Manufacturers in Nigeria are recording spiralling rise in the cost of sales, amid the drastic macroeconomic changes being executed by the Federal Government.
A key element of the difficulties has shown up in cost of sales with leading manufacturers reporting 90.6 per cent surge in their just released 2024 financial results, according to Vanguard report.
Cost of sales stands for the direct expenses incurred in the production of goods and services sold by a company, and it includes costs of raw materials, logistics, energy and other manufacturing expenses.
Analysts attribute the increase to the mounting inflationary pressure, foreign exchange volatility, and escalating production costs in the sector. But they have projected a better outcome for 2025 if the current stability in some key macroeconomic indicators is sustained.
But Financial Vanguard findings show that the sharp increases in cost of manufacturing has forced many companies to adopt aggressive cost-cutting measures, including layoffs and price adjustments, to stay afloat.
The findings show that despite efforts at backward integration by top 12 consumer goods manufacturing firms to ease the pressure on their cost of production, they are still faced with myriads of financial and economic headwinds.
Consequently, costs they incurred on raw materials importation increased significantly Year-on-Year, YoY, by 88 per cent in the year 2024, indicating that the backward integration may have either failed or still too low to shield them from high importation costs driven by high exchange rates.
But the Financial Vanguard findings also show that the top manufacturers have succeeded in bringing down their exposure to bank loans which had imperiled their profitability a year earlier.
However, the high interest rate regime implemented by the Central Bank of Nigeria, CBN, since 2023 still took a toll on the manufacturers’ financial cost.
The top manufacturers examined by Financial Vanguard includes, Nestle Nigeria, Cadbury Nigeria, Unilever Nigeria, Nigerian Breweries Plc, BUA Foods, Guinness Nigeria, Northern Nigeria Flour, Dangote Sugar, Honeywell Flour Mills, Flour Mills Nigeria, UAC Nigeria, and Golden Guinea.
The combined cost of sales of these top 12 consumer goods firms rose by 88.5% to N3.91 trillion in 2024 from N2.1trillion in 2023.
Nestle Nigeria’s cost of sales increased by 97.7% to N652.5billion in 2024 from N329.9billion in 2023; Cadbury Nigeria’s cost of sales grew by 77.2% to N111.7 billion from 63.04billion in 2023. Unilever’s cost of sales grew by 30.6% to N94.03billion from N72.01billion in 2023.
Nigerian Breweries’ cost of sales rose by 97.5% to N764.5billion from N387.03billion. BUA Foods’ cost of sales rose 110.0% to N985billion in 2024 from N469billion in 2023.
Guinness Nigeria recorded 37.5% increase to N208.03billion in 2024 from N151.3billion in 2023. Dangote Sugar recorded N634.6billion from N355.1billion, representing a growth of 78.7%. Northern Nigeria Flour Mills posted N25.7billion against N16.4billion in 2023.
Honeywell Flour Mills recorded N248.8billion in 2024 against N100.5billion in 2023. UAC Nigeria’s cost of sales increased by 52.5% to N151.3billion from N99.2billion in 2023, while Flour Mills recorded N151.3billion from N99.2billion, indicating 52.5% increase.
The combined cost of raw materials incurred by the top 12 consumer goods manufacturing firms shot up to N2.2trillion in 2024 from N1.2trillion in 2023.
Finance cost
The firms’ combined finance cost rose by 81.0% to N 1.2trillion in 2024 from N664.6billion in 2023.
However, their bank borrowing declined by 6.4% to N1.7trillion from N1.9trillion in 2023, apparently as the companies begin to de-emphasis reliance on bank loans in the face of prevailing high interest rate regime.
The combined firms’ turnover rose by 67.7% to N7.6trillion in 2024 from N4.5trillion in 2023, while their Loss Before Tax, LBT, increased by 76.6% to N407.4 billion in 2024 from N-230.7 billion in 2023.
Companies’ comment on performance
However, leaders of the various companies were positive on the situation. Highlighting the positive side of the 2024 results, Mr. Wassim Elhusseini, Managing Director of Nestlé Nigeria, stated: “Our 2024 results demonstrate the resilience of our brands and teams and underscore our strong fundamentals in a challenging business environment.
“The impressive 75.2% revenue growth for the year as well as 35.6% improvement of our operating profit to N167.9 billion reflects the robustness of our operating performance.
“Our net profit and equity were impacted by high finance costs associated with the revaluation of the company’s foreign currency obligations, due to an unprecedented devaluation of the Naira.
“I am very pleased to state that our Q4 2024 standalone results mark a return to profitability with a net profit of Naira 19.7 billion, against a loss of N36.4 billion in Q4 2023.”
Speaking on his company’s results, Mr. Hans Essaadi, Managing Director/CEO, Nigerian Breweries Plc, said: “The impressive year-on-year revenue growth was largely driven by strategic pricing initiatives, market expansion, successful innovations, and operational efficiencies.
“Despite macroeconomic headwinds faced by the company, group operating profit surged by 54%, reflecting the success of cost management, process optimization and strong operational performance.”
Commenting on BUA Foods’ performance, Engr. (Dr.) Ayodele Abioye, the Managing Director, said: “The results underscored the company’s ability to navigate challenges with agility and its resilience, as it continues to create value for all stakeholders.
“We are delighted to report an exceptional performance in FY 2024. Despite significant macroeconomic challenges, our business navigated the resulting impact on supply chain costs and foreign exchange losses effectively.
“The cumulative impact of our expansion strategy has enabled our capability to fulfil increased demand from our customers and enhanced internal operational efficiencies”.
Speaking as well on his Company’s result, Tobi Adeniyi, Managing Director, Unilever Nigeria, said, “Our year-on-year sustained growth trajectory is a testament to our commitment of serving consumers with our best brands to meet their daily needs of improved health and hygiene.
“While we are pleased with our performance progress riding on the pillars of operational efficiency, cost optimization, purposeful brands and increasing market share across key categories, we are committed to growing our business to enhance our socioeconomic impact in the country”.
Some analysts who spoke to Financial Vanguard on the operating environment of the manufacturers were largely critical of the implications of Nigeria’s economic policy outcomes. They believe that the environment does not help business growth
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