Consumption slowdown to hit Nigeria beverage makers’ profits in 2016

Tough economic times squeezing the wallets of consumers   in Africa’s largest economy means beverage makers will see profits hit in 2016.

“In Nigeria (B1 stable) we expect alcoholic beverage volumes, and to lesser extent soft drink volumes, to remain under pressure and for consumers to trade down to cheaper brands,” said analysts at  Moody Investor’s service in a note released this month.

Moody’s says Nigeria is to remain a drag on profit growth of parent multinationals such as Heineken the Nigerian market leader with 66.5 percent market share ahead of Diageo subsidiary Guinness which had a 24.7 percent market share at the end of 2014.

Indeed 2015 and the first quarter of 2016 was tough for major beverage makers in Nigeria as their earnings fell on the back of the economic downturn.

Guinness Nigeria Plc, the country’s second-biggest brewer, said revenues fell 65.58 percent to N49.83 billion in the six months through to the end of December 2015 from N55.26 billion the previous year.

Profits after tax were N1.17 billion in the period, representing a 9.82 percent decline from N5.2 billion recorded a year earlier.

For the quarter ended December 2015, Seven Up Bottling Plc’s net margins, a measure of profitability and efficiency fell to 3.70 percent from 9.11 percent the previous year.

Net profit dipped by 50.88 percent to N2.23 billion in the period under review.

The country’s challenging economic problem cannot be wished away overnight so expect the Nigerian consumer to be under pressure for some time, according to Pabina Yinkere, head of research at Vetiva Capital Management.

Nigeria has been hard hit a  more than 60 percent drop in the price of oils to about $45 a barrel since mid 2014.

The economy grew 2.8 percent last year, the slowest pace since 1999. The International Monetary Fund said  growth will probably drop further to 2.3 percent this year.

Rising food and gasoline prices have boosted or accelerated inflation for a six consecutive to 13.70 percent in April as against 12.80 percent the highest pace since 2010, according to recent figures by the National Bureau of Statistics (NBS) .

To further exacerbate the already anaemic position of consumer firms is dwindling government revenue that hindered some states or subnationals from paying salaries as at when due.

This means there will be little money in workers pocket for consumption of beverage drinks.

Analysts are however of the view that the 2016 record budget will eventually trickle down to the top lines of food and beverage companies perhaps by next year.

“In our view, an initial execution of such policy, which should reflect on FMCG companies, is required for investors to aggressively mop up consumer stocks in the market,” said Tajudeen Ibrahim, Head of Research at Chapel Hill Denham (CHD), in a recent email to BusinessDay.

President Muhammadu Buhari, 73, has signed Nigeria’s N6.1 trillion ($30.6 billion) budget, the biggest in the country’s history and up 20 percent from the 2015 budget, as the nation looks to spend its way out of an economic slowdown.Other positive prognoses for beverage and consumer goods firms is a robust population which is expected by the United Nations to grow at an annualized rate of 2.6 percent.

“Household consumption expenditure of Nigeria is likely to expand in the coming years on increased job creation. According to World Bank data, Nigeria’s working-age population predominantly comprises young people, but not more than c.61% are employed,” said analysts at DHL in a its 2016 consumer goods sector report.

BALA AUGIE & CHINWE AGBEZE