24062019 - EDO Oyegun Oshiomhole ateach others troats

vanguardnewspaper

Vanguard Newspaper 24 June 2019

20 — Vanguard, MONDAY, JUNE 17, 2019

FINANCIAL VANGUARD

Continues from page 19

Others have also resorted to

funding through capital

market, instead of money

market to keep cost down.

Consequently, cost of

sales for the companies

dropped by 5.8 percent

to N118.84 billion from

N126.16 billion a year

ago.

However, Nestle

appeared to have a better

outing during the period

having recorded 5.3

percent reduction in cost

of sales, while recording

five percent and 40

percent increases in

revenue and pre-tax

profit respectively, a

performance financial

experts attributed to the

inelastic nature of the

company's core food

segments.

Though Unilever also

brought down its cost

significantly by 12.5

percent to N15.37

billion, its revenue and

pre-tax profit went

negative at -20.8 percent

and -39 percent

respectively. Dangote

Sugar also recorded 17.1

percent decline in cost,

but its revenue for the

three month period

declined by 7.3 percent

to N38.12 billion. Its pretax

profit, however, rose

by 27.4 percent to N10.7

billion.

GSK seems to be worst

hit, as its cost

skyrocketed by 16.7

percent, while the

revenue and PBT

recorded steep decline of

72.8 percent and 87.5

percent respectively.

Like GSK, Dangote

Flour Mills posted 4.6

percent increase in cost

of sales and 13.4 percent

decline in revenue while

recorded outright loss

before tax of N3.6 billion

as against a profit of

N2.3 billion made in the

corresponding period of

2018.

Cadbury Nigeria, on the other

hand, posted 7.3 percent

increase in its cost. However, its

revenue and pre-tax profit went

up by 12.6 percent and 2,201

percent respectively.

NASCON's cost rose by 8.5

percent. Its revenue

appreciated by 0.7 percent,

while the PBT declined by 34.6

percent.

Analysts explain

Financial experts that spoke

to Financial Vanguard blamed

the poor performance on the

Apapa traffic gridlock and

increased importation of illegal

consumables, which they said,

is hurting their profit margin.

Wahab Mustapha, analysts at

Cordros Capital, a Lagos based

investment house, said: “Most

of them reported slower

portfolio growth, basically

because they are operating in

intense competitive

Apapa gridlock crashes earnings in

consumer goods sector

environment.

Pricing environment was

actually very bad for them. That

was why you see that their

revenue was down year-onyear.

“When you think of the

declining portfolio, what comes

to mind is that most of them are

still struggling from the Apapa

traffic gridlock, making it

difficult for them to evacuate

products from the Port and

distribute their products from

the area.

“For some of them, such as

Dangote Sugar and the flour

millers, they operate in intense

competitive environment; they

are still suffering from huge

importation of some

commodities like sugar and

flour with the impact of this

resulting in general price

decline.”

Additionally, he said that

strained consumer wallets

remained a challenge.

“Consumers are yet to recover

from the over 60 percent

depreciation in the value of the

Naira over a period of two

years. Secondly, inflation level

has also doubled. So, the impact

of the decreased wealth is

impacting consumers'

purchasing power,” Mustapha

said.

For them to survive, he said

they have to bring down prices

to, at least, fend off competition

or to, at least, maintain the same

level of market share.

Analysts at United Capital Plc,

another Lagos-based

investment banking firm, said:

“Our view on the FMCGs

remains modestly positive on

the back of a gradual recovery

in the economy.

“However, challenges to

volume growth may persist due

to bottlenecks to distribution.

“Pressure on volume growth

and transport cost is likely to

persist as the difficulty

associated with the gridlock at

the Lagos Port is unlikely to go

away in the interim. In our view,

this is negative for food

manufacturers in the Apapa axis

as well as others that depend

on importation of their ware.”

Charles Fakrogha, broker

dealer at Cicycol, attributed the

impaired revenue to weak

purchasing power of an

average Nigerian consumer. He

advised the FMCG companies

to work at keeping down cost.

“They should be more cost

conscious,” he stated.

He said that though they have

been able to pass cost to

consumers through reduction

in quantity of unit packs, but

that has not positively impacted

earnings due to myriad of other

challenges.

Fakrogha added that

congestion at Apapa Port and

COVER

gridlock at that axis also

impacted the efficiency

and operating cost for

some of the companies in

FMCG sector that are

involved in importation of

their wares.

David Adonri,

Managing Director/CEO,

Highcap Securities

Limited, blamed the

increased dumping of

imported products for the

incidence. He said that the

imported substitute has

reduced the market share

of the companies.

Going forward

United Capital stated

that while most players in

the FMCGs would be

looking forward to the

positive impact of the new

N30,000 minimum wage,

fixing the current

infrastructural deficits

would be a bigger win for

them.

“In all, our best picks in

the sector are diversified

food and beverage

producers, buttressed by

their product and brand

durability. We are not very

positive on flour millers

and sugar manufacturing

companies, as our shortterm

expectation is

dampened by the

feedback effect of Apapa

gridlock and smuggling

activities on volume

growth,” they said.

Going into the future,

Mustapha of Cordros

Capital said: “We see

slight improvement in

Apapa gridlock by year

end or at least by early

2020.

The improvement is

expected to give some of

the companies that are

involved in importation of

their raw materials some

respite.”

He noted that pledge by

federal government to

clampdown on illegal

importation of different products

will also give them some respite

in terms of pricing.

“I believe that they should be

able to increase prices going

into Q3 and Q4 2019. In terms

of purchasing power, the

introduction of new minimum

wage should be positive for fast

moving consumer goods

companies,” he stated.

Fakrogha of Cicycol is of the

opinion that efforts by the

federal government to

decongest Apapa Port and its

environ as well as the assurance

by the Central Bank of Nigeria,

CBN, that no changes would be

made in the foreign exchange

policy would have positive

impact on the companies going

forward.

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