By OLUSHOLA BELLO, Lagos
Companies listed under the consumer goods sector of the Nigerian Stock Exchange (NSE) took the worst hit from the economic recession that threatened most businesses in the country in 2016.
The consumer goods sector which was mostly hit by the 2016 recession reported a profit after tax drop of about 41 percent in 2016. Profit after tax for the year 2016 was N67 billion compared to N114.8 billion for 2015.
The most significant drop in profit after tax was from Nestle with a profit after tax of N7.9 billion compared to N73.7 billion in 2015.
A cursory look into the financial report and accounts of key players in the sector for full year ended December 31, 2016, showed that Cadbury’s loss increased by 268 percent year on year to N296.4 million as loss for the year compared to N1.1 billion profit made in 2015, while Nigerian Breweries’ after-tax profit for 2016 declined 25.37 percent to N28.4 billion from N38 billion recorded a year earlier.
Meanwhile, companies like Dangote Sugar, Dangote Flour, Nascon Allied Industries, and Northern Nigeria Flour Mill (NNFM) performed well with increased profits.
The consumer goods sector on the NSE, consist of automobiles/auto parts, beverages-brewers/distillers, beverages-non-alcoholic, food products, food products-diversified, household durables and personal/household products.
The sector currently has a total market capitalisation of N2.229 trillion, representing 13.543 per- cent of the NSE market capitalisation.
Operators said that the Nigeria’s manufacturing sector performed dismally in 2016 as manufacturers faced several challenges which affected them negatively.
They said the sector was faced with myriads of challenges ranging from scarcity of foreign exchange, infrastructure deficit, high bank charges and lack of raw materials.
In August 2016, government officials formally admitted that the country was in recession and companies across the country had been lamenting the impact of rising costs, lower patronage and a foreign exchange crisis on their operations.
This was seen in their financial results as a number of companies have reductions in profits compared to the previous years, while some companies declared losses.
The chief operating officer, Foresight Securities & Investment Limited, Mr Charles Fakrogha attributed the development to harsh operating environment, the issue of forex and the general uncertainty of the policy direction of the Federal Government during the period.
In his view, the managing director of Highcap Securities Limited, Mr David Adnori said a critical look at the composition of this sector as listed on the Nigerian bourse showed it to be among the major sectors of the manufacturing industry of the economy.
Meanwhile, the sector was among the worst hit by the contraction in domestic output as a result of the headwinds that hindered economic growth and development in the last fiscal year. Adnori explained this to be as a result of the combination of the weakening of the domestic currency, lower household income and weaker savings rate amongst others.
Reviewing the capital market performance for 2016, the chief executive officer of NSE, Mr Oscar Onyema, said, “The bottoming out of crude oil prices and a drastic decline in domestic oil output curtailed crude oil export proceeds, which accounts for roughly 90 percent and 70 percent of Nigeria’s FX earnings and government revenue, respectively. This resulted in foreign exchange liquidity challenges during the year, as the supply side of FX into the CBN dropped by over 70 percent, despite heavy domestic demand.
“Accordingly, the oil price shocks and associated prolonged FX dilemma, coupled with challenges to policy implementation, drove the Nigerian economy into its first recession in over 20 years by second quarter, 2016.
“Capital markets tend to act as barometers of any economy, and in Nigeria’s case, the prolonged economic downturn directly impacted an array of products and asset classes on the NSE.”
Also, the group managing director and chief executive officer of Vitafoam, Mr Taiwo Adeniyi explained that 2016 was a very tough period, saying the most difficult problem was how to make realistic business decision in the face of continuous uncertainty in view of insecurity, exchange rate, interest rate, devaluation of the naira and insecurity of lives and property.
The director-general, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf said the inability of manufacturers to access foreign exchange at the interbank market impeded growth in the real sector in 2016.
However, there is a ray of hope for the sector in 2017 as indicated by the Purchasing Managers Index (PMI), which is an indicator of the economic health of the manufacturing sector.
According to the data from the PMI for April 2017of the Central Bank of Nigeria (CBN), manufacturing PMI rose to 51.1 index points in April 2017, indicating expansion in the manufacturing sector after three months of contraction. This also elicits optimism that 2017 would be a better year for the sector.