Unilever Nigeria plc has had third quarter (Q3) profit dampened by spiralling finance costs and operating expenses as insecurity in the North part of the country continues to slow growth potentials.

For the nine months through September 2014, the company’s net income dipped by 48 percent to N1.82 billion from N3.50 billion the same period of the corresponding year (Q3) 2013.

Analysts attribute the slow growth at the bottom-line level to spiralling interest costs and operating expenses, as the company may have incurred loans for the purpose of expansion.

Based on Business Day’s analysis, Unilever’s finance costs surged by 21 percent to N1.19 billion from N989.2 million the preceding year, while operating expenses were up by 21 percent to N13.12 billion.

Further analysis reveals that the company’s balance sheet is funded majorly by outside lenders (debt) as debt to equity ratio spiked to 153.34 percent in Q3 2014, from 39.11 percent the preceding year.

Additionally, total debt in the balance sheet increased by 171.57 percent to N10.32 billion in Q3 2014, from N3.80 billion in Q3 2014.

Unilever however had a better management of direct costs attributable to projects as gross profit rose by 54.18 percent to N16.76 billion in 2014, as against N10.87 billion last year, while gross profit margin jumped to 38.41 percent in 2014, compared with 23.32 percent last year.

Cost margins were down to 61.58 percent in Q3 2014, as against 63.47 percent as of Q3 2013, while cost of sales fell by 7 percent to N26.87 billion the preceding year.

The insecurity in the North part of the country is hindering the company from moving its products to the region, a situation that culminated in slow growth at the top-line level.

“Despite the positive economic fundamentals, the company’s revenue continues to be pressured by slowing output plus the Northern insecurity challenges,” said analysts at Meristem Securities Limited, a research and investment firm in an emailed note to Business Day.

Unilever can tap into Nigeria’s large and growing population of 170 million and a rising middle-class with improved disposable income to bolster performance and increased its share of the market.

Across Africa, the middle-class is estimated at 350 million people, or more than the number of people living in the US, according to the African Development Bank.

Incorporated as Lever Brothers (West Africa) Limited on April 11, 1923, Unilever Nigeria plc was 90 year-old in Nigeria on April 11, 2013.

The company’s share price closed at N36.10 on the floor of the Nigerian Stock Exchange, while market capitalisation was N133.57 billion.

November 5, 2014; http://businessdayonline.com/2014/11/high-finance-cost-operating-expense-pressure-unilever-q3-profit/#.VFmulxaE71U