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Chinwendu Obienyi
Nigerian consumer companies quoted on the Nigerian Stock Exchange (NSE) failed to generate higher earnings due to the weak macroeconomic state of the economy as shown by their half year results.
This sector comprises companies that are engaged in the production and manufacturing of final goods. In general, these are products and services classified for personal use, specifically intended for the mass market.
The sector is the hardest hit from high cost of imported raw materials, cost of production, tottering infrastructure and pressured consumer wallet. The cumulative net income of 10 companies that have released half-year 2019 results stood at N582.83 billion, a 19.3 per cent drop from the N721.83 billion recorded in the corresponding period of 2018. .
Further analysis showed that five out of the 10 companies’ profits declined. For instance International Breweries Plc’s Profit after tax (PAT) stood at N606.01 million from N2.8 billion in 2018, Nigerian Breweries recorded N13.3 billion from N18.4 billion, representing a 28 per cent decrease, Dangote Sugar Refinery Plc recorded N12.8 billion in 2019 as against N15.27 billion recorded in 2018, NASCON posted N1.44 billion as against N2.20 billion while Unilever Plc recorded N3.5 billion from N5.71 billion.
Post-recession, growth in real household consumption peaked at three per cent in the final quarter of 2017, before falling to 1 per cent in the second quarter of 2018.
Further worsening the already bad position of consumer goods firms is the Apapa gridlock as goods remain trapped at the ports, resulting in disruption in production process, a situation that undermines profit margins.
Analysts have also attributed the decline recorded in the consumer goods sector to dwindling purchasing power and insurgency and attacks by herdsmen in the Northern part of the country.
Speaking to Daily Sun, Senior Research Analyst, Capital Bancorp Plc, Chiazor Victor, said the decline was due to the fact that most of the companies could not increase sales and instead, they incured higher cost.
“If you look at it, most of it is attributed to their inability to increase sales and secondly, their cost was significantly higher. Most of the companies recorded almost 70-80 per cent cost of goods to revenue for the half-year period.
For instance, Dangote Flour recorded about a 111 per cent cost of goods to revenue, this means that their cost of goods was even more than their revenue for the entire period. When you are in a business like that, it is likely that you are not going to make profit. So it all falls to low consumer disposable income. Consumer wallet is actually getting thinner by the day and if nothing is done, we might actually see that trend at the end of 2019. For me, sales have been the major issue and cost of production for their goods. Consumer disposable income has not been growing in the last two to three years”.
Chief Executive Officer (CEO), Cowry Asset Management Limited, Johnson Chukwu, said the main factor behind the decline in the consumer goods sector was down to the shift in necessity goods other than luxurious goods.
“Overtime, consumer purchasing power has been eroded because of inflation and now people are now concentrating on consumption of necessities instead of luxurious or lifestyle consumptions like breweries products and the rest. “
“Also, coupled with the fact that there has not been any adjustment in workers’ emoluments, workers, particularly on fixed income, have had to adjust their consumption pattern with more emphasis on necessities”, Chukwu explained.
For his part, CEO, Perfecta Securities, Emmanuel Ezeh, said, “This decline recorded is down to the low purchasing power of the consumers of the products. Goods are not free but are paid for and so the decline in that sector is down to most people prioritising now and going for needs and not wants anymore.
