In apparent reflection of the high inflationary pressure across the country, the cost of raw materials for consumer goods rose sharply by 40 per cent in 2021, but with little impact on the profitability of producers.
Since 2020, Nigerians have been battling with persistent increase in prices of goods and services, aggravated by insecurity, naira depreciation and supply chain disruption caused by the COVID-19 pandemic.
Data from the
This trend aggravated in 2021 as average annual inflation rose further by 378 bpts to 16.98 per cent.
The severity of this trend is reflected in the increased cost of producing consumer goods, which are mostly essential commodities used regularly by consumers. These include packaged food, toiletries, beverages, stationery, over-the-counter medicines, cleaning and laundry products, plastic goods, and personal care products.
Financial Vanguard analysis of the financial statement of seven major Fast Moving Consumer Goods Companies, FMCG, listed on the
Consequently, the ratio of raw materials cost to total cost of sales for the seven companies rose to 78.3 per cent in 2021, up from 74.6 per cent in 2020, representing a 3.7 percentage point increase.
Similarly, the companies spent more of their revenue on raw materials in 2021. The companies' spent 55.9 per cent of their revenue in 2021 on raw materials procurement, up from 49.8 per cent spent in 2020, indicating a 6.1 percentage increase.
The increase in raw material cost led to a jump in the cost of sales of the seven companies by 33 per cent to N576.58 billion in 2021 from N433.31 billion posted in the previous year.
Furthermore, the seven companies recorded an 11.4 per cent increase in selling and distribution expenses, to N65.54 billion in 2021 from N58.82 billion in 2020.
Notwithstanding the huge increase in cost of sales as well as in selling and distribution expenses, the combined profitability of the seven companies remained relatively stable.
The companies recorded Profit Before Tax, PBT, of N105.53 billion in 2021, representing a paltry 0.3 per cent decline from N108.29 billion in 2020.
However, five of the companies recorded an increase in profitability, indicating that much of the increase in raw materials, selling and distribution costs were transferred to consumers of the products.
Breakdown of companies' financials
This was in spite of a 31 per cent increase in cost of sales to N219.89 billion in 2021 from N167.87 billion in 2020, driven by 31.2 per cent and 9.8 per cent increase in raw materials cost, and selling and distribution costs respectively.
Furthermore,
Specifically, its cost of sales went up to N35.89 billion in 2021 from N29.51 billion in 2020, while the cost of raw materials moved to N27.05 billion from N18.21 billion in 2020. The company's selling and distribution cost also jumped to N5.06 billion from N4.58 billion in the previous year. Yet the company recorded a 169.61 per cent increase in PBT to N1.1 billion in 2021 from N408 million in 2020.
Also recording an increase in profitability was
However, GSK, recorded a marginal decline in profitability, as its PBT fell by 5.4 per cent to N946 million in 2021 from N1 billion in 2020, reflecting the 5.8 per cent increase in the company's cost of sales which rose to N16.27 billion from N15.38 billion in 2020. Its cost of raw materials procurement also recorded a 6.2 per cent increase to N15.35 billion from N14.46 billion, while selling and distribution cost was a marginal 0.7 per cent increase to N3.54 billion from N3.52 billion.
Operators chart way forward
Commenting,
On the way forward, he stated: "Companies may have to remodel their operations to cater for different segments of the market in a bid to maintain market share and keep revenues high as we expect the rise in both cost of sale and selling and distribution expense to continue into 2022 due to the rise in raw materials, rise in crude oil price, rising inflation and the gradual depreciation of the naira," he said.
While corroborating this position, Emmanuel Onojoa, Head, Research,
Also commenting,
In some cases, companies like Flour Mills and Dangote Sugar rely majorly on imports for its key materials (wheat and sugar respectively) and the current production of these raw materials locally cannot meet
"In order to limit the impact, companies are also trying to change the packaging/sizes of their products, so it can make their products more affordable (better entry points for consumers), without affecting the margins per liter/gram. Having said this, to see a big and sustainable improvement in margins, we will need to see a big improvement on the macro front."
Vanguard News Nigeria
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