Why Fan Milk posted its worst ever earnings in 2020

Although there was improved demand for Fan Milk’s products in the final quarter of the year as consumer confidence recover, overall revenue for 2020 dropped by 12.0 percent year on year to GHc373.58 million. This was attributable to unfavorable performance in the earlier part of the year as a result of the coronavirus pandemic, which significantly limited the movement of people including the company’s sales boys who use bicycles to penetrate communities and local markets.

Fortunately, management kept a tight lid on expenses in the midst of the covid-19 pandemic. Firstly, the cost of sales dropped marginally by 0.2 percent year on year, partly due to the relative stability of the Ghanaian cedi (-3.9 percent) against the United States dollar that helped to limit the cost of imported raw materials. In addition, operating expenses dropped by 15.3 percent year on year to GHc121.79 million in 2020 on the back of a significant cut in administrative expenses (-33.7%year on year). Consequently, the operating expense ratio moved down by 130 basis points to 32.6 percent in 2020 from 33.9 percent in 2019.

However, the company’s earnings were ultimately affected the decline in the topline. Profit before tax slumped by 97.9 percent year on year to GHc0.80 million while profit after tax went down by 97.6 percent year on year to GHc0.60 million in 2020. This is the worst full year earnings ever declared by the company since we started tracking its performance in 2005 as shown below.

The gradual improvement in business and consumer confidence bodes well for consumer good companies such Fan Milk, but the second wave of covid-19 infections in Ghana presents some risks, especially if the Ghana government is forced to lockdown the economy again this year.

Source: goldstreetbusiness.com

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