BusinessDay

Nigeria’s biggest consumer goods firms walk tight rope on rising operation cost

In Africa’s biggest oil producing country, consumers are feeling the strain on their wallets as they pay more on their weekly grocery shopping trips.

Prices for staples like milk, coffee and drinks are on the rise, and the multinational conglomerates that produce them, like Nestle, Floor Mill, Dangote Sugar and Cadbury are blaming the increases on higher operating cost exacerbated by rising energy cost.

For the year ended December 2021, BusinessDay analysis ranks ten quoted FMCGs (Dangote Sugar, Presco, Flour Mill, Nestle, Guinness, NASCON, UAC, UNILEVER, Cadbury and International Breweries) by their cost to income ratio.

The cost-to-income ratio gives a clear view of how efficiently the firm is being run and is calculated by dividing the operating expenses by the operating income generated.

The ratio is important in determining the profitability of a bank. The lower the ratio, the more efficient the firm is.

Dangote Sugar

Dangote sugar ranked the most efficient FMCG by recording the least cost to income ratio which stood at 0.3 in 2021, although an increase from 0.2 in 2020.

Operating profit dropped to N38.76 billion from N47.51 billion in the period under review.

Operating expenses increased to N11.54 billion from N9.69 billion in the comparable period. Cost of sales increased to N225.8 billion from N157.1 billion in 2020.

Dangote Sugar is a brand that has made a remarkable impact on the Nigerian sugar sector, they operate to international standards of food production, health and safety and have been honoured with numerous awards for their quality standards.

Presco

Presco ranked second most efficient with a cost to income ratio represented by 0.42 in 2021 compared to 0.04 in 2020.

Operating profit jumped to N21.99 billion from N15.52 billion in the period under review. Operating expenses jumped to N9.25 billion from N0.57 billion in the comparable period.

Cost of sales increased to N15.99 billion in 2021 from N7.8 billion in the year ago period.

Presco Plc is an agro industrial company. The Company is engaged in the development of oil palm plantations, palm oil milling, palm kernel processing and vegetable oil refining.

Read also: Inflation is biggest risk to overall political stability in Nigeria says EIU

Flour Mills

Flour mill ranked third most efficient with its cost to income ratio at 0.64 in the full year 2021 compared to 0.53 in the full year 2020.

The full year financial statement from 2016 to 2019 ended in March, while the 2020,2021 ended in December.

Operating profit rose to N49.06 billion, compared to N47.34 billion in the previous year. Operating expenses increased to N31.16 billion in 2021 from N25.11 billion in 2020.

Cost of sales jumped to N744.7 billion compared to N483 billion in the year ago period.

Flour Mills of Nigeria Plc is a dominant player in the Nigerian food and agro allied industry, the group’s operations are classified into four major sectors of Food, Sugar, Agro-allied, and Support services.

Nestle

Nestle ranked fourth in efficiency compared to peers with a cost to income ratio which stood at 0.83 in 2021 from 0.85 in 2020.

Operating profit increased to N71.96 billion from N64.42 billion in the comparable periods. The company increased operating expenses by 9.27 percent to N59.87 billion from N54.79 billion in the period under review.

Cost of sales jumped 30.5 percent to N219 billion from N167.8 billion in the year ago period.

Nestle Nigeria Plc is a publicly listed food and beverage specialty company headquartered in Lagos. It’s mostly owned by a holding company based in Switzerland and has ties to the company Tolaram Group.

Guiness

Guiness ranked fifth most efficient FMCGwith 1.99 recorded in 2021 from 5.16 in 2020.

The company financial statement for 2016 to 2019 ended in June while 2020 and 2021 ended in December.

Operating profit rose to N12.22 billion compared to N3.02 billion in the period under review.Operating expenses increased to N24.29 billion from N15.57 billion in the comparable period.

Cost of sales jumped to N72.62 billion in 2021 compared to N53.77 billion in 2020.

Guinness is an Irish dry stout that originated in the brewery of Arthur Guinness at St. James’s Gate, Dublin, Ireland, in 1759. It is one of the most successful alcohol brands worldwide, brewed in almost 50 countries, and available in over 120.

NASCON

NASCON ranked sixth most efficient with a cost to income which stood at 3.84 in 2021 compared to 2.43 in 2020. Operating profit declined to N2.47 billion in 2021 from N3.37 billion in the year ago period.

Operating expenses rose to N9.49 billion from N8.19 billion in the comparable period. Cost of sales increased to N21.32 billion compared to N16.45 billion in the period under review.

NASCON Allied Industries Plc (previously known as NASCON Plc), a registered company in Nigeria, was established as a salt refining establishment under the name National Salt Company (NASCON). The company has since evolved with additional business lines to include Vegetable Oil, Tomato Paste and Seasoning with production facilities in Lagos State (Apapa and Oregun), Ogun State (Ota), Rivers State (Port Harcourt).

UAC

UAC ranked seventh with a cost to income which stood at 5.7 in 2021 compared to 5.3 in 2020. Operating profit increased to N2.6 billion from N2.53 billion in the period under review.

Operating expenses jumped to N14.94 billion compared to N13.46 billion in the comparable periods.Cost of sales increased to N84 billion in 2021 from N65 billion in the year ago period.

The United Africa Company of Nigeria is a Nigerian publicly listed company based in Lagos. Its areas of operation include manufacturing, services, logistics and warehousing, agricultural and real estate. UACN’s food operations include UAC Franchising, UAC Restaurants and UAC Dairies.

Unilever

Unilever ranked eighth in cost to income ratio with peers with 9.91 in 2021 compared to 6.78 less in 2020.

Operating profit increased to N1.86 billion from a loss of N1.92 billion in the period under review. Operating expenses rose to N18.44 billion compared to N13.02 billion in the comparable period.

Cost of sales increased to N50.2 billion in 2021 compared to N41.1 billion in 2020.

Cadbury

Cadbury ranked ninth with its cost to income ratio which stood at 12.79 in 2021 compared to 35.88 in 2020. The company’s operating profit increased to N0.47 billion from N0.16 billion in the period under review.

Operating expenses jumped to N6.01 billion compared to N5.74 billion in the comparable periods.

Cost of sales increased to N35.89 billion in 2021 from N29.51 in the year ago periods.

International Breweries

International breweries recorded a negative cost to income ratio of 7.38 in 2021 from 4.01 in 2020.

The company recorded operating loss year on year of N7.26 billion from N10.11 billion. Operating expenses increased to N53.56 billion from N40.58 billion in the comparable period.

Cost of sales grew to N135.9 billion compared to N106.32 billion in the period under review.

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