September 12, 2018/InvestmentOne Report
· With the exception of PZ Cussons Plc, whose released FY 2018 results (YE: May 2018) continued to reflect weak consumer spending and the challenges in the nation’s operating environment on a year-on-year basis, top line performance for most consumer goods players under our coverage improved in H1 2018. Although slower when compared to H1 2017, where top line saw support from price increases taken in 2016, H1 2018 topline performance has been largely volume driven, given that the ability to take further price increases was impaired by competition and fragile consumer spending.
· The improvement in volume performance in H1 2018 may have been driven by the improving momentum in the domestic economy and the continued moderation in headline inflation. On a segmental basis, we point out the increasing competition in the food segment relative to the Home and Personal Care (HPC) segment of most players.
· In H2 2018, we remain slightly optimistic in our view of top line performance. We expect the continued growth in GDP, although still fragile, accelerated implementation of the 2018 budget and election spending to support expansion in volume performance. This, combined with the relative stability in the FX environment may be positive for PBT growth in H2 2018.
· While we expect our consumer names to adopt stringent measures to curtail operating expenses in order to support bottomline performance, we highlight the potential rise in operating expenses that may result from increased promotional and marketing expenses. This may be aimed at driving volume growth amidst increased competition.