The FMCG Sector - Contraction in Inventory Levels as Consumer Demand Falls


Friday, August 17, 2018 /2:10PM/FDC

Nigeria’s Fast Moving Consumer Goods sector (FMCG) has faced a lot of challenges in the last four years. The decline in consumers’ purchasing power due to the decline in global oil prices in 2014 and the disruption in oil production in the Niger Delta negatively affected the sector. It was also one of the hardest hit during the recession due to the challenging business environment. The inaccessibility of the dollar in the economy and delayed policy response resulted in weak macroeconomic conditions, which led to weak labor market dynamics (high unemployment and underemployment), reduced disposable income and poor corporate performance. The sector experienced a fall in patronage, production, turnover and profit margins.

Post-recession (Q1’18), the sector outperformed GDP growth (1.95%) as it recorded a growth rate of 5.46%. The introduction of the Investors & Exporters’ Foreign Exchange window (IEFX) by the Central Bank of Nigeria (CBN) in late April 2017 boosted liquidity in the forex market. This in turn led to the expansion of the FMCG sector due to access to cheaper forex to import new technology, machinery replacements and purchase of raw materials. In addition, the sector has benefitted from cross-selling strategies and an efficient distribution network.

The FMCG sector remains highly fragmented and it is dominated by key players who leverage extensively on international alliances.

In the month of July, the FMCG sector witnessed some noteworthy events such as Duet Private Equity Limited’s (DPEL) $50mn investment in AJEAST Nigerian Ltd, a Nigerian beverage firm and the decline in the Purchasing Man-ager’s Index (PMI).

Recent Developments

In the month of July, the FMCG sector witnessed some noteworthy events such as Duet Private Equity Limited’s (DPEL) $50mn investment in AJEAST Nigerian Ltd, a Nigerian beverage firm and the decline in the Purchasing Man-ager’s Index (PMI).

PMI falls in July

FBN PMI plunged to an 18-month low of 48.9 points from 49.8 points in the preceding month. This marks the third negative reading in 2018 and a contraction of the manufacturing sector. According to the FBN report, all five varia-bles declined with three (output, employment and stocks of purchases) below the 50 threshold. The manufacturing sector remains uncertain of future demand and has thus adopted a wait and sees approach.

The decline was primarily due to weak consumer demand and high carrying costs, despite the availability of forex through the IEFX window introduced by the CBN. In addition, the rainy season, poor electricity supply, high rates of import duty on raw materials and stiff competition from imported goods from China suppressed growth.

Similarly, the CBN PMI declined to 56.8points from 57.0 points in June. Contrary to the FBN report, the CBN PMI sig-nifies an expansion in the manufacturing sector for the 16th consecutive month. The decline was as a result of the slowdown in four variables- production level, new orders, raw material inventories and employment. On the con-trary, 13 out of 14 sub-sectors surveyed grew with the exception of plastic and rubber products.


The decline in PMI was mainly due to a decline in consumer demand which adversely affected inventory build-up of manufacturers. Furthermore, high carrying costs have reduced manufacturers’ appetite for holding stock. We expect the PMI figures to contract further in July due to increased excise duties on alcoholic beverages and tobacco, power constraints and increased forex demand. Furthermore, if the external reserves depletion persists the CBN’s ability to support the forex market could be affected. This is detrimental to manufacturing activities and could increase import and operating costs through a weaker exchange rate.

Performance of the Consumer Goods Sub-Index on the NSE

15 out of the 169 listed companies on the NSE are FMCG companies and constituted approximately 26% of total market capitalization in July (N13.41trn). The consumer goods index comprises of the most capitalized and liquid companies in the food, beverage and tobacco industry. This provides a benchmark to measure the performance of FMCG companies.

In July, the consumer goods sector lost 5.08% to 880.62pts from 927.72pts recorded in the preceding month. This was as a result of losses recorded by PZ Cussons (27%), Honeywell Flour Mills (23%) and Cadbury Nigeria Plc (18%). Year-to-date (YTD), the sub-index lost 9.78%.

The figure below shows the top gainers & losers in the consumer goods space.

Proshare Nigeria Pvt. Ltd.


H1’18 Financial Performance

Nestlé Nigeria Plc

Nestlé Nigeria recorded robust revenue sales up 10.97% to N135.3bn in H1’18. This was driven primarily by growth in its sales volume of both its food and beverage segment. The food segment recorded an 8.91% increase in revenue to N85.13bn, while its beverage segment recorded a 14.65% increase to N50.17bn in H1’18. The just concluded Ramadan season, which drove the high demand for Maggi (predominantly popular in the North), led to the rise in its food volume growth.

Nestlé’s finance costs plunged 84.85% to N1.12bn in H1’18 from N7.39bn in H1’17due to a 99.03% reduction in net forex loss to N50.19mn from N5.17bn in H1’17. This in turn boosted Nestlé’s margin by 23.8% in H1’18 due to access to cheaper forex to import new technology, machinery replacements and the purchase of raw materials such as coffee.


We expect a negative performance to persist in the consumer goods sector in the coming month. This will be driven primarily by an expected fall in consumer demand due to increased excise duties on alcoholic beverages and tobacco and stiff competition from imported goods. In addition, power constraints and high carrying costs will continue to weigh on company performance.

Proshare Nigeria Pvt. Ltd.

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