The profitability of Fast Moving Consumers Goods (FMCG) firms has been affected by the coronavirus pandemic as many of them reported dwindling profits.
Most of the FMCG companies saw their profits shrink in the second quarter of the year, as they battled the negative impacts of coronavirus and lockdown on their businesses.
An analysis of the financial statements of 13 of these companies listed on the Nigerian Stock Exchange revealed that the profits of the companies plunged by 39 per cent or N16.71bn from a total of N27.51bn profit after tax in Q2 2019 to N10.8bn in Q2 2020.
Only five of the FMCG examined recorded improved profitability while the profit or loss of eighth of these companies declined during the period under review.
The performance of many manufacturing firms that were not producing essentials goods was adversely affected by the coronavirus pandemic, especially in April when they halted production due to the lockdown imposed by the government.
This led to a high volume of unsold inventory as reported by the Manufacturers Association of Nigeria.
Findings showed that three breweries – International Brewery Plc, Nigerian Breweries Plc and Champion Breweries Plc – reported a decline in profit between April and June.
While two flour mill companies were able to grow their profits, one reported plunging profit in the period under review.
Nigerian Breweries Plc suffered a 98 per cent decline in its profit after tax to N83.91m in the three-month period ended June 30, from N5.30bn in the same period of 2019.
International Breweries Plc posted a loss of N3.71bn between April and June this year, indicating a 230 per cent decline from a loss of N2.85bn in the same period in 2019.
Champion Breweries Plc reported a loss of N18.29m in the period under review compared with N99.11m profit in Q2 of 2019. This shows 82 per cent decline in profitability.
Unilever Nigeria Plc posted a loss of N1.63bn in the three-month period ended June 30, compared to a profit after tax of N1.99bn in the same period of 2019. This reflects 182 per cent decline in profitability.
Nascon Allied Industries Plc’s profit after tax increased by 14 per cent from N754.59m in Q2 2019 to N860.24m in Q2 2020.
Vitafoam Plc also grew its profit after tax to N475.10m in Q2 2020 from N338.3m in the corresponding period in 2019, indicating 40 per cent increase in profitability.
The profit of Honeywell Flour Mills Plc plunged to N45m in the Q2 2020 as against N108m profit after tax in the corresponding period in 2019, indicating a 58 per cent decline in profitability.
Dangote Sugar refinery grew its profit after tax by 31 per cent to N5.21bn in Q2 2020 from N3.97bn in the corresponding period in 2019.
Flour Mills of Nigeria recorded a 17 per cent increase in profit to N4.97bn from N4.24bn in Q2 2019.
Cadbury Nigeria Plc posted a loss of N102.28m in the three-month period ended June 30, compared to a profit after tax of N163.19m in the same period of 2019.
Nestle Plc suffered a 21 per cent decline in its profit after tax to N10.63bn in the three-month period ended June 30, from N13.4bn in the same period of 2019.
Northern Nigeria Flour Mills Plc saw its performance improve from a profit of N10.76m in Q2 2019 to a profit of N68.50m in the same period in 2020. This reflects 537 per cent increase in profitability.
Nigeria Enamelware Plc’s loss worsened in Q2 2020, recording a loss N85.24m against a loss of N2.90m in Q2 2019. This is a 2,839 per cent decline in profitability.
While most of the companies examined could not assess the impact of the coronavirus pandemic on their financial performance, the Manufacturing Association of Nigeria said the measures imposed by the government affected the ability to sell their products.
The association said the overall inventory of unsold products was worth N420bn in the first quarter of 2020.
This was attributed to weak consumer purchasing power and the effects of lockdown on sales and production.
The association said members were unable to import raw materials and equipment due to forex scarcity.
Findings showed that beverage companies, especially breweries, had a stockpile of products in their warehouses that they were not been able to sell during the lockdown.
The acting Director-General of the Manufacturers Association of Nigeria, Ambrose Oruche, told our correspondent that breweries went through a hard time in the second quarter because most of their warehouses were loaded with goods they could not sell.
He explained that vendors that were dependent on the food and beverage companies had also been impacted by the poor state of business.
Oruche said, “Breweries are really going through a hard time because most of their warehouses are loaded with goods they cannot sell.
“To them, why will they produce when they cannot sell? Most of their customers come from bars, restaurants, hotels and hospitality companies.”
In order to encourage manufactures that export their goods to other African countries, the Chairman, MAN Export Promotion Group, Ede Dafinone, appealed to the government to open the land borders.
Over the last one year, as a result of the border closure, he said two companies had to close their businesses because they had only cross border export as their sole business.
He stated that others had simply restricted their businesses to the local market.
According to him, non-payment of EEG is greatly affecting the volume of non-oil exports and the profitability of exporters.
The government currently owes exporters EEG valued at over N1tn.
However, EEG valued at about N197bn has been approved for payment by the National Assembly through Promissory Notes to be issued by the Debt Management Office.
“What we find is that exporters who are beneficiaries of the grant have priced their products to break into new markets by pricing them at lower prices than they can afford to sell normally to enable them to take a stake in the market in foreign countries,” Dafinone said.
“Where the EEG has not been paid, the exporters find it unprofitable to break into those markets and retreat towards our local market.”
Meanwhile, the Nigerian government has introduced a number of intervention funds to cushion the effects of the pandemic on the real sector.
The government through the Central Bank of Nigeria planned to offer intervention funds at reduced interest rate of five per cent with a one-year moratorium till March 31, 2021.
As contained in the 2021 proposed budget, N100bn would go to households and small businesses; another N100bn to the healthcare and pharmaceutical industry; while N1tn would be offered to large agricultural and manufacturing businesses.