Rising inflation, power, forex shortages undermine consumer goods industry

…As industry performance plummets by 8.12% in July

Rising inflation, shortage of foreign exchange and overall harsh operating environment have continued to assail the operations of the Consumer Goods sub-sector (CGS) just as the bottom-line of the sector’s listed equities, in last few months remained subdued, with gloomy outlook.

Specifically, the sector, which measures the performance of consumer companies quoted on the floor of the Nigerian Exchange Limited (NGX), depreciated by 8.12 per cent in the month of July, from 623.99 index points to 573.27 points.

The All- Share Index, which measures the performance of quoted companies, closed the month of July with a loss of about 2.8 per cent month-to-date (MTD), while market capitalisation dropped by N773 billion as the equities market witnessed sustained sell pressure during the period.

Indeed, the CGS is currently bogged with heavy financing and operating costs, worsened daily by rising inflation, unemployment and underemployment, resulting in reduction in the demand for fast moving consumer products with the attendant effect on revenues and profits.

The industry is also grappling with rising production costs mainly due to inadequate and in some instances, non-existent power supply. Spiralling diesel costs, coupled with the low level of power supply, are putting a financial burden on the sector.

Furthermore, increase in cost of sales and administrative expenses has also impacted heavily on their bottom line as most companies operating in the country battled hikes in materials used for production, among others.

According to data from the NGX, which focused on the worst performing consumer goods stocks during the month of July 2022, Nigerian Breweries Plc, International Breweries Plc, PZ Cussons Nigeria Plc, Cadbury Nigeria Plc and Unilever Nigeria Plc made the list of top five poor performing firms.

For instance, the shares of Nigerian Breweries witnessed a negative run during the month. The brewery firm listed on the NGX and the most capitalised brewery in Nigeria has lost 17.42 per cent in price in the month of July, from N58.80 kobo to N47.70 kobo.

The company witnessed sell-pressure, which drove market capitalisation by N82.72 billion to close at N392.137 billion at the close of trading on July 31, 2022, from the opening figure of N474.858 billion at the beginning of trading on July 1, 2022.

Nigerian Breweries Plc announced a total of N274.03billion as revenue for the first half of the 2022 financial year, which ended on June 30, 2022. The company also recorded a Profit After Tax (PAT) of N19.08 billion during the period.

Further analysis of the results revealed that the cost of sales increased by 18.3 per cent, from N131.34 billion in H1, 2021 to N155.35 billion in 2022 in the same corresponding period.

Marketing, Distribution, and Administrative expenses also rose by 44.6 per cent, from N58.42 billion in H1, 2021 to N84.45 billion in H1, 2022, driven by the increase in commercial activities post-COVID, rising diesel prices and higher wages arising from collective labour agreements.

For International Breweries Plc, its shares shed 15.07 per cent in price during the month, from N6.30 to N5.35 per share. The drop in the company’s share price drove down the market capitalisation by N25.519 billion to close at N143.712 billion at the close of trading in July from an opening figure of N169.231 billion at the beginning of trading on July 1st.

International Breweries Plc (IBPLC) had bounced back to profitability from its loss position, recording N1.9 billion Profit Before Tax (PBT) for the first quarter ended March 31, 2022, representing 152.8 per cent increase from N3.6 billion loss before tax in Q1 2021.

PZ Cussons Nigeria Plc’s shares also decreased by 11.45 per cent during the period under review, from N9.60 per share to N8.50 per share, reducing the market capitalisation by N4.367 billion or 11.45 per cent to close at N33.749 billion at the end of July 2022 from the opening figure of N38.116 billion.

The company released its Q4 2021/22 unaudited results for the period ended May 31, 2022, reporting a profit of N758.37 million, representing an 11.71 per cent increase year-on-year.

Cadbury Nigeria Plc’s share price was also affected by the market downturn dropping by 10.72 per cent during the period under review, from N17.25 per share to N15.40 per share, dragging the market capitalisation by N3.474 billion or 10.72 per cent to close at N28.924 billion at the end of July 2022 from the opening figure of N32.398 billion.

The company has continued to sustain its current repositioning drive.
The company’s recently released financial highlights for the first half of 2022 (covering the period January 2022 to June 2022), showed that its turnover rose to N27.8billion in H1 2022, representing an increase of 50.5 per cent over the N18.5billion recorded within the same period in 2021.

Its profit for the period under review grew by 553.7 per cent from N516 million in H1 2021, to N2.34 billion in H1 2022.

Shares of Unilever Nigeria Plc have also suffered from the market slide with a loss of 4.05 per cent in price during the month, from N14.80 to N14.20. The negative activities drove down the market capitalisation to lose N3.447 billion to close at N81.579 billion at the close of trading on July 31, 2022 from the opening figure of N85.026 billion at the beginning of trading on July 1, 2022.

Chief Operating Officer of InvestData Consulting Limited said the sector is bogged with heavy financing and operating costs, noting manufacturers are still faced with numerous challenges that are largely responsible for the not too impressive performance of the manufacturing sector and the competitiveness of Nigerian manufactured products.

He noted that available data showed that the Nigerian manufacturing sector was bedeviled by various challenges, manifesting in the form of high inventory of unsold finished products, inadequate electricity supply, frequent increases in electricity tariff in the face of poor services from distribution companies and abnormally high interest rates.

Other constraints include: high excise duties on some products, inadequate trade facilitation infrastructure, expensive price of diesel, unfriendly port environment, multiplicity of taxes/levies/fees, exorbitant cost of haulage, congestion at the Lagos seaports arising from the non-functionality of other seaports in the country, high incidence of smuggling and counterfeiting of locally manufactured products, to mention but a few.

An independent investor, Amechi Egbo said: ”Performance in the consumer goods sector depends heavily on consumer behavior. When the economy grows, the sector will see an increased demand for higher-end products but where there is weak purchasing power, people will move away from what is a bit expensive to a cheaper one so that they can still satisfy their urge for that particular product.”