Nestle Nigeria Plc and Cadbury Nigeria Plc are utilizing property, plants, and equipment in generating revenue than peers even as they operate in an industry beset by monumental challenges.
Investors pay attention to the ratio because it shows the extent to which their resources have been used to magnify their earnings, and a higher metric indicates some stocks are a good investment bet.
Nestle, the third largest company by market capitalization, saw fixed a 1.89 percent in June 2019 from 1.86 percent as at June 2018; this indicates that the company generates revenue of N1.80 on every N1 of assets it employs.
Cadbury’s FAT increased to 1.49 times in the period under review from 1.29 times the previous year; this means the company generates revenue of N1.49 in every N1 of assets it employs.
However, Nascon Allied Industries FAT declined to 1.21 times in in June 2019 from 2.87 times the previous year as revenue dipped by 50.28 percent as seen in its half year results.
Dangote Sugar’s FAT fell to 1.20 times in the period under review from 1.36 times the previous year while sales dipped by 4.41 percent in the same period.
Dangote Flour Mils’ FAT ratio fell to 2.26 times in June 2019 from 3.23 percent the previous year as half year sales have fallen by 14.15 percent. The miller has been recording losses since the start of the year, while its owner may dispose it and focus on core business.
Olam International Limited had offered N120 billion for the purchase of all outstanding and issued shares in Dangote Flour Mills not currently owned by it, contrary to its N130m billion initial offers.
The operating environment has been torrid for consumer goods firms in Africa’s largest economy as they have been on the receiving end of a slowing economy.
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.
Amid these monumental challenges, Nestle and Cadbury have been using their product portfolio to deliver higher returns to shareholders.
Nestle’s Milo Ready To Drink pack and Maggi seasoning continues to gain widespread acceptance in the market place, adding impetus to earning.
Last year, the company opened a N4.10 billion RTD factory in Agbara Ogun State, and it has invested N74.10 billion on its operations in 5 years.
Cadbury re-launched its iconic cocoa beverage drink, Bournvita, with a new improved taste in line with consumers’ tastes and preferences.
The company’s Cadbury Hot Chocolate 3-in-1 brand, its treat portfolio, recorded substantial growth, driven by its unique offering, while the gum and candy brands also recorded success in their respective categories.
BALA AUGIE
