The year 2015 was a horrendous year for Nigerian consumer goods companies as key indicators showed many of them being hard hit by rising inflation, foreign exchange restrictions and continued weakness in consumer discretionary spending accentuated by a slow-growing economy.
Nairametrics has decided to take a cursory look at the 5 major listed consumer firms (Cadbury Nigeria, Seven Up, Nestle, Dangote Sugar and Unilever) analyzing them based on key ratios that will enable investors take informed investment decisions.Â
The inter sector analysis will also shed light on how some of these firms fared in 2015 and which among them will surmount the challenges in the current year.
 
All the firms quoted in the floor of the NSE recorded single digit growth in revenue as at December 2015. Cadbury recorded the highest growth at the top lines with year on year (YOY) revenue growth of 8.82 percent (see chart) in the period under review. Dangote Sugar, Unilever and Nestle all recorded 6.53 percent, 6.21 percent and 6 percent, growth at the top lines. Seven Up Bottling Company came in at the rear with 4 percent rise in revenue.
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In terms of managing production costs, most of these firms recorded single digit growth in cost of sales, which is below the average inflation rate of 9.01 percent for 2015. Nestle and Seven Up meanwhile had cost of sales increases of 22.42 percent and 16.24 percent, which is higher than the average inflation rate.  Only Nestle was able to navigate the storm and pass higher costs to consumers as it was the only firm that recorded a 7 percent increase in profit, though a single digit rise and lower than average inflation rate. (See chart). This compares with Seven Up year on year (YOY) decrease in profit of 53 percent, Cadbury 51 percent, Unilever 50.57 percent.
 
Dangote Sugar’s profit was flattish. Nestlé’s profit margin of 15.40 percent was the highest, making it the most efficient and profitable.
 
For those whose earnings fell off the cliff, they mostly attributed the fall to the restrictions imposed by the Central Bank Nigeria (CBN) that made it practically difficult to access dollars for the purpose of importing raw materials and plants. They were forced to buy dollars at a more expensive black market rate of between N320-N350. The record difference between naira’s official rate and black market rates made Unilever’s Africa President Bruno Witvoet to conclude that the whole policy is ‘insane’.
Overhead Costs to Erode earnings in 2016
Despite the positive impact of the introduction of a flexible exchange rate system by the CBN on the operations of most manufacturers, costs of production are going to rise in 2016 on the back of higher costs of transportation and cost of power generation. Consequently, most of these firms are likely to make less profit and this will erode shareholders’ value.
Going forward, we project a cumulative cost of sales of the five firms to increase by 39.50 percent to N131.16 billion in 2016, from N93.98 billion recorded in 2015.
Nestle and Dangote Sugar are best positioned to perform better in 2016 since they have a better expansion plan and strong margins based on a focus strategy and market penetration.
