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Manufacturers struggle with inventories, losses as border closure, inflation bite harder

By Femi Adekoya
05 February 2020   |   4:15 am
If the financial reports for the 2019 financial year of local producers in the consumer goods segment is anything to go by, the worse is far from being over as rising inventories, weak consumer purchasing power...


If the financial reports for the 2019 financial year of local producers in the consumer goods segment is anything to go by, the worse is far from being over as rising inventories, weak consumer purchasing power, competition from smaller businesses as well as the prolonged border closure may have taken a toll on their profitability.

According to the financial reports of some of the operators obtained by The Guardian, the operating environment remains challenging and continues to take a toll on business decisions and consumers whose capacity to purchase has become weakened.

Latest data from the Manufacturers Association of Nigeria (MAN) showed that capacity utilisation in the industry dropped in the first half of last year, while inventory of unsold manufactured goods stood at N200.26 billion, representing N51.03 billion (34.19 percent) increase from N149.23 billion recorded in the corresponding half of 2018.

With the land border closure, operators have continued to decry the inability to sell their goods in neighbouring countries as a buffer for poor performance in the local markets.

The Federal Government had in August 2019, closed all land borders with neighbouring countries to curtail smuggling, which it said was crippling the economy, and for security reasons.

Trucks conveying several goods from neighbouring countries have been stuck at various borders along the ECOWAS trade corridor since the closure started.

Unlike its peers in Kenya and Ghana that recorded growth, PZ Cussons noted that the challenging Nigerian economy resulted in continued weakness in mass market Home and
Personal Care sales, with regional revenue 4.4% lower.

For Unilever Nigeria Plc, its Q4 2019 results for the period ended December 31st, 2019, showed that revenue declined by 34% to N60.76bn from N92.03bn in the previous quarter, loss before tax stood at N8.32bn, while loss after tax stood at N4.22bn.

The company’s net assets also declined by 15.5% to N69.9bn from N82.8bn.

Nestle Nigeria Plc’s earnings of N10.6bn declined by around 9% y/y based on its third quarter 2019 results.

In Q3, sales for Nestle’s Beverage segment grew by 8% y/y to N25.9bn. Besides this, the results did not show any real improvements from H1. Sales growth (up just +2.4% y/y in Q3) remains sluggish while cost price increases are difficult to push to consumers given the continued strain on consumer wallets.

For Cadbury Nigeria Plc, it recorded a revenue of N28.912billion for the nine months ended September 30, 2019, representing an increase of 7.2 percent over the N26.959billion revenue realised within the same period in 2018.

The Company also recorded gross profit of N5.857billion, representing an increase of 10.4 percent over the N5.306billion that was reported for the same period in 2018.

Cadbury Nigeria’s profit for the period stood at N648million, which translates to 276.8 percent growth, when compared to N173million realised in the same period of last year.

For Unilever, the Company recorded a N9.13 billion revenue in the period under review.

The results reflect challenging trading conditions and the Company’s decision in quarter three to prioritize tightening of credit terms and minimize exposures on trade receivables.

According to the firm, the result shows the Company also recorded loss after tax of N4.76bn for the quarter ended December 2019 relative to profit after tax of N2.14bn recorded for the quarter ended December 2018. The revenue of N9.13 billion was a reduction in profit compared to N21.67bn recorded for the corresponding period in 2018.

The company explained that: “We remain committed to our growth ambitions and retain a positive outlook for the business in the long term, focusing more effort on growing our brand portfolio across all our product categories to achieve sustainable and profitable growth”.

It would be recalled that Unilever Nigeria recently refocused its backward integration programme to drive its local content policies and empower more local farmers across Nigeria to engage and invest in producing raw material needed by the Company and continues to create jobs by empowering women and young people through its trade distribution network.

Various stakeholders notably the Manufacturers Association of Nigeria (MAN) have called on the Government to re-open the borders as the closure was having an adverse impact on its members that are engaged in the import and export business.

But the Government has insisted that it would not reopen the borders until it receives a firm commitment from Nigeria’s neighbours that they would adhere to ECOWAS trade protocols.

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