The fourth quarter performance of consumer goods firms is the worst since the recession period as a sluggish economy and decrepit infrastructure continues to hinder them from maximizing shareholders’ wealth.
The disappointing results sent a predawn chill down the spine of investors who have invested their hard earned cash in these stocks.
But analysts who have been paying attention to the industry in last five years will not be surprised that earnings are going up in flames because companies have been recording slow growth in sales since the start of 2018.
Analysis of the fourth quarter financial statement of the largest companies listed on the floor of the bourse showed that aside receding sales, deteriorating margins, and rising debts, free cash flows are shrinking.
For the year ended December 2018, Dangote Flour Mills Plc posted a loss of N1.15 billion, from a profit of N15.13 billion the previous year; the first loss since 2015 when businessman and Africa richest man Aliko Dangote repurchased the miller from South African food giant, Tiger Brands.
Dangote Flour Mills’ gross profit margin fell to 9.11 percent in December 2018 from 29.62 percent the previous year while gross profit fell by 65.43 percent to N10.24 billion as at December 2018.
Similarly, operating profit margin otherwise known as Earnings before interest tax margin (EBIT) reduced to 0.35 percent in December 2018 from 13.21 percent as at December 2018 while operating income dipped by 97.58 percent to N398.34 million.
There are more debts in the capital structure of the miller as debt to equity (D/E) ratio increased to 187.57 percent in December 2018 from 185.89 percent the previous year. The company operating income can no longer cover interest expense as times coverage ratio stood at 11 times operating income, lower than the 5.79 times recorded the previous year.
Nigerian Breweries Plc’s net income dipped by 26.48 percent to N9.98 billion in December 2018 from N13.58 billion the previous year while revenues were down 5.79 percent to N324.38 billion as at December 2018.
The largest brewer by market capitalization in Africa’s largest economy has locked horns with International Breweries and Guinness Nigeria in a beer war that stoked intense competition.
Nigerian Breweries’ gross profit margin fell to 39.13 percent in the period under review from 41.67 percent the previous year while gross profit dipped by 11.56 percent to N126.90 billion as at December 2018.
Operating profit margin or EBIT margin fell to 11.39 percent in December 2018 from 16.58 percent the previous year while operating profit fell by 35.31 percent to N36.95 billion as at December 2018.
Dangote Sugar Refinery Plc’s net income was down by 44.75 percent to N21.97 billuion in the period under review as against N39.78 billion the previous year while sales dipped by 26.44 percent to N150.37 billion as at December 2018.
Smuggling and influx of cheap products have been hurting revenue, but the largest producer of the sweetener continues to intensify its Sugar Master Plan with a view to increasing its share of the market.
As a result of receding sales, net profit margin fell to 14.65 percent in the period under review as against 19.46 percent the previous year.
Nascon Allied Nigeria Plc’s net income dipped by 17.28 percent to N4.42 billion in December 2018 from N5.34 billion as at December 2017 while sales reduced by 4.78 percent to N25.76 billion as at December 2018.
Nascon’s operating profit margin reduced to 23.23 percent in December 2018 from 28.18 percent the previous year while operating profit fell by 21.57 percent to N5.98 billion as at December 2018.
Flour Mills of Nigeria Plc’s net income reduced by 40.39 percent to N7.89 billion in December 2018 from N13.24 billion as at December 2017 while revenue dipped by 6.28 percent to N400.64 billion the previous year.
Operating profit margin fell to 6.81 percent in the period under review from 10.33 percent the previous year while operating profit dipped by 38.24 percent to N27.29 billion the previous year.
Analysts are of the view that consumer goods firms will continue to falter so long as there is no improvement in the living standard of Nigerians.
Of course Nigerians are getting poorer and they are not motivated to open their purse springs due to high unemployment rate and hike in transportation fares.
Nigeria’s unemployment rate increased from 18.8 per cent in the third quarter of 2017 to 23.1 per cent in in the third quarter of 2018, the National Bureau of Statistics (NBS).
According to the World Bank, 87 million people are living below $1.98, which is why they cannot patronize consumer goods.
A report by Steve Hanke, an economist from John Hopkins University in Baltimore, United States, has listed Nigeria, Venezuela, Iran, Brazil and others among the first 10 miserable countries in the world with Nigeria assuming the sixth position.
BALA AUGIE
