BusinessDay

Rising inflation bites consumer firms as inventories rise

Fast Moving Consumer Goods (FMCG) firms are one of the hardest hit by Nigeria’s macroeconomic challenges. This is because these firms are not moving inventories off the shelves as weak consumer spending caused by rising inflation and spiralling unemployment curb demand for products, leading to very low stock or inventory turnover.

What this simply means is that inventories are languishing in the warehouses or on the shelves. BusinessDay analysis shows Guinness, International Breweries, Dangote Sugar, and Nigerian Breweries saw their inventory turnover ratio at 7.3, 5.2, 5.1, and 4.2 respectively.

Further findings showed Cadbury recorded 2.6, Unilever recorded 2.9, NASCON recorded 4.2, and Nestle recorded 4.4 inventory turnovers in the six months of 2022.

Inventory turnover is a ratio that measures how a company can speedily turn over its inventory to attain better business performance. The ratio measures how many times a company sold its total average inventory naira amount in a particular period. If larger amounts of inventory are purchased during the year, the company will have to sell greater amounts of inventory to improve its turnover.

A low ratio is not good because it means it is taking a firm longer time to sell goods, which will result in lower turnover and hence hurt the bottom line.

“We would ordinarily expect a higher turnover for consumer good firms and when it happens to manifest the contrary the firm is most likely overstocking which in a sense might not be entirely bad if there is a foreseeable surge in cost of goods sold on the horizon,” said Ayodeji Ajilore, an investment research analyst with ARM.

Nigeria’s headline inflation maintained an upward trend as it accelerated to 20.52 percent in August 2022, the highest in 17 years from 19.64 percent recorded in July, according to data from the National Bureau of Statistics.

Nigerian Breweries recorded the highest inventory of N82 billion with Nestle, Dangote Sugar, and Guinness having inventory worth N72.7 billion, N63.8 billion, and N32 billion in the first half of 2022.

Consumer goods firm

Guinness

Guinness led the pack with its inventory turnover ratio at 7.3. Guinness, in its financial books, recorded the value of raw materials and packaging materials inventory at N8.86 billion in the first half of 2022, up 9 percent from N8.12 billion recorded in the same period of 2021.

Finished products in Guinness inventories also jumped by a huge 115 percent to N10.24 billion, compared to N4.76 billion in June 2021. Marketing and distribution expenses climbed to N37.3 billion in the first half of 2022, a 43 percent increase from N26 billion in the half year ended June 2021.

Guinness saw its cost of inventory increase to N11.6 billion, indicating a decrease in the working capital of the firm.

International Breweries

International Breweries ranked next in second place as its inventory turnover ratio stood at 5.2. The brewery company recorded materials consumed and allocated overhead expenses which surged 23 percent to N60.15 billion from N49 billion in the first half of 2021.

Administrative, marketing, and promotion expenses climbed to N28.7 billion in the first half of 2022, up 42 percent from N20.24 billion in the same period of last year.

Read also: Consumer goods firms battle unpaid bills as receivables mount

International Breweries’ inventory cost increased to N3.4 billion, indicating a decrease in the firm’s working capital.

Dangote Sugar

Dangote Sugar ranked third place with an inventory turnover ratio of 5.1. Raw materials in Dangote Sugar’s inventory also jumped to N17.7 billion, a huge 324 increase from N4.17 billion in the first half of 2021.

Dangote sugar recorded its raw material in transit value at N11.16 billion, a 27 percent increase from N8.8 billion in the first half of 2021. Finished goods in Dangote Sugar’s inventory dropped 77 percent to N2.72 billion from N11.8 billion in the first half of 2021.

Dangote Sugar’s finished goods in transit surged to N1.42 billion, a huge 362 percent increase from N307 million in the comparable period.

Selling and distribution expenses rose to N369 million in the first half of 2022, a 28 percent increase from N288.7 million in the first half of 2021.

Dangote Sugar’s inventory cost increased to N7.7 billion, indicating a decrease in the firm’s working capital.

Nigerian Breweries

Nigerian Breweries ranked fourth with an inventory turnover ratio of 4.4.

Raw materials and consumables expenses surge 20 percent to N112 billion in the first half of 2022 from N92.9 billion in the same period of 2021.

Marketing and distribution expenses rose to N70.4 billion in the first half of 2021, a 52 percent increase from N46.2 billion in the first half of 2021.

Nigerian Breweries’ cost of inventory increased to N19.6 billion thereby leading to a decrease in the working capital of the firm.

Nestle

Nestle also ranked fourth with an inventory turnover ratio of 4.4. The consumer goods firm saw its raw and packaging materials rise N35.14 billion in the first half of 2022, up 19 percent from N29.6 billion in the first half of 2021.

The finished products inventories jumped 55 percent to N17.26 billion for the period ended June 2022 from N11.1 billion in the same period of 2021.

Marketing and distribution expenses rose to N28.35 billion, 20 percent from N23.5 billion in the first half of 2021.

Nestle’s cost of inventory increased to N16.7 billion thereby leading to a decrease in the firm’s working capital.

NASCON

NASCON’s inventory turnover ratio stood at 4.2. The firm’s raw materials worth N4.8 billion in its inventory in the first half of 2022, up 57 percent from N3.06 billion in the same period of last year.

The finished goods in NASCON’s inventory stood at N727.5 million in the first half of 2022, a 24 percent increase from N588 million in the period ended June 2021.

NASCON distribution cost rose to N5 billion, a 51 percent increase from N3.3 billion in the first half of 2021. Its cost of inventory increased to N3.42 billion which indicated a decrease in the working capital of the firm.

Unilever
Unilever’s inventory turnover ratio stood at 2.9. Raw and packaging materials inventory dipped by 20 percent to N9.04 billion in the first half of 2022 from N7.53 billion in the first half of 2021.

The finished goods inventory grew 38 percent to N3.68 billion from N2.66 billion in June 2021

Selling and distribution expenses rose to N1.27 billion in the first half of 2022, a 69 percent increase from N749.14 million in the first half of 2021.

The cost of inventory for Unilever decreased to N365.5 million from N1.51 billion which implies an increase in the working capital of the firm.

Cadbury

Cadbury’s inventory turnover ratio stood at 2.6. Its inventory turnover ratio climbed to 8.1 in the first half of 2022 from 7.3 in the first half of 2021.

In Cadbury’s inventory, raw and packaging materials value increased to N4.75 billion in June 2022, up 38 percent from N3.44 billion in June 2021.

Finished goods inventory rose to N1 billion in the period ended June 2022, representing 26 percent from N1.36 billion in the same period of last year.

Selling and distribution expenses surge 7.5 percent to N2.44 billion from N2.27 billion in the first half of 2021.

Cadbury’s inventory cost increased to N2.73 billion, indicating a decrease in the firm’s working capital.

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