A number of consumer goods firms are sitting on inventory stockpiles not seen since the last recession as they continue to grapple with a myriad of challenges undermining sales.
Stockpiles escalated rapidly over the past year as the 13 largest listed consumer firms saw inventory turnover ratio fall to 2.27 times or 161 days on average in Q3 2018, from 4.50 times or 81.11 days in the corresponding period of 2017.
The figure stood at 3.09 times or 118.11 days in 2016 when a precipitous drop in crude oil price stocked dollar scarcity that paralysed business and tipped the country into its first recession since 1999.
The ratio measures how many times a company sold its total average inventory naira amount in a particular period.
If larger amounts of inventory are purchased during the year, the company will have to sell greater amounts of inventory to improve its turnover.
A low ratio is not good because it means it is taking a firm longer time to sell goods, which will result in lower turnover and hence hurt the bottom line.
The contraction in consumer spend is responsible for the lower inventory turnover because real income has reduced and purchasing power has been impacted, according to Ayodeji Ebo, managing director and CEO of Afrinvest Securities Limited.
“For instance, the demand for milk will only grow with the purchasing power of people,” said Ebo.
Consumer goods firms are struggling to grow sales and bolster margins as Nigeria, with a population of 180 million people, has 87 million people – nearly half its population – in extreme poverty as high inflation environment continues to erode discretionary income.
Nigeria’s economy remains fragile as GDP grew by 1.80 percent in the third quarter of 2018, a downturn from 2.10 percent in the fourth quarter of 2017.
Inflation for the month of December stood at 11.44 percent, which is higher than the 11.28 percent figure for November 2017.
According to a latest report by the National Bureau of Statistics (NBS), production level, new orders, suppliers’ delivery time, employment level and inventories grew at a slower rate in January.
While the report stated that Purchasing Managers’ Index (PMI) in the month of January stood at 58.50 index point, the index, however, grew at slower rate compared to the previous month.
Christian Orajekwe, equity research analyst at Cordros Capital, said that Nigerians suffered significant erosion from naira devaluation and increase in price of fuel while wages are yet to be at par with inflationary consequences of those events.
“After the recession, a lot of middle-income class left the country in search of greener pastures, thus dampening sales volumes as patronage reduced,” said Orajekwe.
Frank Jacobs, former president, Manufacturers Association of Nigeria (MAN), said these challenges are still manifesting in the form of high inventory of unsold finished products, inadequate electricity supply, frequent increases in electricity tariff in the face of poor services from distribution companies and abnormally high interest rates.
For instance, it will take Cadbury 675.13 days to sell its entire products in the 2018 financial period, compared to 75.12 days in 2017.
Nigerian Breweries had a stock turnover of 4.25 times or 85.88 days in September 2018, from 44.78 days in 2017. Revenue dropped by 7.15 percent to N238.06 billion as at September 2018.
Dangote Sugar recorded stock turnover of 2.52 or 114.84 days in 2018, from 6.84 times or 53.62 days in 2017.
Companies recorded improved margins and sales in 2017 financial year as they were able to jack up prices of products while the introduction of a new foreign exchange policy added impetus to operating performance.
But starting from 2018, they were unable to hike prices because consumer wallets are pressured.
The combined sales of the 13 firms dropped by 7.48 percent to N1.11 trillion in the Q3 2018 period, compared with an increase of 30.82 percent in the corresponding period of 2017.
BALA AUGIE
