Stakeholders suggest ways to halt poor performance in consumer goods sector

To address the current dismal performance of consumer goods companies in the country, and given the critical role, the sector plays as a core component of real sector and part of the employment generating sectors in the economy, stakeholders in the industry have suggested ways to restore the sector on the path of profitability.

At the NSE-CEO Consumer Goods Sector Interactive Session, organised by the Nigerian Stock Exchange (NSE) players in the industry lament the current tepid performance of the sector.

At the event, suggestions were made on how to halt the woeful trend some of which include tax incentives–to create long-term and sustainable value creation in tax collections, consolidating efforts in the public-private partnership, especially as regards infrastructure, more emphasis on de-risking the consumer goods sector to drive down costs of production to improve margins of companies.

Consumer goods companies are currently feeling the heat of a sluggish economy coupled with harsh operating environment, multiple tax regimes, weak consumer spending and poor infrastructure. Sadly, the inability of these companies to pass the surging cost of operation to cash-strapped consumer means they would have to bear the cost in their books.

This year alone, the consumer goods sector index has declined by 29percent, worse than the overall NSE-ASI Index decline of 14percent, and even worse than the Mainboard index of 22percent.

Currently, retail and wholesale sales make up 16.1percent of Nigeria’s GDP, making retail and consumer goods sales the second largest contributor to the nation’s GDP. Although,  informal trade still accounts for the vast majority of consumer spending.  Nigeria’s massive youthful population coupled with the rapid urbanisation rate remains its selling points for consumer goods companies.

Consumer goods companies such as Unilever, PZ Cussons, Nigerian Breweries, Guinness, Flour Mills of Nigeria, UACN and a host of others are facing difficult times as shown in their financial results.

For beer makers, performance remained underwhelming worsened by the government excise duties, amid tight consumer wallets and intense competitions, with players recording massive growth in net finance cost.

Food maker, Nestle Nigeria plc saw its revenue for the third quarter surged 2.35percent to N69.4bn from N67.83bn in Q3 2018, this was however below analysts’ expectations given that the third quarter has been a strong quarter for the company. Profit before tax dropped 0.6percent to N16.11bn and Profit after tax plummeted 9.1percent to N10.59bn dragged by rising production and operational expenses.

Nestlé’s slower quarter-to-quarter revenue growth is linked to the Beverages segment where revenue declined for the first time in three quarters, by 8.1percent quarter-on-quarter but grew 8.3percent when compared year-on-year.

This is similar to the corresponding period of the previous year, wherein Beverages revenue declined by 7.1percent quarter-on-quarter, which can be linked to weaker demand in the absence of the Ramadan and Easter festivities, which boosted volumes in Q2.

Unilever Plc’s third-quarter revenue slumped 62.9percent y/y which according to management was linked to tighter credit terms with key distributors in a bid to minimize nonperforming receivables. Sadly, its two segments, food, and Home Personal Care (HPC) businesses lost sizeable market share and were down 56percent and down 70percent respectively.