Coronanomics (21) - Sectorial Analysis of Nigeria's Manufacturing Sector

Saturday, June 27, 2020 06:50 AM / by Proshare Content/ Header Image Credit:  EcoGraphics

 

Manufacturing Sector

The manufacturing sector in Nigeria is comprised of thirteen activities: Oil Refining; Cement; Food, Beverages and Tobacco; Textile, Apparel, and Footwear; Wood and Wood Products; Pulp Paper and Paper products; Chemical and Pharmaceutical products; Non-metallic Products, Plastic and Rubber products; Electrical and Electronic, Basic Metal and Iron and Steel; Motor Vehicles and Assembly; and Other Manufacturing.

 

Illustration 23: Global Supply Chain Interdependencies and COVID-19 Impacts

 

Disruption of the global supply chain has negatively affected the manufacturing sector in Nigeria. The manufacturing sector recorded slow growth in Q1 2020. It grew by 0.43%, lower than Q1 2019 growth rate of 0.81% and Q4 2019 growth rate of 0.43%. Many manufacturers and service providers in the country are already experiencing an acute shortage of raw materials and intermediate inputs. This shortage has affected their capacity utilization, employment generation, adequacy of product supply to the domestic market and has led to an increase in the cost of inputs which are largely imported.

 

Other challenges in the manufacturing sector attributable to the pandemic includes an increase in foreign exchange risks and increasing operational cost, dip in sales as Nigerian are focused on staying alive.

 

Chart 115: Manufacturing Sector Quarterly Growth Rate (%)

Source: NBS, Proshare Research

Note Asterisks (*) - Forecasted figures 

 

Case Study: Nestle Nigeria Plc

Nestle Nigeria Plc is a food manufacturing and marketing company. It is engaged in manufacturing, marketing and distribution of food products, including purifies water throughout the country. It operates through two segments: Food and Beverages.

 

Nestle Plc PBT

Nestle Plc recorded an upward trending PBT between 2015 and 2019. Its PBT grew by 6.65% in 2019. Its PBT increased from N266.3bn in 2018 to N284bn in 2019 (see Chart 116). Its PBT is projected to decline slightly in 2020 due to an impending recession caused by the coronavirus.

Chart 116: Nestle PBT (N'bn) 2015-2019

Source: Nestle Plc Financials, Proshare Research 

 

Nestle Plc Revenue

Nestle Plc recorded a yearly increase in its revenue. Its revenue grew by 18.9% in 2019. Its revenue increased from N59.8bn in 2018 to N71.1bn in 2019 (see Chart 117).  Nestle Plc's revenue for 2020 is projected to decline slightly in 2020 due to the looming impending recession in the economy and projected fall in consumption demand.

Chart 117: Nestle Plc Revenue (N'bn) 2015-2019

Source: Nestle Plc Financials, Proshare Research 

 

Nestle Plc Current Ratio

Nestle Plc's current ratio fluctuated between 0.81 and 0.91 from 2015 to 2019. Its current ratio is 2019 was 0.85, a decline from 0.90 in 2018 (see Chart 118). Its low current ratio implies that Nestle Plc may have liquidity problems, meaning that it might have problems meeting its short-term obligations. Its current ratio may not significantly respond to the virus's effect on the economy.

Chart 118: Nestle Plc Current Ratio 2015-2019

Source: Nestle Plc Financials, Proshare Research 

 

Nestle Plc Acid-Test Ratio

The company's acid-test ratio fluctuated between 0.59 and 0.97 from 2015 to 2019. Its acid-test ratio declined from 0.65 in 2018 to 0.59 in 2019 (see Chart 119). It indicates that the company does not currently have sufficient current assets to cover its current liabilities which means it is heavily invested in inventory. Its acid-test ratio is projected to decline further due to the coronavirus.

 

Chart 119: Nestle Acid-Test Ratio 2015-2019

 

Source: Nestle Plc Financials, Proshare Research 

 

Nestle Leverage Ratio

The confectioners leverage ratio was 0.12 in 2019. It did not record any change from the previous year (see Chart 120). Its low leverage ratio implies that Nestle Plc's operations and sales are generating enough revenue to grow its assets through profits. Its projected decline in profit in 2020 due to the impending recession coupled with the need to expand operations would most likely lead to a rise in its leverage ratio for 2020.

 

Chart 120: Nestle Leverage Ratio 2015-2019

Source: Nestle Plc Financials, Proshare Research

 

Related Reports (PDF)

1.     Download the Full PDF Report - Coronanomics and the Nigerian Economy, June 06, 2020

2.     Executive Summary PDF - Proshare, June 06, 2020

 

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