Nestle Nigeria has utilized its assets in generating higher sales more than peer rivals even amid deteriorating industry average, as a torrid macroeconomic environment makes it difficult for companies to breakeven.
For every Naira of assets Nestle invests in, generates 16.13 percent or N16, that compares with Dangote Sugar, 0.0611 percent of N0.06; Nascon Allied Industries, 0.037 or N0.037; Nigerian Breweries, 0.034 percent or N0.034; Cadbury, 0.024 percent or N0.024.
The asset turnover ratio is an efficiency ratio that measures a company’s ability to generate sales from its assets by comparing net sales with average total assets.
The total asset turnover ratio calculates net sales as a percentage of assets to show how many sales are generated from each dollar of company assets.
While Nestle Nigeria generates higher sales and returns on investment than peers, the industry is still ensnarled in an economic downturn.
The cumulative average asset turnover of the largest consumer goods firms fell to 0.028 percent or N0.028 in June 2019 from 0.038 percent or N0.038 the previous year.
“Companies have not made enough money over the last few years due to economic woes and the sharpest drop in the ratio was in 2016 when a sharp drop in crude oil price that stoked severe dollar scarcity tipped the country in its first recession in 25 years,” said Abiola Gbemisola Investment Research Analyst at Chapel Hill Denham Limited.
A fuel price hike and incessant devaluation of the currency combined with inflationary pressures have left consumers gasping for breath as they have refused their pulse spring.
To add salt to injury, manufacturers are unable to hike the price of product since they had done so in 2017, while lower commodity prices make it easy for smugglers to ship cheap and substandard products into the country.
Dangote Sugar, the largest producer of the sweetener, has repeatedly blamed smuggling for moderation in earnings, but it is optimistic the tide could change if government carry out aggressive fiscal policies.
Nigeria economy has been growing sluggishly as GDP expanded by 2.01 percent in the three months through March from a year earlier; that compares with 2.4 percent expansion in the fourth quarter.
While inflation figure for July fell to 11.08 percent, but the figure still falls below the central bank’s target range of 6 percent and 9 percent.
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 (Q2-18).
Unemployment is expected to remain above 23 percent, keeping consumer spending in check, according to a recent report by Cordros Capital. However, the implementation of the N30,000 minimum wage by the federal government is expected to spur consumer spending.
Analysts say the Buhari led administration should formulate policies that will help alleviate poverty and propel economic growth.
Retailers and manufacturers have to beat the odds before them and prepare for the future because the Nigerian consumer landscape is set for a multitude of shifts.
“By 2025, 55 percent of Nigerians will live in cities or towns, and the country will experience a 50 percent urban growth—the fastest urban growth, globally,” said Ged Nooy managing director of Nielsen Nigeria.
