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 Nigeria Bureau of Statistics, NBS, showed that average annual inflation rose to 13.2 per cent in 2020 from 11.39 per cent in 2019, indicating 181 basis points increase.
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 Nigerian Exchange Limited (NGX), including Unilever Nigeria Plc, Nestle Nigeria Plc, Cadbury Nigeria Plc, NASCON Allied Industries Plc, Dangote Sugar Refinery Plc, GlasxoSmithKline (GSK) Plc and May & Baker Plc, showed that the amount spent by the companies on raw material procurements rose to N451.56 billion in 2021 up from N323.33 billion in 2020, indicating a 40 per cent increase.
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.
Dangote Sugar Refinery recorded the highest decline in profitability, which fell by 25.43 per cent to N34.02 billion in 2021 from N45.62 billion in 2020. This sharp decline was driven by a 43.8 per cent increase in cost of sales to N225.85 billion from N157.08 billion in 2020, caused by a 53.5 per cent jump in raw materials cost to N183.37 billion in 2021 from N119.43 billion in 2020. The company’s selling and distribution expenses also rose to N906 million from N677 million in 2020....
Credit: Vanguard Newspaper
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