• Wednesday, April 24, 2024
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Cost cuts, reduced debts, smaller packaging: How Nestle, PZ, Cadbury are braving the tough economy 


The macroeconomic environment (slow growth, high inflation) has been menacingly scorching for Fast Moving Consumer Goods Firms (FMCGs) as they are finding it practically difficult to break even, even as the industry is the most susceptible to a sluggish economy.

Double taxation, low consumer purchasing power, poor regulations, multiple levies, and decrepit infrastructure like the Apapa gridlock are the monsters tormenting industry operators.
However, amid these myriad of challenges, some firms are thriving, thanks to the introduction of innovative products, deleveraging exercise, cost control mechanism, and investment in Research and Development (R&D).

For instance, Nestle Nigeria plc, the fourth largest listed firm by market capitalisation, has been leveraging its R&D capacity as it continues to develop a wide range of high quality nutritional offerings to meet consumer needs.

These products have continued to contribute to earnings and margin expansion, thanks to strong growth in the beverage business, as the Milo Ready To Drink (RTD) pack and Maggi seasoning continue to gain widespread acceptance in the market place.

Last year, the company opened a N4.10 billion RTD factory in Agbara, Ogun State, and it has invested N74.10 billion on its operations in five years.

Nestle’s net income jumped 22.34 percent to N26.24 billion in the second half of 2019 as against N21.45 billion in June 2018, while gross margins moved to 46.57 percent in June 2019 from 41.10 percent the previous year.

“Nestle is trying to reduce exposure to foreign exchange risk. The company sources about 80 percent of its raw materials locally, which gives it an edge over competitors that have their goods trapped at the Apapa Port,” said Opeyemi Ani, consumer goods analyst at Cordros Securities Limited.

Ani said PZ Cussons has embarked on cost rationalisation whereby segments that are no longer contributing to group revenue are deleted or merged.

Cadbury Nigeria plc recorded its best performance in five years, a stellar performance it attributes to cost-cutting measures, effective marketing strategy and superlative performance of its product brands.

For instance, Cadbury re-launched its iconic cocoa beverage drink, Bournvita, in line with consumer tastes and preferences.

The company’s Cadbury Hot Chocolate 3-in-1 brand, its treat portfolio, recorded substantial growth, driven by its unique offering, while the gum and candy brands also recorded success in their respective categories.

Cadbury’s gross margins increased to 21.29 percent in June 2019 from 16.02 percent the previous year, while it recorded a profit after tax of N669.93 million as against a loss of N423.67 million the previous year.

Flour Mills Nigeria plc, the largest miller by market capitalisation, had raised rights issue to reduce debt and bolster earnings.

The strategy has yielded fruit as finance cost has fallen by 26.51 percent to N4.55 billion in the period under review while net income jumped by 16.08 percent to N4.23 billion as at June 2019. Earnings were also supported by the large food products portfolio.

In order to magnify its share of the market and deliver higher returns to shareholders, the management of NASCON Allied Industries plans to increase refined salt capacity by 250kMT in 2019.

Analysts at Cordros Securities Limited in a recent note to clients said they see a strong opportunity for sector players in the refined salt space following the implementation of higher import duty on refined salt by the Federal Government to 70 percent.

NASCON expanded its seasonings production capacity by 1.5kMT (lifting the overall capacity to 5.24kMT/yr) in the first quarter (Q1) of 2019 to take advantage of the growth potential in that segment.

While Unilever Nigeria plc has no plan to launch new product, it intends to move into non-saturated market. It launched its “Everyday Essentials” store on the JUMIA platform in order to drive sales.

“They can’t compete because of the operating environment and the only way for them to stay afloat is to go retail,” said Yinka Ademuwagun, research analyst at United Capital plc.

The sluggish economy and weak consumer spending have also forced a lot companies to roll out sachet products so as to penetrate the low-income market.

“Nestlé introduced single serve packs as a strategy to ensure that consumers continue to have access to the nutritious food they need even in the current economic reality. This is in line with our purpose to enhance quality of life and contribute to a healthier future,” Victoria Uwadoka, corporate communications and public affairs manager at Nestlé, told BusinessDay.