FMCGs pass on rising production costs to customers, leading to profit surge

Despite facing a difficult economic environment in 2022, Nigerian FMCGs reported a surge in revenues. The companies were just recovering from the COVID-19 pandemic when the Russia-Ukraine war broke out, triggering new economic challenges and uncertainty for global and local markets.

The war’s spillover effects took a heavy toll on the operations of many businesses in Nigeria, but the FMCG companies were able to deliver higher profits by raising prices.

Focus on Nigerian FMCGs’ 2022 financial performance

According to naira metrics, The financial results of six FMCG companies in Nigeria determine the impact of economic shocks on their performance. The companies are BUA Foods, Cadbury, Dangote Sugar Refinery, Nascon, Nestle, and Unilever.

Despite facing challenging macroeconomic conditions, these companies generated revenue of N1.470 trillion in 2022, up 32.9% from N1.107 trillion in 2021. Profit after tax (PAT) also rose by 48.5% year-on-year to N205.934 billion. This was driven by healthy profit growth for virtually all the companies.

The strong performance of these FMCG companies is attributed to a number of factors, including:

• The resilience of the Nigerian consumer market, which has continued to grow despite the economic challenges.
• The companies focus on innovation and product development, which has helped them to maintain market share.
• The companies’ ability to pass on rising input costs to consumers.

The findings of this analysis suggest that the FMCG sector is still a bright spot in the Nigerian economy. However, the companies will need to continue to innovate and adapt to the changing market conditions in order to maintain their strong performance.

• On costs of sales, the combined costs of sales of the companies under study rose by N31.08% on-year to N1.027 trillion in the 2022 FY, driven more by NASCON’s 61% growth in the cost of sales. 

• In terms of operating expenses (OPEX), the combined OPEX of the companies printed at N159.40 billion in 2022FY from N130.944 billion recorded in 2021, representing 21.74% growth. Dangote Sugar recorded the lowest growth as its OPEX declined by 4.21%.

• Also, the combined operating profit growth of the companies rose by 54.07% year-on-year to N303.236 billion with Unilver recording the highest operating profit growth of 568%.

The coverage companies must have transferred much more than their costs to the consumers based on their revenue and earnings growth in contrast to consumer declining purchasing power, which limited effective demand. However, most of them did well in managing their costs given the impressive performance in their operating profit growth rate.

Nestle Nigeria Plc

Nestle recorded the highest revenue in 2022FY amounting to N446.819 billion, 27% up from N351.822 billion in 2021.

The company’s cost of sales grew by 32% y/y to N291.054 billion, buoyed majorly by a higher cost of raw materials. This is reflected in the gross profit. Gross profit for 2022 grew by 18.2% y/y to N155.8 billion.

Meanwhile, profit after tax of N48.965 billion was recorded for the year 2022, which represents a 22.3% increase over 2021.

Commenting on the result, Managing Director and Chief Executive Office of the company, Wassim Elhusseini, said:

“I am extremely proud of the team’s ability to continue to achieve so much even under the current challenging business environment, enabling us to keep our commitment to deliver value for our shareholders, our consumers and the communities in which we operate.”
Though the company recorded impressive growths in revenue and profit after tax, we noted lower margins in 2022 compared to 2021. The lower gross margin reflects cost pressures on two fronts, higher raw materials and energy costs, both precipitated by the Russian-Ukraine conflict. Escalated energy costs weighed significantly on gross margins because of the heavy reliance on diesel for power and distribution of finished goods.

BUA Food Plc

BUA Foods reported the second-highest revenue of N418.347 billion in 2022, a 25.53% year-on-year increase. The company’s sugar division contributed 66% to this revenue, generating N274.407 billion in 2022, a 31% year-on-year increase.

BUA Foods’ profit after tax also grew by 31% year-on-year to N91.344 billion in 2022. However, the company’s net profit margin increased marginally by 90 basis points to 21.83%, due to rising net finance cost and income and deferred tax expense.

In summary, BUA Foods’ revenue and profit after tax both grew significantly in 2022. The company’s sugar division was a major contributor to this growth. However, the company’s net profit margin only increased marginally, due to rising net finance cost and income and deferred tax expense.

Dangote Sugar

Revenue reported by Dangote Sugar Refinery grew by 46.07% to N403.236 billion in FY 2022 from N276.055 billion in 2021 on the back of a 45.3% y/y sales growth in the 50kg segment, constituting 97% of the company’s revenue.

As a result of the increased sale, lower operating expenses and increased finance income, profit after tax moved upward by 148% to N54.74 billion. The increase in profit resulted in a net profit margin of 13.58% in the full year of 2022, indicating a 5.59 basis points increase from 7.99% in the full year of 2021.

Interestingly Dangote Sugar recorded an impairment gain of N63.5 million on financial assets. This alongside an increase in finance income driven by higher bank deposit interest rates, led to a 34.31% y/y slump in net finance cost.

Unilever Nigeria Plc

Based on the 2022 FY report, Unilever’s revenue grew by 25.6% to N88.571 billion from N70.523 billion in 2021, driven by the growth in two of the company’s main product lines. While the food products segment grew by 37.5% to N42.628 billion, the home and personal care grew by 16.6% to N46.091 billion in 2022.

Despite the headwinds, the company was able to record an operating profit of N7.545 billion, up 568% from N1.129 billion recorded in 2021. Also, its 315% y/y growth in profit before tax is impressive.

Commenting on the results, the Managing Director, Carl Cruz said:

“Unilever Nigeria remains focused on the delivery of its 4G growth model of competitive, consistent, profitable, and responsible growth.
“Unilever is pleased with its performance progress riding on the pillars of operational efficiency, cost optimization, purposeful brands and increasing market share across key categories.”
But going by the company’s margins, it needs to do more on its cost optimization. Further analysis of the financials shows that the operating profit margin (8.52%) and net profit margin (5.04%) are considered low despite the impressive year-on-year growth.

NASCON Allied Industry

NASCON recorded the highest revenue growth of 76.64% among the coverage companies in 2022. Revenue increased from N33.3 billion in 2021 to N58.8 billion in 2022, driven by growth in salt (up 79.8%) and seasonings (up 49.99%).

The high revenue growth helped to offset the cost of sales growth of 61% year-on-year to N34.343 billion, maintaining a decent gross profit margin of 42% in 2022.

Profit after tax increased by 84.1% to N5.5 billion in 2022, compared to N3.0 billion in 2021. This resulted in a profit margin of 9.30%.

However, the gross profit margin of 42% and the operating profit margin of 14.78% indicate that costs had an impact on the bottom line.

Cadbury Nigeria Plc

Cadbury recorded the lowest revenue. The company reported revenue of N55.21 billion in 2022, representing an increase of 30.3% over N42.37 billion in 2021.

The company’s financials also indicated that gross profit grew from N6.477 billion in 2021, to N7.76 billion in 2022.

Its Managing Director, Mrs Oyeyimika Adeboye in a statement said Cadbury Nigeria has continued to sustain its current growth trajectory in a tough business environment.

Further analysis of the results shows that the company’s operating profit declined by 49.7%, on the back of the high cost of sales and operating expenses. This is reflected in the company’s low margins, the lowest amongst the coverage companies. Cadbury’s net profit margin stood at 1.7%, though an improvement from the 1.01% recorded in 2021.

More News On RNN

Subsidy removal: GTBank doubles salaries of junior staff

TINUBUNOMICS: Bank stocks surge 12.59% in a week

President Tinubu lands in Paris for Summit

Tinubu Calls on US to Invest in Africa’s Clean Energy Future