An increase in selling prices across key products and the improving economic environment has helped bolster the margins of most listed consumer goods firms in the country.
This means that these firms have been able to turn each Naira invested in sales in generating higher profit, which also signals improved efficiency as they turned more input into output.
BusinessDay analysed data from the 2017 audited financial statements of 14 of the largest listed firms in the Nigerian Stock Exchange (NSE) consumer goods index.
The index comprises the most capitalized and liquid companies in food, beverage and tobacco.
The firms are Unilever Nigeria Plc, Cadbury Nigeria Plc, Vitafoam Nigeria Plc, Nestle Nigeria Plc, Flour Mills Nigeria Plc, Nigerian Breweries Plc, Guinness Nigeria Plc, International Breweries Plc, Honeywell Nigeria Plc, PZ Cussons Plc, Champion Breweries Plc, Dangote Sugar Nigeria Plc, Dangote Flour Plc, and Nascon Allied Nigeria Plc.
Net profit margins (the percentage of revenue left after all expenses have been deducted from sales), for the firms on a cumulative basis increased to 7.65 percent in December 2017 from 4.57 percent the previous year.
This compares with a 3.7 basis point drop in margins year on year between 2015 and 2016, periods during which they grappled with a severe dollar scarcity that hindered imports of raw materials to meet production while the devaluation of the currency resulted in foreign exchange losses.
“It’s the combination of the two things; improved liquidity and increases in key product price. It’s more of increases in the price of product to make up for slow sales volume as most of their products are inelastic,” said Ayodeji Ebo, managing director and CEO of Afrinvest Securities Limited.
“The stability in foreign exchange in 2017 prevented most of these firms from booking foreign exchange losses,” said Ebo.
The gross domestic product of Africa’s largest oil producer expanded for three straight quarters last year after a 1.6 percent contraction in 2016, with year-on-year growth reaching 1.9 percent in the final three months of 2017.
The Manufacturing Purchasing Managers’ Index (PMI) closed March at 56.7 index points as business activities in the country continued to grow, according to the a recent report by Central Bank of Nigeria (CBN).
Drilling down into the numbers for consumer goods firms shows that 11 out of 14 firms saw their margins expand in 2017, according to data compiled by BusinessDay.
By comparison only Champion Breweries Plc recorded net profit margin expansion for the 2016 financial year.
Nestle Nigeria Plc’s saw margins grow at the fastest pace among companies tracked by BusinessDay, with net profit margins almost tripling to 13.81 percent in December 2017 from 4.35 percent as at December 2016.
This is followed by Dangote Sugar Plc, the largest producer of the sweetener, which saw net profit margin more than double to 19.45 percent in December 2017 from 8.49 percent the previous year.
“As companies begin to recover, we’re seeing an increase in what they buy from us. Confectioneries, bakeries and beverage companies have increased their demand,” said Abdullahi Sule managing director and CEO of Dangote Sugar Refinery.
Nascon Allied Nigeria Plc was efficient in translating top line impressive sales into bottom line growth (profit) as net margin moved to 19.74 percent in December 2017 from 13.20 percent the previous year.
The stock prices of some of the firms have been rallying in tandem with margin expansion.
Dangote Sugar’s shares have gained 237.79 percent in the last four years to touch down at N21.45 percent as at 2:00 pm close of trading on Friday.
Nascon Allied Nigeria Plc shares are up 240 percent in the last four years to close at N21.20 as at 2:00 pm close of trading on Friday.
Nestle stock is up 36.4 percent since year end 2015 to close at N1400 on Friday, while Unilever has rallied by 84 percent since 2015, as its net profit margins doubled to 8.2 percent from 4.4 percent.
Johnson Chukwu, managing director and CEO of Cowry Asset Management said that individual performances of firms are one out of four factors that determine an investor’s decision to invest in a company.
He added that if the economic outlook is negative, then investors will not put their money in firms no matter the stellar performance.
“All things being equal, if there is political stability, lower interest rates and low inflation, then firms with increased margins will see investors swoop on their shares,” summed Chukwu.
BALA AUGIE
