Against the backdrop of spiralling inflation, energy supply chain disruptions and other macroeconomic headwinds, Nigeria’s consumer goods manufacturers have recorded a significant rise in operating expenses in the first nine months of 2022.
Findings by Nairametrics show that there was a 28.20% rise in operating expenses to N1,373 billion between January and September, as against N1,071 billion during the comparable period last year.
The consumer goods manufacturers are Bua Foods, Cadbury, Dangote Sugar Refinery, International Breweries, Nascon, Nestle, Nigeria Breweries and Unilever.
- According to the companies’ financials, the cost pressures were fuelled by high energy costs, increasing costs associated with foreign exchange for imported raw materials, high transportation costs, increased labour expenses, etc.
- One of the companies in the basket of the findings, Nigeria Breweries, attributed the rise in operating costs to higher energy costs and inflation. Part of a statement by the company said that “revenue growth in the quarter driven by pricing was however offset by higher input cost arising from increased rate of inflation and higher energy costs”
Companies with rising costs: Amongst the cost leaders is Dangote Sugar, which recorded about a 42.96% rise to N238.812 billion between January and September, as against N167.044. It was followed by Cadbury Nigeria Plc with operating costs rising by 39.19% to N39.31 billion from N28.24 billion in 9M ’21, while Unilever went up by 31.12% to N64.374 from N49.097 billion in 9M ’21.
- Nestle Nigeria Plc recorded a 30.72% rise in operating cost to N268.595 billion as against N205.469 billion in 9M ’21 and Nigeria Breweries recorded a 26.32% rise to N360.568 billion as against N285.439 billion a year ago.
- The findings further show that while Bua Foods recorded a 22.27% rise to N210.483 billion from N172.147 billion in 9M ’22, International Breweries recorded a 16.67% year-on-year rise to N154.833 billion and Nascon recorded 15.92% rise to N35.721 billion.
- Meanwhile, in absolute terms, companies with above N100 billion mark operating costs include Nigeria Breweries, which recorded the highest cost at N360.568 billion in 9M ’22, Nestle recorded N268.595 billion, while Dangote Sugar recorded N238.812 billion. Bua Foods recorded N210.483 billion. International Breweries recorded N154.832 billion.
Revenues increased nonetheless: Although consumers’ purchasing power was weakened by inflation, growing unemployment, and other macroeconomic headwinds, the companies grew their revenue and earnings. During the period under review, the companies’ earnings surpassed both nominal and real gross domestic product (GDP) growth rates of 15.83% and 2.25%, respectively, as well as an inflation rate of 20.77%.
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Precisely, the aggregate revenue of eight of these leading companies in the consumer goods sector increased by 29.16% to N1,613 billion from N1,249 billion in the first nine months of 2021.
More impressively, their profit before tax grew by 37.72% to N193.937 billion from N140.816 billion in 9M ’21. Cadbury recorded the highest profit before tax of 86.12% to N4.023 billion from N2.161 billion as of Q3 2021, while in absolute terms BUA Foods recorded the highest profit before tax of N74.268 billion.
Costs transferred to consumers: Going by their turnover and earnings growth, juxtaposed with consumers declining purchasing power, it’s apparent that the consumer goods makers must have transferred much more than their costs to the consumers.
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- Note however that most of them did well in managing their costs given the impressive performance in their operating profit growth rate.
- Aggregate administrative expenses of these companies increased by 13.5% to N99.456 billion from N87.6.57 billion in 9M ’22. For instance, Bua Foods’ administrative expenses declined by 18.34% to N4.88 billion from N5.497 billion in 9M 2021, due majorly to a decline in general expenses and maintenance and repairs.
Expectations going forward: There has been a mixed opinion on whether the sector would be able to sustain growth in the long run amid inflation-induced declining purchasing power.
- The bottom line is that if the economic activity continues to slow and the purchasing power of the consumers fails to improve, the consumer goods sector may suffer a drop in the volume of goods sold. This will affect revenue, earnings level of the companies, investors’ sentiment and share price growth.
- For example, Nigerian Breweries recorded a loss of N3.9 billion in Q3, which trimmed its H1 ’22 profit of N18.7 billion to N14.7 billion at the end of Q3. The brewing company recorded a sharp drop from its much promising Q1 profit of N13.6 billion to N5.1 billion in Q2. The downward move gained momentum in Q3 from declining profit into a loss.
- Similarly, the performance of the Consumer Goods sector contributed immensely to the performance of the equities market in H1 2022. The NGX Consumer Goods Index recorded a +5.89% H1 ‘22 YTD gain. After H1 ’22 the Index has continued to lose steam; declining 6.30% between June 30 and September 30, 2022, -4.67% between June 30 and December 12 and -5.36% YTD return.
Originally Posted By Nairametrics