Manufacturers’ three-month revenue rises 79% as prices soar

The combined revenue of some of Nigeria’s biggest manufacturers rose by 78.7 percent in the first quarter of 2024, data compiled by BusinessDay shows.

The latest financial statements of 13 listed consumer goods firms show that their revenue grew to N2.27 trillion in Q1 from N1.27 trillion in the same period of last year. This is higher than the 6.7 percent recorded in Q1 2022 (N1.19 trillion).

The firms are Dangote Cement Plc, BUA Foods Plc, Nigerian Breweries Plc, Nestle Nigeria Plc, BUA Cement Plc, Lafarge Africa Plc, Dangote Sugar Refinery Plc, International Breweries Plc, Guinness Nigeria Plc, Unilever Nigeria Plc, Cadbury Nigeria Plc, NASCON Allied Industries Plc and Champion Breweries Plc.

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But despite the increase in revenue, most of them reported a decline in their earnings as a result of the naira devaluation.

“Companies’ revenue will still grow because our local productivity is still short of demand and the population is still growing,” Damilare Asimiyu, macroeconomic strategist and head of investment research at Afrinvest West Africa Limited, said.

He said most Nigerian companies have learned a lot during COVID-19 in terms of managing their cost of sales and many of them have a lot of partnership that helps them get their raw materials, and they have also reduced their reliance on importing raw materials to a large extent.

“Breweries and consumer firms are now sourcing their materials locally, but the 30-40 percent they’re still exposed to externally is what affected them. So, fix the environment, don’t let finance costs be high, and businesses will do well.”

Gabriel Idahosa, president of the Lagos Chamber of Commerce and Industry, said manufacturers’ challenges would not have been this intense if the country didn’t have the FX issues.

“First, they will not require so much naira and borrowing to buy a dollar now. They are also paying a lot of interest to buy the same dollar. So, both the volume of working capital and the rate of interest they are paying on the naira they are borrowing would have been lower making their profit performance much better,” he added.

Further analysis of the statements shows that Dangote Cement recorded the highest revenue of N817.4 billion followed by BUA Foods with N356.9 billion, Nigerian Breweries (N227.1 billion), Nestle (N183.5 billion) and BUA Cement (N161.1 billion).

“I believe that if not for the FX in terms of profitability, manufacturers would have performed much better because the FX component of that cost would be less,” Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), said.

Seven of the firms which are International Breweries, Cadbury Nigeria, Nigerian Breweries, Nestlé, Dangote Sugar Refinery, Champion Breweries, and Guinness Nigeria posted a combined loss of N388.6 billion in Q1.

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Of the six remaining companies, three which include BUA Cement, Lafarge Africa, and NASCON reported a decline in their earnings by 37.6 percent, 65.2 percent, and 24.9 percent respectively.

The remaining three posted an increase in profit. They include BUA Foods, Unilever Nigeria, and Dangote Cement which posted a combined profit of N171.9 billion, up from N152.6 billion.

Analysts say the further devaluation of the naira coupled with rising interest rates led to increased operating costs for the companies, particularly the multinationals whose major costs are denominated in foreign currencies.

The naira suffered a near 30 percent devaluation this year following a 40 percent devaluation in June last year.

The naira devaluation put more pressure on the margins of companies already dealing with double-digit inflation rates and the weak purchasing power of cash-strapped consumers.

“A lot of consumer firms had higher finance costs because of FX losses and higher interest rates,” Ayorinde Akinloye, a Lagos-based investor relations analyst, said.

“Despite some of them having good operating performance, their profit declined while others recorded huge losses,” Akinloye said.

The losses affected tax payments to the federal government as manufacturers’ contributions dropped to the lowest in three years in the first quarter of 2024. According to the latest Company Income Tax (CIT) report from the NBS, the tax revenue from both local and foreign manufacturing firms fell by 70.4 percent to N43.2 billion in Q1 from N145.1 billion in the same period of last year.

George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited, said a lot of instability and inconsistency in the currency coupled with insecurity creates a problem for many businesses.

“You will limit what you have been able to do or limit your exposure. The erosion of working capital for businesses, especially for manufacturers, is happening massively.”

Over the past eight years, Africa’s most populous nation has slumped into two recessions owing to the collapse of oil prices, disruptions caused by the COVID-19 pandemic, and an inability of the government to reform the economy.

Upon his assumption of office last year May, President Bola Tinubu implemented bold reforms including the removal of petrol subsidy and naira devaluation to boost revenues for the welfare of its citizens.

However, the reforms have increased inflationary pressures to the highest on record and weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.

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Data from the National Bureau of Statistics shows that the headline inflation quickened for the 17th straight time to 34.19 percent in June, up from 33.95 percent in May.

Food inflation, which constitutes more than 50 percent of headline inflation, also increased to 40.87 percent from 40.66 percent.

Rising inflation and sluggish growth in one of Africa’s biggest economies increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year, according to the World Bank.