Food makers, in the first half of 2019, grew net income by single-digit for the first time since players’ bottom-line saw a decline due to the economic downturn of 2016.
With sales growth cooling to its lowest in at least four years, food makers’ woes compound in the six-month period as the rate of increase in combined profit of industry players pared 3.67 times to 8.96 percent.
The rate of growth is the least since a 69.51 percent cut four years ago, although 2017 surge was owing to a base effect.
Amid a challenging operating environment, consumer goods firms are cracking under the weight of weaker household purchasing power while players in the space jostle to keep their market share and spend significantly on advertising.
BusinessDay analysis of Nestle, Cadbury, Unilever and Nascon half-year 2019 results show the sector is still struggling on the heels of a sluggish economic recovery.
In mid-year 2019, food makers recorded combined revenue of N217 billion, the highest in more than five years in absolute term but growth was the weakest since 2016. Revenue in H1 grew by 1.5 percent year-on-year.
Among four food makers in BusinessDay analysis, Cadbury noted the biggest increase as its revenue jumped 10.82 percent to N19.45 billion in the period.
The sector’s cost to sales margin dropped to the lowest in the 5-year period with cost accounting for 60.79 percent of sales. Cost to sales margin dropped 2.79 percentage points in mid-year 2019 which is the most it has declined in the review period.
Among players, Nestle was the most cost-efficient food maker recording a 4.88 percent decline. Analysts at Lagos-based Chapel Hill Denham expect the profitability of Nestle in 2019 to be sustained on improving cost efficiency.
Despite the improvements in cost management, gross profit of industry players grew at 9.26 percent, the weakest in 4 years, at least.
Food makers posted a combined profit of N31.88 billion as bottom-line faltered. This brought net margin, a measure of how much companies retain as profit from sales, to 14.69 percent, the most in the review period.
Nestle had the highest margin retaining N18.50 from every N100 sales while Nascon with N11.17 per hundred naira sales was second-best.
In the period, food players including Nestle, Cadbury, Nascon and Unilever saw cash margin tank to 10.83 percent in the first six months from 32.56 percent posted last year, as cash realized from operations plunged 65 percent to N21.4 percent.
“This reflects the fact that consumer goods firms are not efficient in the way they get revenue,” said Yinka Ademuwagun, an analyst at Lagos-based United Capitals.
“The companies spend a lot on advertising, marketing, distribution and logistics,” which burns cash, he added.
Operating cash margin is cash generated from operating activities as a percentage of sales revenue in a certain period. A higher figure means that a company was able to convert a higher proportion of its sales to cash and a lower figure implies the converse.
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