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How higher raw material costs hit Nigeria’s biggest consumer goods firms

How higher raw material costs hit Nigeria’s biggest consumer goods firms

Latest results released by companies listed on the Nigerian Exchange Group reveal the rising cost of goods and services is eating into profits at levels not seen since 2017.

A cursory review of some of the first-quarter results published by some of Nigeria’s largest companies reveals higher input and operational costs on a year-on-year basis. This is despite price adjustments made across the board by most consumer goods companies.

A BusinessDay analysis of consumer goods firms showed National Salt Company Nigeria Plc (NASCON) spent 89.62 percent of its total cost of goods sold on raw materials. Other consumer goods firms such as Unilever, International Breweries and Cadbury spent 79.66 percent, 79.36 percent and 50.05 percent respectively.

Further findings showed Nestle, Dangote sugar and Guinness spent 4.81 percent, 24.25 percent and 10.24 percent respectively on raw materials out of their cost of goods sold.

What are the company results saying?

Nestle Nigeria plc

Nestle Nigeria plc, in its first-quarter financials, recorded an increase in cost of raw materials by 8.9 percent to N32.22 billion in March 2022 from N29.58 billion in March 2021.

The cost of sales increased to N66.98 billion in March 2022 from N52.51 billion in the first three months of 2021, indicating a 27.6 percent increase.

An analysis by businessday shows the percentage of raw materials out of its total cost of sales stood at 48.1 percent in the first three month of 2022.

The FMCG company reported a surge in profit before tax by 46.6 percent to N27.85 billion in March 2022 from N19 billion in the previous year.

Nestle Nigeria Plc is a food manufacturing and marketing company in Nigeria and a subsidiary of the largest food and beverage company in the world. Brands in the beverages segment include Milo, Chocomilo, Nescafe, Nestle Pure Life and Nido.

Dangote sugar

Dangote sugar refinery, a subsidiary of Dangote group and one of the largest food and beverage industries in the consumer goods sector, grew its cost of raw materials during the year by a whopping 106.8 percent.

Cost of raw materials as recorded by the FMCG company rose to N18.18 billion in the first three months of 2022, from N8.79 in the same period in 2021.

The company’s cost of sales increased by 56.5 percent to N74.99 billion from N49.35 billion in the period under review.

The FMCG’s percentage of raw materials to its total cost of sales is 24.25 percent.

Profit before tax as reported by the company in its Q1 financials show a 13.8 percent increase to N13.6 billion in March 2022 compared to N11.95 billion in March 2021.

Read also: How to balance brands and endorsement marketing

Unilever Nigeria Plc

Unilever Nigeria, one of the major players in Nigeria’s fast-moving consumer goods space, in its recently released Q1 financial report, reported a 31.6 percent increase in the company’s cost of raw materials.

Its cost of raw materials increased to N10.66 billion in Q1 2022 compared to N8.1 billion in the first quarter of 2021.

The company financials reported an 8.6 percent rise in cost of sales from N12.33 billion to N13.39 billion in the period under review.

The percentage of its cost of raw materials from its cost of sales stood at 79.66 percent.

Unilever Nigeria recorded an increase in profit before tax to N2.25 billion compared to a loss of N227 million made in the previous year.

Cadbury Nigeria Plc

Cadbury Nigeria plc, a listed food and beverage maker on the Nigerian exchange group reported its cost of raw materials totalled N4.78 billion, a whopping 129.8 percent increase from N2.08 billion reported last year.

The FMCG company saw its cost of sales rise to N9.56 billion from N7.43 billion in the period under review, indicating a 28.7 percent increase.

The company’s percentage of raw materials in its cost of sales amounted to 50.05 percent.

The firm’s profit before tax for the first quarter of 2022 amounted to N2.2 billion, an increase from N345 million reported in the first quarter of 2021.

Guinness

Guinness, in its first-quarter financial result, showed a 79 percent increase in cost of raw materials to N10.47 billion in March 2022 as against N5.85 billion in March 2021.

The company also saw its cost of sales jump 24 percent to N102.26 billion from N82.53 billion in the year-ago period.

The percentage cost of raw materials in its cost of sales stood at 10.24 percent in the first three months of 2022.

With the increase in the cost of raw materials, Guinness recorded a profit before tax of N22.47 billion, coming from N4.46 billion in the comparable periods.

International Breweries PLC

International Breweries PLC, a brewery in Nigeria, recorded N29.81 billion for materials consumed and allocated overheads in March 2022, a 30 percent increase from N22.93 billion in the previous year.

The brewery company saw its cost of sales jump 15.6 percent to N37.57 billion as against N32.48 billion in the corresponding period last year.

The company’s cost of raw materials constitutes 79.36 percent of its cost of sales during the first three months of 2022.

International Breweries made N1.86 billion profit before tax in March 2022 from a loss of N3.56 billion in March 2021.

NASCON

National Salt Company Nigeria Plc (NASCON) spent N7.17 billion on its cost of raw materials, a 73.6 percent increase from N4.13 billion in the first three month of 2021.

The company’s cost of sales stood at N8 billion, a 62.6 percent increase from N4.92 billion in the previous year.

Nascon spent 89.62 percent of its cost of sales on raw materials which implies a large chunk was spent on the purchase of raw materials.

The profit before tax dropped to N568.7 million, coming from N1.06 billion in the period under review.

NASCON manufactures and markets a range of edible salt for industrial use and iodine-fortified kitchen salt for domestic use in Nigeria. By-products from the salt refining process include fine (butter) salt used to make biscuits and confectionery products; and granulated kitchen salt and industrial salt.

What experts are saying

Manufacturers Association of Nigeria (MAN)

About 45 percent of the production cost of manufacturers in Nigeria is spent on electricity and this is making them uncompetitive within and beyond Africa.

According to the Chairman, Infrastructure Committee, MAN, Ibrahim Usman, “the high cost of electricity across the country was making indigenous producers uncompetitive.”

Lagos Chamber of Commerce and Industry (LCCI)

According to the Chamber, the uptick in inflation weakens purchasing power and consequently worsens the poverty conditions, adding that the situation equally escalates operating and production costs and erodes profit margins and ultimately undermines investors’ confidence.

LCCI President, Toki Mabogunje, noted that the key inflationary drivers are basically supply-side issues, which are beyond monetary policy control.