Over a decade ago, Nigeria’s fast moving consumer goods sector attracted foreign investors who had wagered that the country’s robust demographics and rising middle class would continue to support growth.
Fast-forward to today, global crash in crude oil price that stoked a severe dollar scarcity that tipped the country into its first recession in 2016, decrepit infrastructure, huge energy costs due to unstable power supply, double taxation, and low purchasing power have left companies gasping for breath.
“It’s really tough. The cost of doing business has been on the rise, and firms are unable to pass these costs to the final consumer, whose pockets are squeezed,” said Ayodeji Ebo, managing director/CEO, Afrinvest Securities Limited.
“Because of policy inconsistency, a lot of investors that should partner with government on infrastructure are not doing so. Consumer spending cannot improve without policies that will help create employment and reflate the economy,” Ebo said.
Neither the introduction of the Investors’ and Exporters’ (I&E) FX window in April 2017 that eased liquidity in the foreign exchange market nor a hike in the price of key products could stop the precipitous fall in margins since the start of 2018.
For instance, the combined average net margin of 10 largest listed consumer firms fell to 7.07 percent in March 2019, from 8.93 percent a year ago.
Combined net profit fell by 11.03 percent to N33.13 billion as at March 2019, from N37.24 billion a year ago. This compares with a 39.08 percent increase between March 2017 and 2018, and an uptick of 49.08 percent between 2016 and 2017 periods.
A breakdown of the figures shows Unilever’s net income declined by 47.47 percent to N1.52 billion in the period under review as against N2.89 billion a year ago. This compares with a 80.65 percent increase at the bottom line in 2017 and a 44.73 percent rise in 2016.
Dangote Flour Mills recorded a net loss of N2.89 billion in the period under review, from profit of N1.58 billion a year ago. In the last quarter of last year, the company recorded its first loss in five years since Africa’s richest man, Aliko Dangote, repurchased the miller from South African food giants, Tiger Brands.
NASCON Allied Industries’ net income followed the same downward trajectory as it dipped by 34.59 percent to N694.91 million in March 2019, from N1.06 billion a year earlier. This compares with 32.96 percent increase at the bottom line between 2017 and 2018.
Nigerian Breweries’ net profit was down 10.79 percent to N8.02 billion in March 2019, from N10.20 billion a year ago.
However, only Nestle Nigeria bucked the trend as it has been consistently growing profit and margins in the last three years.
Net profit increased by 49.30 percent to N12.84 billion in the period under review, from N8.60 billion in March 2018. This compares with 3.09 percent uptick at the bottom line between 2017 and 2018 and a 46.67 percent increase between 2016 and 2017.
Nigeria’s unemployment rate is 23.10 percent at the fourth quarter of 2018, according to National Bureau of Statistics (NBS).
While there have been signs of recovery, many sectors are yet to recover from the downturn.
Analysts at Chapel Hill Denham Limited said that 40.0 percent of companies within their coverage, representing 86.2 percent of market capitalisation, recorded a decline in revenues over the first quarter while 35.0 percent of these companies posted weaker after-tax profit.
“Overall, with 83.3 percent of our coverage companies reporting Q1 numbers, broad-based revenue fell by 3.2 percent yoy while PAT rose 7.0 percent yoy,” said analysts at Chapel Hill.
Abimbola Omotola, equity analyst at Chapel Hill, said investors could begin to price in anticipated increase in purchasing power as a result of the increase in minimum mage into the valuation of consumer goods stocks.
BALA AUGIE
