Weak Nigerian corporate performance depresses consumer goods earnings

The consumer goods subsector is reeling under the pangs of harsh operating environment, just as the earnings of the sectors listed equities remained subdued with negative sentiments due to policy issues.

Indeed the sector is currently bogged with heavy financing and operating costs, even as manufacturers are still faced with numerous challenges that are largely responsible for the not too impressive performance in the last few years.

Due to the purchasing power of the average Nigerian which is quite low, worsened daily by rising inflation, unemployment and underemployment, there seems to be a reduction in the demand for fast moving consumer products with the attendant effect on revenues and profits.

Also, the industry is grappling with rising production costs mainly due to inadequate or in some places non-existent power supply. Diesel costs are spiralling and coupled with the low level of power supply, are putting a financial burden on the sector.

Furthermore, the weak corporate earnings by these companies is coming on the heels of increase in cost of sales and administrative expenses as most companies operating in the country battled hike in materials used for production, among others.

For instance, Flour Mills of Nigeria (FMN) Plc, Honeywell Flour Mills Plc, and Northern Nigeria Flour Mills (NNFM) Plc have reported a total net profit decline of N8.158 billion in their nine months ended December 31, 2018.

Accordingly, FMN net profit declined by N5.351 billion, Honeywell Flour profit after tax dropped by N2.637 billion, while NNFM posted a loss after tax of N169.659 million for the period under review.

Flour Mills’ profit before tax and profit after tax declined 42.2 per cent and 40.4 per cent to N11.3 billion and N7.9 billion, respectively. Northern Nigeria Flour Mills reported a loss of N169.7 million as against N160 million loss reported in nine months ended December 31, 2017, while Honeywell Flour Mills, reported 95 per cent drop in profit to N143 million in nine months of 2018 from N2.78 billion reported in nine months of 2017.

Further analysis showed that Flour Mills’ turnover and net income contracted by 6.28 per cent and 40.7 per cent to settle at N400.64.69 and N7.88 billion respectively compared to nine months, 2017 records.