Consumer goods firms disappoint market with quarterly results

… as COVID-19 damps productivity

The number of consumer goods firms failing to turn a profit has jumped to a level last seen after 2016 recession, as downturn caused by the coronavirus (COVID-19) pandemic hits businesses across Nigeria.

As restriction on social events, social clubs and bars slows demand for products, the hardest hit from the pangs of the current crisis are operators in the brewery industry.

Analysts have unanimously agree that food manufacturers and fast moving consumer goods (FMCG) companies have been walking on thin ice before the advent of COVID-19 that ravaged economies across the globe.

They say there could be sustained weakness if economic recoveries are not strong enough, and that a gradual reopening of business shuttered could add impetus to earnings.

“With the harsh operating environment, it is normal to get these kinds of results,” Gbolahan Ologunduro, equity research analyst at CSL Stockbrokers Limited, says.

“Over 20 percent of the firms saw declines in sales due to restrictive measures that slowed consumption income,” Ologunduro notes.

The ongoing earnings releases as gleaned from the NSE website show all of the companies that have released half-year results fell off the cliff, and are unable to turn each naira invested in sales by their owners into higher profit.

Unilever Nigeria plc recorded a loss of N519.11 million as at June 2020, from 2019’s profit of N3.51 billion. That is its first loss in five year, as it posted an operating loss of N1.84 billion, thanks to a 40.22 percent reduction in revenue.

International Breweries posted a loss of N9.35 billion in June 2020 from 2019 loss of N6.84 billion the previous year. Also, it posted an operating loss of N11.12 billion as it continues to struggle with huge debt and deteriorating cash flows brought on by spiralling trade payables.

Nigerian Breweries’ operating profit dipped by 38.85 percent to N24.46 billion in June 2020 from N15.04 billion the previous year; the brewer’s net income was down 60.25 percent while sales reduced by 10.80 percent.

Cadbury Nigeria’s operat

ing profit was down 17.88 percent to N714.45 million in the period under review while revenue was down by 18.27 percent to N19.45 billion, as net income dipped by 19.83 percent to N536.66 million.

Nascon Allied’s net income increased by a mere 2.77 percent to N1.48 billion as at June 2020, the slowest growth in five years.

Analysts at Coronation Asset Management in a recent report said the return on equities (Roes) of most listed food manufacturers and FMCGS have been falling in the past 10 years.

That means companies have been unable to deliver higher returns to shareholders in the form of bumper dividend and share appreciation.

The report listed PZ Cussons, Guinness Nigeria, International Breweries, Flour Mills, and Honeywell as firms that seldom record return in excess of the Fair Value Equity Return over the period 2010-19.

However, Nestle Nigeria, Nascon Allied and Dangote Sugar have successfully delivered returns higher than the benchmark.

“Many years ago (roughly 10 years ago) the most-traded and sought-after stocks on the Nigerian Stock Exchange were brewers, food manufacturers and fast-moving consumer goods (FMCG) companies,” note analysts at Coronation Asset.

Dangote Sugar, however, beats analysts’ expectation in the second quarter even amid a tough and unpredictable macroeconomic environment.

Analysts say the imposition of border closure by the government to curb smuggling of products out of the country is boon to the producer of the sweetener, as consumers are forced to patronise local products.

The trade war between the United States and China led to a fall in commodity prices for raw sugar and wheat, which supported a reduction in raw material cost.

For instance, Dangote Sugar’s revenue increased by 28.48 percent to N103.23 billion as at June 2020 from N80.36 billion the previous year; but net income and operating profit increased by a mere 5.56 percent and 0.57 percent, respectively.

Honeywell Nigeria’s operating profit increased by 10.23 percent to N1.70 billion in June 2020, thanks to a 38.98 percent uptick in sales.