Fast Moving Consumer Goods (FMCG) firms finally have a reason to smile following a tough 2016 as the devaluation of the naira is leading to a jump in sales to neighbouring countries.
In the past two years, the naira has fallen nearly 50 percent to the CFA franc (which is pegged to the Euro), meaning locally produced Nigerian goods are now much cheaper for traders to buy and sell in places like Cameroon, Benin Republic and Niger.
FMCGs have also benefited from higher prices for their products as evidenced in margin expansion, an indication that these firms were able to shift some rising input costs due to devaluation to consumers despite a tight market.
BusinessDay analysis shows that cumulative total sales for 8 FMCGs that have released third quarter results increased by 36.80 percent to N854.04 billion in September 2017.
This compares to the third quarter period to September 2016 when revenue for the eight firms was down 9.5 percent to N624.14 billion from the 2015 period, data compiled by BusinessDay shows.
The firms are: Unilever Nigeria Plc, Nestle Nigeria Plc, Cadbury Nigeria Plc, Nigerian Breweries (NB), Guinness Nigeria Plc, Dangote Sugar Plc, Dangote Flour Plc, and NASCON Plc.
It is generally accepted economic principles that a weaker currency makes it cheaper for foreign buyers to purchase domestic goods and so makes such goods more attractive and benefits manufacturers as a result.
“Nestle and its peers have intensified their export strategy to partly offset the impact of naira depreciation on their cost of imported raw materials,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited.
Drilling down into the figure shows Nestle’ Nigeria’s 43.10 percent jump in profit to N185.52 billion was enough to cover a 41.10 percent rise in cost of sales as net income surged by 4643 percent to N22.14 billion in the period under review.
A breakdown of the Nestle’s sales for the period shows that export revenues was up 46 percent to N1.9 billion in the period under review.
Dangote Flour Mills sales spiked by 101.15 percent to N100.28 billion while net income surged by 359 percent to N13.05 billion as at September 2017.
Dangote Flour, up 10.19 percent was the best performer on the Nigerian Stock Exchange (NSE) yesterday.
An August, 2017 visit by business day to the Seme border in Lagos found that trucks loaded with goods coming from Nigeria are passing through the border to other West African countries.
“A lot of Dangote trucks, Flour Mills and others are coming from Nigeria carrying flour, sugar and the likes to sell across the West Africa region,” said Monday Akpa, a Nigeria who is trading at the Seme boarder.
However, the lower Naira has raised the price of imported raw material as the cumulative cost of sales of the 8 firms spiked by 41.45 percent, more than double the 15.98 percent September inflation figure.
FMCGs were hard hit by dollar scarcity from a sharp drop in oil prices in 2016 which made it difficult for them to import raw materials and equipment to meet production. Margins were also hurt due to the economic downturn.
However, there is relief for these firms as the introduction of the investors’ and Exporters’ window by the apex bank in April and the subsequent liberalization of the foreign exchange market has resulted in increased dollar supply.
Analysts at FBN Quest expect Nestle, like its peers, to continue to contend with the macroeconomic headwinds in 2018.
“In our view, sector leaders like Nestle are likely to fare better compared with competition. Given recent foreign exchange interventions by the central bank we believe imported competition will ultimately start to stage a comeback,” said analysts at FBN Quest.