The fragile state of the Nigerian economy coupled with lingering infrastructural challenges have left consumer goods firms in dire need of improved sales as squeezed consumers’ wallet leave sector players worse than previous year, although food producers were better off than peers.
Players in the sector were not only bitten by decline in their top-line which shed some 5 percent in 2018, but they became less efficient in creating value from assets.
Asset turnover, which measures how efficient a firm is in generating earnings from assets, dropped some 0.22 points in full year 2018 for players in the consumer goods space, indicating that firms struggled to utilize assets to create revenue.
On the average, seven consumer goods firms realized N1.15 in revenue for each naira invested in assets in 2018, compared to N1.37 in the preceding year, in which five including Dangote Flour, Champion Breweries, Dangote Sugar, Nestle and Mchinolis had worsened asset turnover figure.
Two food manufacturing giant, Nestle and Cadbury had tangible gains in their asset turnover, and that of Unilever remained almost unchanged.
In addition, the return on assets (ROA) of sampled players worsened some 1.08 percent points on the heels of a double-digit dip of 13 percent in their bottom-line, affirming players’ waned efficiency to grow earnings per asset, although Nestle, Cadbury and Unilever bettered their ROA by 3.52 percent, 1.93 percent points and 1.85 percent points respectively.
“Weak consumer spending and cost pressures constrained their ability to hike prices and protect margin”, said Gbolahan Ologunro, research analyst at CSL Stockbrokers, noting that both factors combined to weigh on their net earnings.
The high rate of unemployment, which soared to 23.1 percent in quarter three of 2018, coupled with slow pace of recovery from 2016 economic slump have seen household become more frugal, slowing revenue growth of companies.
Meanwhile, the inability of producers to keep cost in check amid dilapidated state of infrastructure impeding flow along supply distribution chain, have seen firms post weaker scorecards for 2018.
Despite of industry wide decline, the food segment however grew revenue with the likes of Nestle and Unilever reporting 9 percent each in their top-line.
“Regardless of the thinning pockets of consumers, the food segment has performed better because food commodities inelastic demand” said Yinka Ademuwagun, who furthered explained that consumers would rather cut purchases on electronic than food, a basic necessity of life.
Across segments in the consumer goods space, there were peculiarities in the macro-environment and industry that affected performance. Among the brewers for instance, the expansion of AB-InBev intensified competition, and the introduction of excise duties meant brewers found difficulty in transferring cost burden via price and had to absorb them.
The food millers were beset by the influx of smuggled products which saturated the market with sub-standard and cheap alternatives like sugar.
Of course, given the poor posture of the broad economy, consumers switched to the inexpensive products, lowering industry prices.
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The Apapa axis gridlock was a bottleneck to the flow of goods in and out of production and storage facilities in the Lagos port area. Many producers in their financials didn’t spare words in lamenting the adverse impact the poor state of road infrastructure had on commerce.
Despite International Monetary Fund (IMF) upped its growth projection to 2.1 percent in 2019, Ologunro sees little improvement in consumer spending as he expects producers of inelastic food commodities like palm oil, flourmill and salt to raise prices and offset gains in nominal income.
Ademuwagun however believed that the new minimum wage will better consumer spending, but raises concern on the impact of a possible fuel subsidy on consumers’ pocket.
The sector gained 99 basis points in value after Monday’s trading, outperforming the benchmark index that dip some 22 basis points. The sector has lost 11.86 percent since the start of the year.
