August 15, (THEWILL) – Nigeria’s major Fast-Moving Consumer Goods (FMCG) firms listed on The Exchange recorded significantly impressive performance in their half-year (H1 2021) operations. The results were far beyond industry expectations. There are no less than 35 registered FMCG firms across the country, but only 20 are listed on The Exchange.
The FMCGs are products that sell quickly at relatively low cost. They have a short shelf life because of high consumption or because they are perishable. Characteristics of FMCGs include their being frequently purchased, rapidly consumed and sold in large quantities. Their producers and sellers record-high turnover amid relatively low-profit margins.
Among Nigeria’s FMCG firms are Dangote Sugar, Unilever, Nigerian Breweries, Nestle Nigeria, Champion Breweries, Flour Mills of Nigeria, Vital Products and Sona Agro Allied Foods Limited. Others are Dansa Foods Limited, La Casera, Deli Foods, PZ Cussons, CWAY Food & Beverages, Friseland Company, Dufil Prima Foods, Cadbury, Guinness and others.
Firms in the FMCG sector were badly hit at the peak of the 2020 COVID-19 outbreak. The 15-months land border closure also had its toll on these companies as many could not distribute or export their products. Procurement of raw materials was also severely challenged.
The management of Nigerian Breweries Plc revealed that its operations in 2020 were adversely impacted by COVID-19, VAT increase, FX devaluation and scarcity of foreign exchange. Another company that recorded a significant downturn in its operations is Cadbury Nigeria. The beverage producing firm reported a 14.4 percent slump in export sales revenue to N3.3 billion in nine months in 2020 due to the pandemic and closure of the land border.
PZ Cussons and Nestle Nigeria reportedly spent weeks on sea while exporting their products to the West and Central African markets following the land border closure. The outcome of these bold but ‘suicidal’ steps was loss of forex earnings, dwindling revenue, contraction of activities and disengagement of workers. Their ill-fortune also extended to the small businesses engaged in the active supply chain under the backward integration policy.
Turn-Around
But results of the firms’ H1 operations showed a rapid recovery. As if the economy had singled them out for a special favour, the major FMCG firms listed on The Exchange recorded a quantum leap in their up and bottom lines. Their profitability hit a five-year high and above pre-COVID-19 levels in H1 2021 as their revenue also soared. Data from the firms’ H1 reports showed that the combined profit of Unilever, Nestle Nigeria, Dangote Sugar, Nascon and Flour Mills of Nigeria hit N52 billion as against N42.6 billion in the corresponding period of 2020, representing a 22 percent up-jump.
A significant point in their performance report was the fact that these firms had been waging a battle of dwindling returns since 2018 before the pandemic struck with its devastating effects on human health and the economy. Their sudden and rapid recovery creates room for realistic prospects among the operators and, also, the firms engaged in backward integration.
Flour Mills of Nigeria (FMN) recorded a 90 percent profit increase to N15.5 billion in H1 2021, compared to N8.1 billion reported in the corresponding period of 2020. This is the highest profit by any FMCG firm during the review period. Additionally, FMN posted revenue of N450 billion in the period, representing a 48 percent increase as against N304.8 billion in H1 2020. The company’s H1 profit was the highest in the last seven years. Its gross profit followed the same trend: from N43.51 billion to N60.01 billion, a rise of 38 percent in H1 2020 and H12021 respectively.
“Similar to the performance over the last few quarters, our business has been able to sustain the strong performance despite the increasingly difficult terrain and uncertainties,” the company said in its H1 2021 financials.
Dangote Sugar’s pre-tax profit jumped 9 percent from N11.5 billion in H1 2020 to N12.6 billion in H1 2021. Its revenue rose to N132 billion from N103.2 billion achieved in the corresponding period of the previous year, representing 28 percent increase. The case of Unilever was equally significant: The company bounced back to profitability from a loss of N519 million in H1 2020 to a profit of N714.7 billion in H1 2021. It grew its sales by 43 percent from N27.3 billion to N39.1 billion during the review periods.
The financials of Nestle and Nascon showed that they recorded a revenue growth of 21.6 percent (N171.44 billion) and 21 percent (N17.57 billion) respectively. However, their profits for the periods were N21.73 billion and N1.45 billion, a drop of 0.4 percent and 3 percent respectively.
THEWILL findings showed that the FMCG firms implemented price increases of their products at least two times in the past one year, leading to higher revenue and increased volume sales as consumers battled to make ends meet. This suggests the inevitability of opportunity as most consumers had to forego certain needs in the course of procuring the goods where they are inevitable.
Prospects for Backward Integration
The fast recovery of the FMCG firms after the double tragedy of the 2020 COVID-19-induced recession and the 15-months land border closure is a ray of hope for the small firms engaged in the backward integration policy. Backward integration is a practice where companies are encouraged to cultivate their own raw materials by purchasing their suppliers or establishing farms to grow produce for their factories. Though conceived in the 80’s, the policy gained momentum in Nigeria following the crash in crude oil prices which started in the fourth quarter of 2014. The government put the measure in place to save foreign exchange, create jobs, productivity and grow the GDP.
Operators in the SME space belonging to various sectors, especially agriculture and transportation, have benefited from the policy as the FMCG firms take giant strides in supporting and implementing the policy. Governments at the three levels have also benefited from the measure by way of tax revenue, skill acquisition, infrastructure and technology.
For instance, Nestlé Nigeria plans to engage 5,000 smallholder farmers for the supply of raw materials for its agro-business operations. The initiative, ‘Developing Inclusive Grain Value Chains Project’, is in partnership with IDH— a Sustainable Trade Initiative and TechoServe outfit. According to Nestle, the initiative is a seven-month project that will facilitate the supply of maize, soybeans, millet, and sorghum. It added that the scheme will increase the income of farmers and create a steady supply of locally grown crops as the COVID-19 pandemic disrupted global importation of these materials.
Nestle revealed that the objectives of the project include: working with six small and medium-sized enterprises (SMEs) that aggregate crops and supply them to Nestlé factories; aggregators and sub-aggregators will receive training on proper grain handling, storage, and testing, as well as entrepreneurial and financial skills; while logistics partners will receive training on proper handling and storage of grain during transit.
Nigerian breweries stepped up local production of sorghum and cassava to boost local raw material supply for its plants. The FMCG firm has made significant strides towards the development and commercial cultivation of sorghum and its use by the industry since the 80’s. There are many SMEs involved in the project.
“Following Government’s call for backward integration through the use of local cereals in the 1980’s, Nigerian Breweries Plc committed significant resources to the commercial cultivation of sorghum.
“Research and development efforts to explore and establish better varieties, and trials to perfect its use in brewing some of our beverages commenced and have since advanced to great heights. We saw the potentials of the cultivation and use of sorghum in facilitating sector linkages and creating a value chain that greatly benefits our stakeholders, especially the farmers.
“We have continued to collaborate with various implementing partners. We are also working with the Institute for Agricultural Research (IAR), International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), seed producers, regional production coordinators and other partners in the sorghum value chain,” said Nicolaas A. Vervelde, former Managing Director/Chief Executive of Nigerian Breweries.
FrieslandCampina WAMCO Nigeria has developed its local raw milk sourcing in a bid to support backward integration, an initiative that has provided a source of sustained income to almost 2,000 farmers (including 900 women).
“One primary focus during the year was to improve on the quality of raw milk obtained from our local suppliers and this was achieved by putting in place an efficient quality improvement programme. The programme involved extensive training of the Fulani milk producers at the herd levels on how to hygienically handle and deliver quality raw milk to the milk collection centres, with emphasis on thorough follow-up on the implementation of quality procedures.
“The Company made tremendous progress in its journey of continuous improvement in quality, ensuring that the high quality of the Company’s products is maintained throughout the value chain from grass to glass. This laudable pursuit of our Company was given credence in the course of the year with the achievement of Food Safety Systems Certification (FSSC) 22001” said the Chairman, Jacobs Moyo Ajekigbe, at the firm’s AGM in 2016.
Manufacturers in the flour milling sector have been taking steps to increase their tempo of backward integration in recent times. Flour Mills of Nigeria Plc has invested in Thai Farms and other agricultural projects to cultivate raw materials for most of its processes. Cadbury Nigeria established a cocoa processing plant in Ondo.
The CBN has introduced many intervention programmes to support the small business operators and assist them participate actively in the backward integration policy. The micro-schemes include the Agricultural Credit Guarantee Scheme (ACGS); Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL); Commercial Agriculture Credit Scheme (CACS); the N220 billion Micro, Small and Medium Enterprises (MSME) Fund; and the Anchor Borrowers’ Programme. The CBN also reduced interest on intervention funds from 9 percent to 5 percent as a result of COVID-19.
“The impressive performance of the FMCG firms is a huge plus for us in the value chain link. It has boosted our morale. It has also helped us to recover faster after the devastating effects of COVID-19 and the prolonged land border closure during which many of our members closed shop,” said Babatunde Ojekunle, an Ogun farmer engaged in backward integration to feed a major FMCG firm.
Government should intensify the efforts aimed at instituting sustained synergies between rural and urban dwellers by addressing the yawning infrastructure gap that has plagued developmental efforts. The Ministry of Agriculture and Rural Development is fast-tracking SME development leveraging on the fast-growing pace of the agricultural sector. Beneficiaries of the CBN intervention funds should endeavour to repay their loans as programmed. This way, the backward integration policy will provide the needed support to boost the economy.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
