…As cost of raw materials surges 88% to N2.18trn
•Finance cost up 81.0% to N1.2trn
•Losses rise 76.6% to N407.4bn
•It’s economic reform fallout, but …says CPPE, analysts
•NACCIMA lists constraints, proffers solutions
•MAN calls for ‘actionable reform’
By Peter Egwuatu & Yinka Kolawole
Nigeria’s manufacturers are counting their losses to the drastic macroeconomic changes being executed by the Federal Government, FG.
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.
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.
Cost of sales
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.
It’s economic reform fallout, but 2025 looking more positive – CPPE
Commenting, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, stated: “The cost of sales was driven largely by exchange rate, by finance cost and by the cost of energy and as well as cost of logistics.
“I think these are the critical issues and these factors were very profound in 2024 because you can describe 2024 as a year of transition, from an economic reform point of view, so this is what must have been responsible for this astronomical increase in the cost of sales.
“And you can see that for many businesses, particularly those in production, profits have been severely impacted, some of them had declared serious losses and it is these particular factors that led to the exit of some of the multinational companies, especially those in production.
“But thankfully, those pressures are beginning to ease, we are beginning to see some stabilisation and marginal appreciation in the naira exchange rate and we are beginning to see a slight reduction in energy prices – it’s likely to also go down a little more, we’re beginning to see some deceleration in the inflation rate.
“So, with that kind of trajectory, the outlook is looking a lot more positive for 2025, in my view, if there are no dramatic changes in some other economic fundamentals.”
NACCIMA lists binding constraints, proffers solutions
The President of the Nigerian Chamber of Commerce, Industry, Mines and Agriculture NACCIMA, Dele Oye, said “the sharp rise, in some instances up to 100%, can be attributed to a multitude of interwoven factors that create a challenging environment for our manufacturers”.
To address these challenges, the NACCIMA president proposed the following strategies:
“The government should establish a consistent, long-term policy framework that provides certainty for manufacturers, allowing them to plan effectively and invest confidently.
“Policies must be developed with significant input from genuine and independent stakeholders to ensure they address the actual challenges faced by manufacturers.
“Prioritizing infrastructure development is essential to reduce operational costs. Investments in reliable power supply and transportation systems are crucial for manufacturers’ efficiency.
“Simplifying the tax system and ensuring predictability will encourage investment.
“Establishing fair regulatory guidelines to foster healthy competition among domestic manufacturers while protecting them from undue competition from state-owned enterprises is key.
“The government must implement monetary policies that control inflation, thereby preserving purchasing power and promoting stable economic growth.
“The Central Bank of Nigeria (CBN) should consider reducing the current MPR rates.
“Through these collective efforts, we can alleviate some of the financial pressures facing manufacturers, bolster their competitiveness, and positively impact our economy as a whole.”
Govt should initiate actionable macroeconomic reform – MAN
In his comment, Director General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, stated: “The purchasing capacity of Nigerians has declined so our warehouses are filled with unsold goods, meanwhile, the cost of production continues to increase everyday with the cost of energy, transportation, manpower and now telecommunication consistently rising.
“The challenges are clear. Therefore, macroeconomic reforms must involve actionable plans that take precedence over rhetoric.
“The President’s ambitious goal of taming inflation down to 15 percent and stabilising the naira at N1,500/$ must be pursued by clearly defined and easily assessable actions, with appropriate timelines,” he said.
Domestic, external cost drove raw materials prices – Analysts
Reacting to the challenges facing the consumer goods manufacturing firms, David Adonri, Analyst / Vice Executive Chairman at High Cap Securities Limited, Olatunde Amolegbe, former President Chartered Institute of Stockbrokers, CIS, and
Tajudeen Olayinka, Investment Banker & Chartered Stockbroker
stated that the big jump in cost of raw materials in 2024 arose from domestic and external sector cost-push factors.
They added that insecurity and high costs of energy and power that ravaged the economy in 2024, transmitted galloping inflation to the cost of inputs specifically and cost of sales generally.
They also said these domestic cost-push factors were exacerbated by the massive volatility and depreciation of the Naira in 2024, adding that the pass through effect of these cost push factors in itself, intensified the rise in inflation that eroded the purchasing power of consumers to the detriment of corporate turnover.
However, they expressed the view that these cost push factors are expected to trend lower in 2025 from signals that are already emerging in the economy.
Also, they noted that there is a need for the companies to source some of the manufacturing inputs hitherto imported locally while engaging in aggressive marketing strategy.
On the way forward, they added that: “Public policy can play an enabling role in facilitating increase in corporate turnover while simultaneously reducing production and distribution costs so as to make enterprises cost effective and profitable.
“All cost push factors must be properly identified and tackled with appropriate public policy instruments. A long term solution will be domestication of input sources, reduction of energy and power costs and reduction of interest rate to single digit”.
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