, Nigeria’s monetary policy rate (MPR), the overall benchmark for other interest rates, had throttled to 18 per cent in March, while headline inflation reached an all-time high of 21.91 per cent in February, as the naira slumped to a record low against the dollar at above N800/$1 at the black market.
The Director, Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, had presented in the Centre’s ‘Economic Review for 2022 and an Agenda For 2023’, that “Nigeria’s exchange rate policy settings are stifling business activities, investment and growth, and amplifying macroeconomic risks.”
Comparing key metrics between 2021 and 2022 results
Unilever’s 2022 audited financial result showed that the company’s revenue grew by 25.59 per cent to N88.57 billion in 2022, from N70.52 billion in 2021.
Gross profit rose by 53.11 per cent to N31.18 billion in 2022 from N20.36 billion 2021, after a 14.42 per cent rise in cost of sales to N57.39 billion in the current year, from N50.16 billion in the prior year, which weighed on its gross profit.
Although there was a huge jump in the company’s operating profit, sustained by profit before tax (PBT), however, income tax burden dragged its profit after tax (PAT), also known as net income, to below N5 billion in 2022.
In the review period, operating profit swelled by 568.05 per cent to N7.54 billion from N1.13 billion; PBT rose by 315.82 per cent to N7.81 billion from N1.88 billion; and company income tax increased by 180.98 per cent to N3.34 billion from N1.19 billion. The effect of this was that net income settled at just N4.47 billion in 2022 after rising by 31.03 per cent from N3.41 billion in 2021.
Gross profit, operating profit, and net income are earnings that a company generates, representing a profit at different parts of the production cycle and earnings process.
Last line
The move to cut back on its operations will have its effect on the informal sector, most especially. Unilever said, “In Nigeria, most people don’t shop for our products in supermarkets. Instead, products are more commonly sold in smaller, local stores run by individuals rather than retail companies. Online shopping and digital commerce account for a small but growing fraction of sales.”
