• Wednesday, June 19, 2024
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Nigeria’s largest FMCGs see profits surge to five-year high

Nigeria’s largest FMCGs’ profits exceed pre-pandemic levels

Nigeria’s largest Fast-Moving Consumer Goods (FMCGs) companies have seen their profits surge to a five-year high and above pre-pandemic levels in the first half of 2021, a sign that an economic recovery is on for Africa’s biggest economy.

Data compiled by BusinessDay show that Nestle Nigeria, Dangote Sugar, Flour Mills, Unilever Nigeria, and Nascon recorded a combined profit of N52 billion in the first half of 2021, a 22 percent increase compared with N42.6 billion recorded in the same period last year.

Prior to the pandemic, the profits of the firms have been dwindling since 2018 but made a rebound in 2021 on increased sales.

Ayorinde Akinloye, a consumer goods analyst at United Capital plc, explains that the reason most FMCGs recorded above pre-pandemic level profit is largely because many of them implemented price increases between last year and this year.

“They implemented at least two to three price increments across most of their products, which is why we have been seeing inflation rise significantly. Clearly, that is what has driven the revenue and profits performance that we have seen so far in their transit to 2021,” Akinloye says.

Read also: Nigeria’s largest FMCGs’ profits far from pre-pandemic levels

“If you look at the food, beverage and tobacco sub-sector for Q1 GDP, the sector grew by 7.1 percent in Q1’2021 compared to 1.1 percent in Q1’2020. This shows that volumes also grew significantly; so, that was why there was a price increment,” he states.

Further analysis of their half-year financials shows that the FMCGs saw revenue surge by 37 percent to N810 billion in H1’2021 compared with N590.9 billion in H1’2020.

However, their cost of sales jumped 40.6 percent to N638 billion compared with N453.8 billion in the same time last year. As a result of the impressive revenue, gross profit rose 25.3 percent to N171.8 billion from N137 billion in the first half of 2020.

Omobola Adu, economic analyst, GDL Nigeria, also explains that another reason for the increase in profit is increased consumer spending, noting, “In Q2’2020, the economy contracted by about 6 percent and consumer spending accounted for about 11 percent of contraction.”

This means the breakdown by different components that resulted in the 6 percent decline showed that household spending declined by about 11 percent year-on-year while the economy was in lockdown.

He explains further that the economy has reopened, economic activities are moving and there is increased consumer spending in contrast with H1’2020.

Flour Mills recorded the biggest jump in profit among the five companies. Its profit jumped 90 percent to N15.5 billion in H1’2021 compared with N8.1 billion in the same time last year. The firm also recorded a N48 percent growth in revenue to N450 billion in the period.

Unilever bounced back from a loss of N519 million in H1’2020 to a profit of N714.7 billion in H1’2021. Unilever also grew its sales by 43 percent to N39.1 billion from N27.3 billion in the periods under review.

Dangote Sugar also saw its profit grow by 9 percent to N12.6 billion in H1’2021 compared with N11.5 billion in the same time last year. Its revenue surged 28 percent to N132 billion compared with N103.2 billion in the period.

However, Nestle and Nascon recorded a 0.4 percent and 3 percent decline in profits, respectively, during the periods, but their revenue grew 21.6 percent and 21 percent, respectively.

Analysts expect the FMCGs to maintain this momentum throughout the year as the economy continues to recover.