FRI, APRIL 12 2019-theG&BJournal- The net income of 11 consumer stocks tanked at N98.04 billion in December 2018, well below the N130.41 billion recorded in the previous year, and not even up to N99.05 billion realized in 2014, one of their worst years. The decline is even starker when inflation is factored in.
Combined average gross profit margin of the firms fell to 25.96 percent in December 2018, compared with earnings of 29.43 percent in December 2017, 29.30 percent in 2016, 33.20 percent in 2015 and 27.72 percent in 2014 respectively.
Smuggling, influx of cheap and sub-standard product, double taxation, epileptic power supply, and the ever present gridlock at the Apapa sea ports combined to dent industry performance.
Analysts are predicting even dire outlook for the companies in 2019.
“In 2019 we will see growth in mid-single digit for consumer goods firms and they have to upgrade their internal strategies if they hope to weather the impending storm,” said Ifedayo Olowoporoku, consumer goods analysts at Vetiva Management Ltd.
Olowoporoku added that the weakness in earnings could also be linked to sub sectors in the industry as the excise duties imposed by federal government deal a blow on beer makers who were unable to pass on the cost,” said
“For instance smuggling and influx of cheap producers are undermining sugar producers,” said Olowoporoku.
With consumers under pressure, firms couldn’t pass the cost leading to suppressed gross profit margins. Companies had already hiked the price of product in 2017 to fend off the effects of rising cost of production brought on by a severe dollar scarcity.
“It is also the manifestation of low aggregate consumer demand. Consumer demand had collapsed over the last couple of years due to inflation and devaluation of the currency,” said Johnson Chukwu, managing director and CEO of Cowry Asset Management Limited.
The slump in earnings dashed the hopes of foods and beverages, confectionery and personal care companies that had betted that country’s young and middle class would propel revenue and profit, and magnify shareholder’s earnings.
While the country exited recession in the fourth quarter of 2017- thanks to the introduction of a flexible exchange rate regime by the central bank and a rebound in crude oil price- a vast majority of Nigerians are increasingly finding it difficult to afford consumer products and services even as firms resort to cheaper packaging format as sachet.
Flour milling companies are struggling the most. Apart from Dangote Flour Mills that relies on the parent company transport unit for its transportation needs, the transport sector also lacks capacity in terms of ability to invest in quality trucks for movement of goods and services,” said on Executive Director of a Flour Mills company.
|twitter:@theGBJournal|email: info@govandbusinessjournal.com.ng|
