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Five FMCG firms see nine-month raw materials costs rise to N719bn

Five FMCG firms see nine-month raw materials costs rise to N719bn

The total cost of raw materials used by five fast-moving consumer goods companies in Nigeria rose by 30 percent in the first nine months of 2023, a BusinessDay analysis shows.

The companies analysed are Nestle Nigeria, Nigerian Breweries, BUA Foods, NASCON Allied Industries and Champion Breweries.

In the companies’ latest financial statements, their combined cost increased to N718.7 billion in the first nine months from N551.8 billion in the same period of 2022.

A breakdown of the data shows that BUA Foods spent the most on raw materials with N310.2 billion. Nestle Nigeria spent N205.1 billion; Nigerian Breweries, N177.4 billion; NASCON, N23.27 billion; and Champion Breweries (N2.69 billion).

Some FMCG firms source their raw materials locally while some import their raw materials.

“The rate of inflation in Nigeria now is far worse than it has ever been. Retail prices and cost of raw materials have increased since last year by over 60 percent and the frequency of price changes has been more frequent than normal,” Uchenna Uzo, a professor of marketing and faculty director at the Lagos Business School, said.

He said there is exchange rate volatility and more than 60 percent of raw materials are imported.

“When there is high volatility in the exchange rate, it affects production. The high logistics and supply chain costs due to fuel price hikes have increased the cost of distribution for consumer goods,” he said.

The Central Bank of Nigeria collapsed all segments of the FX market into the Investors & Exporters window in June.

The naira depreciated from 416.52/$1 as of February 28, 2022 to 854.61/$ as of December 20, 2023, at the official market. At the parallel market, popularly called the black market, the dollar was quoted to N1,225 from N575.

The FX reform led to the adjustment of the exchange rate for cargo clearance at the nation’s seaports four times from June to December.

The rate increased by 125.4 percent to N952/$1 from N422.30/$1. This made importers pay more import duty for the clearance of their goods.

The lingering scarcity of forex and further depreciation of the naira are making manufacturing activities continue to suffer

“Only 14.7 percent of manufacturers enumerated claimed that the rate at which forex was sourced improved in Q2; 66 percent disagreed while 19.3 percent were not sure if forex sourcing had improved in the quarter under review,” the Manufacturers Association of Nigeria said in a recent report.

The Nigerian Ports Authority recently said over 7,000 containers are currently abandoned at the ports, and industry analysts believe that the number will increase with the surging rates of import tariffs.

“Various firms that rely on imported raw materials had more exposure to foreign exchange, leading to a spike in foreign exchange loss,” Mustapha Umaru, an equity research analyst at CSL Stockbrokers Limited, said.

Unilever Nigeria said in its latest financial statement that deposits for imports represent foreign currencies purchased for funding letters of credit in respect of imported raw materials.

The company’s deposit for imports increased to N992.4 million in nine months of this year from N337.3 million in the same period of 2022.

Firm-by-firm analysis

BUA Foods

BUA Foods’ raw materials cost increased to N310.2 billion from N173.5 billion. The firm’s total cost of sales surged to N340.6 billion from N195.6 billion.

It operates as a food and fast-moving consumer goods company where it processes, manufactures and distributes food products such as flour and pasta, sugar, refined oil, and rice. BUA Foods serves customers in Nigeria.

Nestle Nigeria

Nestle Nigeria’s raw materials cost increased to N205.1 billion from N181.3 billion. The firm’s cost of sales grew to N236.4 billion from N216.19 billion.

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

Nigerian Breweries

Nigerian Breweries spent N177.4 billion on raw materials, up from N171.4 billion. The firm’s cost of sales increased to N249.2 billion from N238.9 billion.

Among the four brewers listed on the Nigerian Exchange Group, it is the largest. It serves the Nigerian market and West Africa.

NASCON

NASCON spent N23.27 billion on raw materials, up from N22.37 billion. The firm’s cost of sales surged to N26.79 billion from N25.14 billion.

It is a Nigeria-based company that is engaged in the processing of raw salt into refined, edible and graded salt.

Champion Breweries

Champion Breweries’ raw materials cost dipped to N2.69 billion from N2.92 billion. The firm’s cost of sales grew to N5.79 billion from N5.18 billion.

It is an established brewery in Nigeria, manufacturing Champion Lager Beer and Champ Malta as well as a selection of non-alcoholic beverages.

“Continuingly, the company explores the use of local raw materials such as soya bean, maize, cocoa, palm olein and sorghum, cassava and corn starch in its production processes in a number of its products,” the firm said in a statement.