GREIF Nigeria navigates difficult business terrain as profit margins improve
by BALA AUGIE
February 8, 2018 | 1:12 am| | | Start Conversation
Greif Nigeria Plc has navigated the difficult business terrain as the company’s profit margins improved on the back of recovery in costs through multiple price increases, pragmatic cost reduction and improved efficiency.
The manufacturer said that pressures on steel pricing due to restructuring of the Chinese steel industry ,30 percent reduction in the export of the product and a challenging local environment made 2017 a very difficult year to navigate.
However, Greif surmounted a tough and unpredictable environment as the company’s audited financial statement as at 31 October 2017 showed gross profit margin increased to 18.23 percent as against 16.67 percent as of October 2016.
Gross profit margin is a key measure of profitability by which investors and analysts compare similar companies and companies to their overall industry.
The metric is an indication of the financial success and viability of a particular product or service. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.
While Greif recorded growth at the top-lines (sales) and bottom-lines (profit), the environment was torrid for manufacturers last year as the sector’s real GDP dipped.
This is because the mix of fall in aggregate demand purchasing power, difficulty in accessing foreign exchange, lack of supportive infrastructure, erratic power supply, and multiple taxation undermined growth of operators in the real sectors.
Manufacturing sector’s real GDP showed a downward trend from 15.41 percent from 1st quarter 2014 to the lowest -7 percent in 1st quarter 2016 and is currently at – 2.85 at 3 quarter 2017.
This shows that the manufacturing sector’s recovery lags much more behind the overall national real GDP percent.
While inflation rate has fallen to 15.37 percent– 11 consecutive drops– it is still above the Central Bank of Nigeria’s (CBN)’s target range of six percent and nine percent.
Greif recorded a double digit growth at the top line amid the aforementioned challenges as sales spiked by 41.10 percent to N1.40 billion in the period under review while net income surged by 82.38 percent to N49.42 million the same period.
Net margins, which measures efficiency, increased to 3.59 percent in the period under review from 2.70 percent as of October 2017.
A higher ratio means a firm is efficient in translating top-line impressive performance to bottom-line growth.
However, cost of sales spiked by 38.05 percent to N1.15 billion in the period under review as the steel marker continues to grapple with rising cost of raw materials and spiralling overhead costs.
There are indications that Greif and other manufacturers will benefit from the 2018 budget as government plans to spend N2.40 trillion–out of the total N8.60 trillion budget- on infrastructure.
Also, the relative stability in the foreign exchange market since the introduction of the Investors’ and Exporters’ window means manufacturers could see growth in 2018 as they have easy access to dollars needed to import raw materials and equipment.
The availability of foreign currency to finance imports, a rebound in oil production and an uptick in oil price are responsible for Nigeria’s economic recovery.
Nigeria existed its first recession in 25 years as GDP expanded by 0.55 percent and 1.40 percent in the first and second quarters of 2017, according to data from the NBS.
Greif’s share price closed at N9.10 as of 2:00 pm in Lagos on Tuesday, valuing it at N388.03 million.
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