Consumer goods firms reap reward of price increases as profit surge
Nigeria’s largest listed Fast Moving Consumer Goods (FMCG) firms are reaping the rewards of price increases across key product brand that resulted in a surge in second quarter profit.
The price increase as been an upside than downside as increased sales were able to cover rising production costs and spiralling interest expense.
Net income for the NSE consumer goods 15- which tracks the top 15 listed firms and liquid companies in food, beverage and tobacco, spiked by 129 percent to N77.57 billion in June 2017, from N33.91 billion the corresponding period of 2016.
The growth at the bottom line (profit) was underpinned by a 35 percent surge in sales to N991.76 billion in June 2017 as against N736.50 billion the previous year.
Drilling down the figures shows Nestle Nigeria’s net income spiked by 2988 percent to N16.54 billion while sales was up 52 percent to N121.59 billion the corresponding period of 2016. Unilever Nigeria’s net income spiked by 236 percent to N3.67 billion in the period under review while sales was up by 40 percent to N45.10 billion.
Guinness Nigeria posted a net income of N1.92 million in June 2017 from a loss position of N2.015billion the previous year. The company, last year, recorded its first loss in 30 years on the back of an economic downturn that increased costs and reduced patronage for key products.
PZ Cussons’ net income was up by 78.40 percent to N3.68 billion in the period under review while sales increased by 14.50 percent to N79.63 billion the previous year.
The consumer goods giant attributes the stellar performance amid a tough operating environment to strategic initiatives undertaken in the focus brands, the stream lined portfolio, the consolidated and supply route to market and ability to cut costs.
Analysts are of the view that these firms benefitted from the Investors’ and Exporters’ window introduced by the central bank in April this year and subsequent liberalization of the foreign exchange market that resulted in improved liquidity in the system.
Last year was horrendous for consumer goods firms in Africa’s largest economy and most populous nation as a sharp drop in oil price and a severe dollar shortage made it practically difficult for them to source foreign currency for purpose of importing raw materials and equipment.
Most firms were forced to source dollars at the inaccessible parallel market at an outrageous price.
In June 2016, there was a 40 percent devaluation of the currency by the apex bank, as a result of a flexible exchange rate adoption which hurt the profit of firms as cost of production ballooned.
Nigerian’s economy has existed recession in the second quarter, expanding by 0.55 percent, according to a recent report by the National Bureau of Statistics (NBS).
The country’s economy shrank by 1.60 percent in 2016, the first recession in 25 years, due to collapse in oil price and dollar shortages.
While the country may have existed recession, the high unemployment and inflation rate is increasingly eroding the purchasing power of consumers. This means the demand for consumer goods will continue to wane.
Honeywell Flour Mills net income surged 537 percent to N643 million in the period under review while sales spiked 83 percent to N18.27 billion.
The consumer goods stock index has gained 38.38 percent since the start of the year, outperforming the NSE ASI
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