FMCGS slash capital expenditure to preserve cash as pandemic erode half year revenue

…consumer index remains the second worst performing

Nigerian fast-moving consumer goods (FMCG) firms delayed expansion plans in the first half of the year to manage their cash just as early half year results of five FMCGS show a sharp decline as COVID-19 pandemic hurt sales of several products.

Checks by Businessday show that three consumer goods firms cut heavy investment by 68percent to N6.98 billion in the six months to end of June while their cash and near-cash assets rose more than four times to N141 billion in the period.

Data from Unilever, Cadbury and International Breweries show combined capex at a 3-year low. Excluding International Breweries, which has a different accounting year, data going back to 2015 show that capital spending is at its lowest in at least six years. In the first half of the year net cash of the firms rose to an inflow of N11.13 billion compared to a net outflow of nearly N10 billion last year.

The firms made more money from asset disposal than last year but the figure rose significantly largely as a result of receipts International Breweries recorded in the period.

Revenue also came under intense pressure on the back of lockdown in key revenue generating and industrial states (Lagos, Abuja, and Ogun States) as well as the ban on inter-state movement further worsening the woes of consumer goods companies that are already struggling amid intense competition and cash strapped consumers.

Analysis of Unilever’s half year result shows that the consumer goods giant printed a 40.1percent year-on-year decline in revenue in the second quarter and a 35.9percent decline in the first six months of the year. The makers of Omo detergent and Close Up toothpaste recorded a post-tax loss of N1.63billion- the company’s third loss in the last four quarters

Nigeria’s largest beer maker by market size, Nigerian Breweries recorded a 21.5percent decline in revenue in the three months April-june at N68.15billion from N86.91 billion recorded during the same period in 2019. Revenue for the first six months tanked 10.8percent at N151.8billion from N170.19billion. Half year profit stood at a meagre N5.58 as at June 2020 as against N13.31 recorded in same period in 2019.

Nestle, the biggest consumer goods player by market capitalization, sustained its robust performance as it benefits from panic buying by consumers and front loading of products by retailers during the restriction of movement announced by the government. Figures from its recently released half year result show that six months revenue was flat for the period ended 30th March stood at N141billion same as period in 2019.

The NSE Consumer Goods Index, the gauge used in measuring performance of listed consumer goods firms on the Nigerian Stock Exchange remains the second worst performing index on the exchange with year to date down by 32.11percent.

The fall out of the Coronavirus pandemic on consumer demand with a weaker exchange rate, low FX liquidity and rising inflation affected both the sales and operating costs of FMCGS in Nigeria.

There was significant early growth in the first two months of the year largely driven by higher prices rather than higher consumer demand. This was on the back of Value Added Tax (VAT) increment also some of the companies struggling with competition from smuggled goods, benefited from the positive impact of the closure of land borders that helped push more volumes within the domestic market in the first two months of the year.