BusinessDay

Nestle, Flour Mills buck the trend as industry brace for tough times

When customers tighten their belts, sales of consumer goods firms are under pressure. And in most cases profit slumps while margins are beaten down.

The coronavirus pandemic has forced a people to stay at home and non-essential shops to remain closed, a double whammy for an industry is beset by a myriad of challenges such as decrepit infrastructure, closure of borders, weak consumer spending, and unfavorable government regulations.

On 29 March 2020, President Mohammadu Buhari announced a number of measures to curtail the spread of Covid-19 in Nigeria. Notably, the President announced a 14-day ( 2 weeks) shutdown of economic and physical activities in two states (Lagos and Ogun States) as well as the Federal Capital Territory (Abuja).this was further extended by 14 days (2 Weeks) on Monday, 13 April 2020.

Read also: COVID-19: President Buhari approves waivers of import duty for medical supplies

Analysts at Chapel Hill Denham Limited in a recent report said that Nestle Nigeria Plc and Flour Mills of Nigeria plc will overcome the headwinds as consumers are spending more on foodwhich is largely driven by stockpiling.

“Both companies have a diverse portfolio of brands that are considered as essential items by consumers,” said Abiola Gbemisola, team lead of the research.

“Nestle Nigeria’s premium brand such as Maggi cube and cereals is the kitchen of every consumers, while Flour Mills’ have products that are making inroad into the Nigerian markets,” said Gbemisola.

With an operating cash flow of N49.94 billion as at December 2019, Nestle Nigeria has the financial strength to overcome the headwinds and funds future expansion plans.

On the flip side, the restriction in human congregation in most parts of the country will affect the revenue and earnings of brewery companies such as Nigerian Breweries Plc (NB), Guinness Nigerian Plc (Guinness) and International Breweries Plc (Intbrew).

This is because people can no longer go to bars or hotels as they used before the restrictions.

Brewers are the problem child of the consumer goods sector as weak sales volume and stringent excise duties have deal great blow on bottom lines.

For instance, International Breweries posted a loss of N9.13 to end 2019, as it is struggling with huge debts.

Home care companies such as Unilever and PZ Cussons are not spared the hammer of the economic crisis because consumers are increasing budgetary allocations to food expenditure.

Analysts fret that the disruption caused by the coronavirus pandemic could tip the country into a recession unless government embarks on aggressive stimulus package that will help deflate the economy.

The International Monetary Fund (IMF) has predicted a negative Gross Domestic Product (GDP) of 3.4 percent for the country.

The Minister for Finance, Zanaib Ahmed, has already reduced the government’s projection of 2.10 million barrels a day of production to 1.70 million, and it working to Nigeria’s record $35 billion budget for 2020.

Capitulating to pressure, the central bank devalued the official Naira rate to N360 to the dollar from N305.

The rally in energy stocks led Wall Street higher as Brent crude breached $30 a barrel for the first time since mid-april.

Brent added 10.7 per cent to trade at $30.12 a barrel, rebounding from a drop to less than $16 a barrel last month. West Texas Intermediate was up 16.7 per cent at $23.66 a barrel, setting the US marker on track for its fifth consecutive day of gains and leaving it up more than 80 per cent during the past week.

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