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How consumer goods firms grapple with rising inflation

How consumer goods firms grapple with rising inflation

Inflation became a global menace in 2022 due to the Russia-Ukraine war which disrupted global supply chains causing prices of raw materials and energy to soar to record highs.

As a result, both local and foreign companies have consistently battled with the need to deal with increasing costs of production so as to remain profitable. Some took up the pricing strategy to ensure the effect is not completely borne by the producers and so they can boost revenues.

BusinessDay surveyed eight (8) top consumer goods manufacturers in Nigeria; Nigerian Breweries, Nascon Allied Industries, Nestle Nigeria Plc, Bua Foods Plc, Unilever Nigeria Plc, Dangote Sugar Refinery, Cadbury Nigeria, International Breweries and the outcome revealed that the cost of sales reported by these firms rose by 29.42 percent in the nine-month period of 2022 to N1.10 trillion from N851 million in the corresponding period of 2021.

Nigerian inflation first hit a 17-year high in July 2022 at 19.64 percent and has since persistently risen to 21.47 percent as of November 2022.

Consequently, the effect of the rising input cost can be seen as putting a strain on revenue and profit, with input costs reported by these firms claiming 68.30 percent of their total revenue for the nine-month period totaling N1.61 trillion.

The profit margin reported by these firms grew at a slow pace by 73 basis points to 9.36 percent in the nine-month period of 2022 from 8.63 percent in the nine-month period of 2021.

Company Analysis

Cadbury Nigeria Plc

Cadbury Nigeria reported a 39.89 percent increase in its cost of sale for the nine-month period of 2022 totaling N34.16 billion from N24.42 billion in the nine-month period of 2021.

Further analysis showed that the first input cost claimed 80 percent of its total revenue during the period which amounted to N42.54 billion.

Dangote Sugar Refinery

Dangote Sugar Refinery’s input cost during the nine-month period of 2022 claimed 80 percent of its total revenue which amounted to N288.32 billion.

Its cost of sales grew by 45.44 percent to N230.89 billion in the nine-month period of 2022 from N158.75 billion in the corresponding period of 2021.

The growth in its cost of sales can be attributed to the 60 percent and 48.8 percent growth in freight expenses and raw materials respectively during the period amounting to N11.6 billion and N190.4 billion respectively.

Unilever Nigeria Plc

The cost of sales reported by Unilever Nigeria Plc grew by 32.64 percent in the nine-month period of 2022 to N47.59 billion from N35.88 billion in the nine-month period of 2021, claiming 73.48 percent of the total revenue reported during the period.

The firm reported total revenue of N64.77 billion in the nine-month period of 2022.

International Breweries Plc

International Breweries, a Nigerian beer maker saw its cost of sales increase by 13.91 percent in the nine-month period of 2022 to N113.47 billion from N99.61 billion in the nine-month period of 2021.

Further analysis shows that the beer maker’s input costs claimed 70.73 percent of its total revenue during the period which amounted to N160.43 billion.

Read also: Shareholders laud Eterna over 2022 performance

BUA Foods Plc

BUA Foods reported a 23.18 percent increase in its cost of sales for the nine-month period of 2022 totaling N195.64 billion from N158.83 billion in the nine-month period of 2021, thereby claiming 67.51 percent of its total revenue during the period.

Its gross profit margin declined by 470 basis points to 32.5 percent in the nine-month period of 2022 from 34.1 percent in the corresponding period of 2021.

The growth in the cost of sales was driven by an increase in raw materials cost which was up 26.7 percent and accounted for 88.7 percent of the total cost of sales during the period.

“The high input cost environment and further devaluation of the Naira against the US Dollar weighed heavily on prices for raw materials. This resulted in higher cost of production,” BUA Foods stated in an earnings release statement.

Nestle Nigeria Plc

Nestle’s cost of sales claimed 64.83 percent of its total revenue during the nine-month period of 2022 and grew by 34.87 percent to N216.19 billion from N160.3 billion in the nine-month period of 2021.

Nascon Allied Industries

Nascon reported cost of sales amounting to N25.14 billion in the nine-month period of 2022, 68.18 percent higher than the N14.95 billion reported in the corresponding period of 2022. Its total cost of sales during the period claimed 61.91 percent of its total revenue which totaled N40.61 billion.

Its cost of sales grew on the back of a 79.97 percent and 55.15 percent increase in the cost of raw materials and manufacturing expenses.

Nigeria Breweries Plc

Nigerian Breweries’ cost of sales grew by 20.21 percent in the nine-month period of 2022 to N238.91 billion from N198.74 billion in the corresponding period of 2021, on the back of a 22 percent increase in raw materials consumed.

Its total cost of sales claimed 60.72 percent of its total revenue during the period.