Despite myriads of headwinds confronting the Nigerian consumer goods sector yet big industry players are more operationally profitable than peers in Sub-saharan Africa (SSA) and emerging markets (EMS).
Operational profitability, gauged by earnings before interest, taxes, depreciation and amortization (EBITDA) margin, gives investors a bird’s eye view of the current state of a company’s operations and profitability while avoiding getting into the weeds of individual expense lines.
A good EBITDA margin is generally the one that is a higher percentage, which shows the company is able to pay off its operating costs and still has hefty revenue leftover.
According to data compiled by Lagos-based investment firm, Chapel Hill Denham, Nestle Nigeria retained most fraction of profit from revenue in the Nigerian consumer goods space after paying off direct and operating costs.
Nestle’s EBITDA margin printed at 27 percent in the first half of 2019, and this compares with Dangote Sugar ( 25.2%), Dangote Flour (24.9%), Honeywell (20.3%), Unilever (14.5%), PZ Cussons (13.5%), UACN (13.4%), Flour Mills (11.1%) and Cadbury (9%).
On average, Nigerian consumer goods firms retained 17.7 percent revenue as operating earnings, implying that every thousand naira generated as revenue, players’ EBITDA is roughly N170.
In Sub- Saharan and Middle East & North Africa region, Saudi-based Almarai with market value of $16 billion is most operationally profitable, retaining 32.8 percent of revenue as profit after settling direct and operating expenses.
This compares South Africa-based Avi (21.6%); Astral foods (16.1%), Tiger brands ( 11.1%), Pioneer Foods (10.1%); Ghana’s Fan Milk (19%); Saudi’s Dairy & Foodstuff; Morocco-based Centrale Danone (-0.9%), bringing average EBITDA margin for consumer goods majors in the region to 16.2 percent below Nigeria’s 17.7 percent.
Consumer goods majors in emerging markets on average are able to keep 16.2 percent of top-line as operating earnings after meeting direct and indirect expenses.
Breakdown showed Chinese-based Want Want Holdings has the highest operating earnings relative to sales revenue of 24.7 percent.
Other top performers include Nestle India (23.3%), Indian- based Hindustan Unilever ( 21.6%), Nestle Malaysia ( 19.7%), Nestle Pakistan (18.1%), Nestle Sri Lanka (15.8%) and Indonesia Indo Foods (15.7%).
Nigerian consumer goods players are currently struggling with growth since the broader economy slipped into recession which crippled household purchasing power. Also the country’s tough business environment, decrepit infrastructures, Apapa gridlock and sluggish economic recovery are taking toll on players’ performance.
Analysts say government recent policies – freezing of dollar supplies for food imports, proposed hike in VAT rate from 5 percent to 7.2 percent and border closure could further compound players’ woes.
Since the economy exited recession two years ago, household purchasing power has not gained momentum reflective in the country’s declining income per head, which has propelled players to trade cash for credit to stay afloat.
Consumer goods firms are hit hard by the rout on the Nigerian equity market as their shares are trading at their lowest prices in more than three years. A gauge of consumer goods stocks has shed 30 percent since January 2019, underperforming the main equity index that is down 12 percent.
