NIGERIA – Earnings of quoted firms operating in the Fast Moving Consumable Goods (FMCG) sector have slipped in the first quarter of the year as economic uncertainties pummel performance, thus slowing the industry’s momentum.
Some of the consumer goods companies listed on the Nigerian Stock Exchange (NSE) that have released first-quarter results include Nestle Nigeria plc, Nigerian Breweries plc, Cadbury Nigeria plc, Guinness Nigeria plc, Flour Mills of Nigeria plc, PZ Cussons, UACN, Unilever, Dangote Sugar plc, and Dangote Flour Mills.
The cumulative revenues of the 10 major players for the first quarter of 2014 (Q1 2014) fell by 3 percent to N364.4 billion, from N375.14 billion in the preceding year, data compiled by BusinessDay shows.
Analysts had earlier sounded caveats that economic challenges such as the rising insecurity in the northeast of the country, along with volatility in the input price of materials used in the manufacture of goods, would slow growth.
“We expect the worsening state of security in the north-eastern region (evidenced by the heightened pace of Boko Haram attacks) to hamper product distribution of consumer goods companies in the region,” said CardinalStone Partners in a research report issued earlier in the year.
“Input price movement would have different impacts on consumer companies, depending on the input material used,” the report said.
Flour Mills, the largest miller by market value, had Q1 revenue fall by 5.67 percent, as growing interest expense pressured costs, causing profit to slow by 22.28 percent
“We believe that the slight contraction in gross margin was mainly driven by a 10 percent q/q increase in wheat prices between (calendar) Q1 and Q2 2014,” said Tunde Abidoye, equity research analyst with FBN Capital, in a September 1 note.
The World Agricultural Supply and Demand Estimates (WASDE) projects an increase in global wheat supplies to record levels for the 2014/15 season on the back of high yields from Russia, Ukraine and China.
The operating challenges, such as limited power supply combined with bad roads, have spiralled operating costs, thus reducing the cumulative pre-tax profits of the 10 firms by 9.1 percent to N40.30 billion in Q1 2014, from N44.18 billion last year.
Guinness, West Africa’s second-largest brewer, in the first quarter of the year had revenues down by 11.1 percent, while net income tumbled by 30.35 percent.
“Operating cost of Nigeria manufacturers is high because of power,” said Seni Adetu, managing director, Guinness, at an investment conference earlier this year in Lagos.
“Compared to other countries, Nigeria overhead costs are high,” said Adetu.
Despite the challenges, however, the FMCG sector is the major driver of the Nigerian economy as it accounted for half of the $46 billion manufacturer contribution to the new GDP estimate.
The country’s huge young population and the burgeoning middle class, analysts say, will spike demand for consumable goods that will spur the growth of manufacturers.
Furthermore, the food, beverages and personal health sector is expected to rise to $1.4 trillion in 2030, according to a report by McKinsey Global Institute.