Analysts and procrastinators, looking through the flames of fire, see a bleak outlook ahead of consumer goods makers, with a strong hunch that companies will struggle throughout 2019.
“Margins will continue to be pressured as long as the economy is harsh and consumer wallets subdued,” said Yinka Ademuwagun – Research Analyst – United Capital Plc
Fuelling such negative prognoses is the delay in the appointment of ministers perhaps more worrisome is that these cabinet members are yet to be assigned portfolio, casting a pall on the policy direction of the President Muhammadu Buhari led administration.
The incessant delay in the implementation of key strategic policies such as the minimum wage increase and power sector reforms has continued to undermine industry growth.
Industry operators have continually complained that unstable powers from the grid have forced them to switch to more expensive energy mixes that are bloating overhead costs.
Nestle Nigeria’s net profit margin, increased by 2.64 percent to 18.24 percent in June 2018 and 2019. This compares with 2.28 percent margin expansion in 2017 and 2018, but lowers than the 12.90 percent expansion in 2016 and 2017.
Unilever Nigeria’s net margins dipped by 3.64 percent to 8.24 percent in June 2019-18, and it also fell by 3 percent in 2018-17, but margins increased by 4.76 percent in 2017-16.
Nigerian Breweries’ margins fell by 2.86 percent to 7.81 percent in June 2019-2018, and margins dipped by 2.45 percent in 2018-17, but margins increased by 1 percent in 2017-2016.
Dangote Sugar’s net margins fell by 1 percent to 13.65 percent in June 2019-2018, this compares with a 1 percent increase in 2017-2016, and this compares with 3.93 percet increase in June 2017-16.
The trend analysis shows that companies were able to turn each aira invested in sales into higher profit in 2017, a period when the introduction of a new foreign exchange policy the central bank eased the flow of foreign currency in the system. Also, companies passed rising cost of production on consumers in form of higher price.
However, the road to higher margins and profitability for the firms appear to be increasingly uphill as economic recovery has been sluggish since the country existed a recession in the third quarter of 2017.
Post-recession, growth in real household consumption peaked at 3 percent in the final quarter of 2017, before falling to 1 percent in the second quarter of (Q2) 2018.
Nigerians are getting poorer as over 50 percent of a population of 200 million live on less than $1.98 dollars a day, as the country overtook India to become the world’s poverty capital.
The country’s GDP expanded by 2.01 percent in the three months through March 2019, from a year earlier; that compares with 2.4 percent expansion in the fourth quarter.
While inflation figure for the month of June fell to a 12 months low of 11.22 percent, the figure, however, falls below the central bank’s target range of 6 percent and 9 percent.
The near term outlook for the consumer goods firms is unimpressive. The macroeconomic environment has not supported growth in revenue. And those growing revenue are not efficient, according to Opeyemi Ani, consumer goods analyst at Cordros Securities Limited.
“They are now going into retail like schematizing their products to meet the need of the low-income earners. It used to be about brand but now winners are those that are able to bring down price,” said Ani.
Further analysis shows Nascon Allied Industries’ net margins was flat at 9 percent in June 2019-18, and it reduced by 6.85 percent in 2018-17, but it rose by 1 percent in 207-16
Ninety-four percent of chief executives of manufacturing companies across the country say congestion at the ports significantly affects productivity, a 2019 second quarter CEOs Conference Index show.
In the survey, which was conducted by Manufacturing Association of Nigeria (MAN), the CEO complained that delays in clearing raw materials and machinery often result in high demurrages which increase production costs and slow down manufacturing operations.
BALA AUGIE
