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Four FMCG firms incur N116bn operating expenses in 2023

Four FMCG firms incur N116bn operating expenses in 2023

The combined operating expenses of four manufacturers in the fast-moving consumer goods industry rose to N116.1 billion last year from N108.2 billion in 2022, according to their latest financial statements.

The firms are Cadbury Nigeria Plc, BUA Foods Plc, Unilever Nigeria Plc and International Breweries Plc.

“The cost of manufacturing is rising daily owing to scarce and unavailable manufacturing inputs that continue to shrink profitability and threaten the existence of the critical sector of the economy,” Francis Meshioye, president of Manufacturers Association of Nigeria (MAN).

Read also: FMCG firms’ liquid assets up 30% in nine months, hit N580bn

He said more worrisome is the fact that the sector that should propel job creation, productivity, and economic growth is enmeshed with a series of challenges that constantly limit its contribution to the Gross Domestic Product.

“Such challenges as epileptic power supply, insecurity, inadequate infrastructure, shortage of foreign exchange and naira depreciation are prevailing issues that are impacting negatively on the sector,” he added.

Israel Odubola, a Lagos-based research analyst, said inflation and naira devaluation are the two factors that led to the increase in operating expenses.

“Elevated operating expenses must have been largely influenced by galloping inflation which the country has been experiencing,” he added.

Further analysis of the financial statements shows that Cadbury Nigeria and BUA Foods recorded the highest growth in operating expenses of 23.7 percent and 20.7 percent respectively. Unilever Nigeria had 2.9 percent and International Breweries had 2.4 percent.

President Bola Tinubu in May scrapped a costly but popular petrol subsidy and lifted currency controls in June, which he said was to save the country from going under.

But his actions have worsened inflation currently in double-digits and at the highest level in at least 20 years. The rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.

Data from the National Bureau of Statistics shows that headline inflation rose to 28.92 percent in December from 28.20 percent in the previous month.

In August, the Manufacturers Association of Nigeria (MAN) said manufacturing activities continue to suffer due to the persisting scarcity of forex and further depreciation of the naira.

“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,” it said.

The association added that the lingering forex scarcity and continuous depreciation of the naira have left manufacturers bleeding and limited their capacity utilization since the importation of non-locally produced critical input has become a nightmare.

“The government has to address the root cause of this problem by giving priority to manufacturers. Manufacturing is the bedrock of any economy. And if you are failing in that space, you will trigger inflation and unemployment which could result in a decline in revenues,” Segun Ajayi-Kadir, director-general of MAN said.

Over the past eight years, several manufacturers, especially in the fast-moving consumer goods industry, have either left the country or stopped production of some of their products as a result of the difficult operating environment.

Problems such as rising interest rates, surging inflationary pressure, and foreign exchange volatility are impacting input costs, operating expenses and the general profitability of businesses in Africa’s biggest economy.

Some of the companies that have exited the country are Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries and Stone Industries.

In December, Unilever, which started operations in the 1920s, stopped the production of its legendary OMO, Sunlight and Lux home and skincare brands in a bid to cut costs to concentrate on higher growth opportunities.

In the second half of 2023, at least four multinationals have announced plans to exit Nigeria in 2024. They are Sanofi, Equinor, GlaxoSmithKline Consumer Nigeria and Procter & Gamble.

Over the last few months, there has been a consistent increase in exit plans or a reduction in involvement in the Nigerian market by the multinationals, and this trend is worrisome, said Chinyere Almona, director general of Lagos Chamber of Commerce and Industry, said.

She added that in Nigeria, lingering foreign exchange scarcity, poor power supply, port congestion, multiple taxation, insecurity, and poor infrastructure, among others, have taken a toll on many businesses in the country.

Analysis of data from individual firms

BUA Foods

BUA Foods’ operating expenses grew to N39.7 billion in 2023 from N32.9 billion in 2022.

Selling and distribution expenses rose to N28 billion from N14.2 billion. Administrative expenses dropped to N11.7 billion from N18.7 billion.

The firm’s after-tax profit grew to N111.5 billion from N91.3 billion. Turnover rose to N728.5 billion from N418.3 billion.

BUA Foods is a fast-moving consumer goods business, that processes, manufactures, produces and distributes food materials such as sugar, flour, pasta, rice, and edible oils as well as packaged foods.

The company’s products currently include fortified and non-fortified sugar, flour for large and small-scale use, and pasta.

In addition, the Company expects to commence the processing, manufacturing, production and distribution of rice by 2022 and edible oils by 2024.

Unilever Nigeria

Unilever Nigeria’s operating expenses grew to N17.2 billion in 2023 from N16.7 billion in 2022.

Selling and distribution expenses grew to N3.9 billion from N2.6 billion while marketing and administrative expenses to N13.3 billion from N14.12 billion.

The firm’s after-tax profit rose to N6.9 billion from N6.3 billion and revenue grew to N30.5 billion from N18.7 billion.

Unilever is a publicly listed company with trading and manufacturing interests in the consumer goods market. In 2014, it was listed among the top 20 most valuable companies quoted on the Nigerian Stock Limited. It is a subsidiary of Unilever Overseas Holding B.V.

Cadbury Nigeria

Cadbury Nigeria’s operating expenses surged to N9.4 billion in 2023 from N7.6 billion in 2022.

Selling and distribution expenses rose to N7.3 billion from N6.3 billion. Administrative expenses grew to N2.1 billion from N1.3 billion.

The firm reported an after-tax loss of N27.6 billion compared to an after-tax profit of N583.1 million. Its revenue rose to N80.4 billion from N55.2 billion.

Cadbury manufactures and markets a range of chocolate malt drink mixes, sweets, powder beverages and chewing gums in Nigeria.

The company was established in the 1950s to source cocoa beans from Nigeria for the Cadbury Group; it then branched into re-packing imported bulk products and grew rapidly into a fully-fledged manufacturing operation producing a range of popular Cadbury brands.

International Breweries

International Breweries’ operating expenses which include administrative, marketing and promotion expenses dropped to N49.8 billion in 2023 from N51 billion in 2022.

The firm recorded an after-tax loss of N59.5 billion from a loss of N21.6 billion. Its revenue increased to N264.3 billion from N218.7 billion.

International Breweries is a Nigeria-based brewing company. The principal activities of the company are brewing, packaging and marketing of beer, alcoholic flavoured/non-alcoholic beverages and soft drinks.

The company’s geographical segment includes Nigeria. The Company’s brands include Budweiser, Trophy Lager and Trophy Stout. It has four breweries, which are located in different parts of Nigeria.