Insurgency takes toll on consumer firms earnings

Quoted Fast Moving Consumable Goods Companies have mostly been affected by the insurgency ravaging huge swathes of Northern Nigeria, as data from their 2014 nine months results show flat growth in revenues.

Some of the Fast Moving Consumable Goods Companies that have released third quarter results include Nestle Nigeria Plc, Nigerian Breweries Plc, Flour Mills of Nigeria Plc, Unilever, Dangote Sugar Plc and GlaxoSmithKline Nigeria Consumer Plc.

The cumulative revenues of the six major players for the third quarter of 2014 (Q3 2014) remained flattish at N603.60 billion, data compiled by BusinessDay shows.

Analysts say the

challenges in the northern part of the country, importation of cheap products from Asia and pressured wallets of consumers helped to slow growth.

The average Nigerian is having less disposable income despite GDP growing at 6.3 percent,” said Abiola Rasaq of the Research and Strategy Unit of Associated Discount House Limited.

 “Insurgency in the north of the country has hampered the product distribution of consumer goods companies in the region; this has also affected the direct and indirect consumption,” said Rasaq, in an email response to BusinessDay’s questions.

Dangote Sugar Refinery (DSR), Nigeria’s largest producer of the sweetener, had Q3 revenue drop by 5 percent, as an 81.22 percent slide in other operating income made profit to tumble by 5 percent.

The maintenance work at the Lagos refinery in October, a temporary loss of cross-border trade in north-east Nigeria due to insecurity challenges and zero exports to neighbouring West African countries, weighed on DSR sales during the period, according to Uwadiae Osadiaye, equity research analysts with FBN Capital, in an emailed note to BusinessDay.

It will be recalled that the recent attacks in Adamawa, where one of the company’s bellwether subsidiary Savannah Sugar is located also dented DSR’s sales.

The cumulative pre-tax profits of the six firms fell by 5 percent to N87.42 billion in Q3 2014, from N91.45 billion last year.

GSK recently posted 2014 9M results showing an 8.81 percent growth in top line. Despite single digit growth in revenue, the bottom line was pressured by a higher increase in cost of sale which surged by 18.63 percent.

Consumer goods companies in Africa largest economy also have their sales cannibalised by the influx of cheap imported seasoning products from China.

Nestle, one of Nigeria’s largest food companies, in the third quarter of the year had a single digit revenue growth of 8 percent, while net income fell by 1 percent.

Maggi which is the greatest single contributor to Nestle’s revenue has suffered due to dumping of cheap product from China, according to Rasaq.

“It has been a case of “double jeopardy” of lower revenues and rising costs,” said Saheed Bashir, an analyst at Meristem Securities Ltd, in a response to questions.

“Unfortunately, the insecurity concern of northern Nigeria is taking its toll not only in increasing cost of distribution but also in slowing volume of sales.”

Despite the challenges however, the FMCG sector is the major driver of the Nigerian economy, as it accounted for half of the $46 billion manufacturing 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.

Businessday