The profit margins of fast-moving consumer goods (FMCG) firms in Nigeria have hit their lowest level in 10 years, BusinessDay’s findings have shown.
Data obtained from the Nigerian Exchange Limited showed nine firms recorded a profit margin of 4.9 percent in the first quarter of 2023, a sharp decline from 14.3 percent in the same period of 2013.
These figures indicate that for every N100 in sales, the surveyed firms generated a profit of 4.9 percent, while the remaining 95.1 percent covered costs.
“The primary factor responsible for this situation is the cash crunch policy that took place from last year into the first quarter of 2023. This significantly impacted companies and caused major disruption in the conventional business chain,” Abiola Gbemisola, an analyst at FBNQuest, told BusinessDay.
The firms surveyed include Nigerian Breweries, Champion Breweries, Nascon Allied Industries, Nestle Nigeria Plc, BUA Foods, Unilever Nigeria, Dangote Sugar Refinery, Cadbury Nigeria and International Breweries.
The firms’ combined profit decreased by 51.2 percent to N22 billion in Q1 2023 from N45.07 billion in the corresponding period last year.
The combined cost of sales increased by 12.68 percent to N398.9 billion from N354 billion.
Experts said another major contributor to the declining profit margins is the surge in finance costs incurred by FMCG firms.
Nigerian Breweries, Nestle Nigeria, Guinness Nigeria, and Geregu Power are among the firms that have seen their interest costs surge. Nigerian Breweries’ interest expense soared to N19.32 billion in Q1 2023 from N2.96 billion a year earlier.
“Those increases, alongside higher costs elsewhere — including for wages, materials and energy — are forcing companies to scale back on expansion plans, putting a brake on employment while most have downsized,” Luqman Agboola, head of research at Sofidam Capital, said.
“Higher interest expenses also erode profitability or result in bankruptcies as rising borrowing costs balloons the weighted average cost of capital, potentially resulting in less investment,” he added.
The Central Bank of Nigeria increased its key interest rate to 18.50 percent in May to tame inflation.
Nigerian Breweries reported revenue of N123.3 billion in Q1 2023, compared to N137.7 billion in the same period of 2022, representing a decrease of 10.5 percent.
Alongside this decrease, the company also saw a 4.7 percent increase in operating expenses to N41.92 billion from N40.04 billion.
It recorded a loss after tax of N10.72 billion in Q1 2023, in contrast to a profit after tax of N13.614 billion in the same period of 2022.
Nascon Allied Industries
Nascon Allied Industries, a diversified manufacturing company, reported an increase in profit by 320.5 percent to N1.64 billion from N0.39 billion in the same period of 2022.
It also witnessed an 8 percent growth in revenue, to N102.22 billion from N94.45 billion.
The company’s operating expenses amounted to N4.48 billion in Q1 2023, reflecting a 69.7 percent increase compared to N2.64 billion in the same period of 2022.
Nestle Nigeria, a food and beverage company, reported revenue growth of 16 percent in Q1 2023 to N127.97 billion from N110.23 billion in the same period of 2022.
The firm’s profit after tax dropped by 10 percent to N16.21 billion.
Its operating expenses increased by 36.6 percent to N23 billion from N16.84 billion in the same quarter of 2022.
Unilever Nigeria, a consumer goods company, saw its profit after tax grow by 49 percent to N2.67 billion from N1.79 billion in the same period of 2022.
Its revenue hit N24.6 billion, which represents a growth of 19.7 percent compared to N20.6 billion in Q1 2022.
Operating expenses rose by 35 percent in Q1 2023 to N15.16 billion from N11.23 billion in Q1 2022.
International Breweries, a subsidiary of the AB InBev Group, reported a loss after tax of N2.31 billion compared to a profit after tax of N721.2 million in the same quarter of 2022.
The company saw a 5.4 decline in its revenue to N54.39 billion from N57.52 billion in the same period of last year.
Operating expenses, which comprised administrative, marketing and promotion costs, stood at N9.95 billion in Q1 2023, a 9.3 percent increase from N9.1 billion in the same period of 2022.
BUA Foods’ profit increased by 77 percent to N40.47 billion in Q1 2023 from N22.84 billion in the same period of 2022.
Its revenue grew by 60 percent increase to N144 billion from N90 billion reported in the same quarter of 2022.
The company’s operating expenses stood at N8.91 billion, reflecting a 300 percent increase compared to N2.23 billion in Q1 2022.
Dangote Sugar, a sugar manufacturing company, recorded a 44.3 percent increase in profit to N12.8 billion from N8.87 billion in the same period of 2022.
The company’s revenue rose by 8 percent to N102.22 billion from N94.45 billion in the same period of 2022.
Operating expenses increased by 17.2 percent to N2.93 billion in Q1 2023 from N2.5 billion in Q1 2022.
Cadbury Nigeria’s revenue grew by 29.7 percent to N16.6 billion from N12.8 billion in the same period of 2022.
Its operating expenses rose by 37.9 percent to N1.82 billion from N1.32 billion.