The environment has been particularly torrid for listed manufacturers in Africa’s largest economy as low consumer spending, decrepit infrastructure, lack of proper regulations have continued to undermine their performance.
To further exacerbate the already anaemic position of players in the industry is the combinations of uncertainties surrounding the forthcoming elections and vagaries of global macroeconomic shocks such as the continuous hike in interest rates by the United States Feds and trade spate between China and the U.S that triggered sells off of developing market stocks.
Data gathered by BusinessDAY shows 24 largest manufacturers listed on the floor of the bourse were unable to turn each Naira of sales invested into higher profit as combined average profit margin remained flat at 11.11 percent.
Cumulative revenue dipped by 3.93 percent to N2.10 trillion in September 2018 from N2.19 trillion the previous year while net profit fell by 9.29 percent to N242.64 billion the same period.
The major drivers of the stagnation were the consumer goods sector, Industrial goods sector, and the pharmaceutical sector, but some firms buck the trend as they recorded double digit growth in revenue and profit while contemporaneously magnifying shareholders earnings.
A breakdown on a sector by sector basis shows the cumulative average profit margin of 13 consumer goods firms fell to 5.74 percent to 5.74 percent in September 2018 from 6.67 percent the previous year.
However, amid the myriad of challenges hobbling the industry, Unilever and Nestle Nigeria recorded margin expansion, while Dangote Sugar’s, Nacon Allied’s, and Nigerian Breweries’ margins of 14.31 percent, 20.20 percent, and 6.21 percent respectively.
Companies are also struggling with stockpiles or high inventory turnover as it is taking them longer time to sell goods in the warehouse, a worrisome situation that validates reduction in sales figure.
Only Unilever and Nestle recorded increase in revenue, in short, the upick at the top line in 2017 was because a lot them hiked the price of product to compensate for rising inflation.
While the consumer goods firms are struggling to grow revenue, Industrial Goods firms that comprise of Dangote Cement Plc, Northern Cement Company of Nigeria (CCNN), Lafarge Africa, and Beta Glass Nigeria Plc saw combined average net margin increase to 14.39 percent in September 2018 from 13.98 percent the previous year.
The expansions in margins were driven by Beta Glass and CCNN as they recorded the largest expansion while Dangote Cement and Lafarge witnessed margin contractions.
Beta Glass has been recording double digit growth in sales and profit since 2016- a period when a precipitous drop in the price of crude stoked severe dollar scarcity that tipped the country in its first recession in 25 years.
Industrial Goods Index year to date gained 1.96 percent, outperforming the NSE ASI Index of 0.32 percent as at 2:00 pm on Tuesday, according to data from Bloomberg Intelligence.
Analysts are optimistic that players in the industry, especially the cement makers will take advantage of growing population and infrastructure deficit to underpin earnings as cement volumes are expected to increase.
Cement makers are strengthening strategies that will give them the leeway to taking advantage of the above fiscal policy opportunities.
For instance, owners of the 500,000 metric tonnes per annum Sokoto Cement Plant, merged with Kalambaina Cement Company Limited Plant- with 1.5 million metric tonnes per annum- to form a combined entity with 2 million metric tonnes per annum cement plant. Both firms are owed by BUA Group of companies.
Lafarge Africa, the second largest cement producer, with a market share f 25 percent, bought a plant in Calabar, in southeastern Nigeria, that can produce 5 million metric tons of cement a year and is also investing in its South African operation as it seeks to increase capacity to 17.5 million tons from 14 million tons across the continent.
Dangote Cement, Nigeria’s largest cement producer, with 67% market share and cement operations in ten African countries, having invested more than $8bn in cement plant capex, as it seeks to consolidates efficiency optimization across its Pan African operations.
Nigeria economy has been growing sluggishly as bad roads, epileptic power supply, Apapa grid lock, and lack of vision on the part of government have made it practically difficult for manufacturers to thrive.
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.
