Cost of Sales Soars for Nigerian FMCG Giants as Inflation and Naira Depreciation Drive Expenses Over N1.3 Trillion
Three major fast-moving consumer goods (FMCG) companies listed on the Nigerian Exchange Limited (NGX)—BUA Foods, Nestle Nigeria, and Cadbury—spent nearly N1.3 trillion on cost of sales within the first nine months of 2024. This represents a significant 110% increase from the N618 billion recorded in the same period last year, largely driven by inflation and currency depreciation challenges.
Key Highlights:
1. Rising Cost of Sales
BUA Foods: Saw its cost of sales rise to N736.97 billion, a 116% increase from N340 billion in 2023. The company cited high input costs and naira depreciation as primary drivers of the increased production expenses.
Nestle Nigeria: Reported a 94% rise in cost of sales, up to N458.97 billion from N236 billion in the same period last year. Notably, raw material costs surged by over 100%, while overhead and labor costs reached N108.51 billion and N36.22 billion, respectively.
Cadbury Nigeria: Also experienced a significant rise in cost of sales, from N42.9 billion to N74.8 billion, marking a 74% growth.
2. Economic Context and Challenges
Nigeria’s inflation rate increased to 32.7% in September 2024, adding pressure on both companies and consumers.
As prices for goods and services climbed sharply, companies in the real sector, especially manufacturing, faced mounting expenses in sourcing raw materials and handling production.
3. Industry and Expert Insights
Stakeholders have expressed concerns about inflation's impact, urging policies to support businesses through incentives to weather the economic challenges.
Local Sourcing and Cost Control: Industry experts recommend that FMCGs increase local sourcing and implement stricter cost controls to mitigate rising import costs.
Impact on Profitability: Rising production costs driven by naira depreciation are significantly affecting profitability for these FMCGs, as highlighted by Charles Abuede, a research analyst at Cowry Asset Management Limited.
4. Lending Rates and Salary Increases
Companies like Dangote Cement and MTN Nigeria have turned to commercial papers at around 30% interest rates to secure funding. This is partly due to increased lending rates, which impact businesses relying on borrowed funds.
To retain skilled employees amid economic turbulence, many firms have raised salaries, adding to operational costs.
5. Impact on Consumers
According to Dr. Paul Uzum from Planet Capital, firms may have to pass these costs on to consumers through higher prices, as this will likely be necessary for their survival amidst rising costs.
This surge in costs underlines the financial strain on Nigeria’s FMCG sector as it navigates the complex economic landscape, balancing rising expenses with the challenge of maintaining profitability and consumer affordability.
Three major fast-moving consumer goods (FMCG) companies listed on the Nigerian Exchange Limited (NGX)—BUA Foods, Nestle Nigeria, and Cadbury—spent nearly N1.3 trillion on cost of sales within the first nine months of 2024. This represents a significant 110% increase from the N618 billion recorded in the same period last year, largely driven by inflation and currency depreciation challenges.
Key Highlights:
1. Rising Cost of Sales
BUA Foods: Saw its cost of sales rise to N736.97 billion, a 116% increase from N340 billion in 2023. The company cited high input costs and naira depreciation as primary drivers of the increased production expenses.
Nestle Nigeria: Reported a 94% rise in cost of sales, up to N458.97 billion from N236 billion in the same period last year. Notably, raw material costs surged by over 100%, while overhead and labor costs reached N108.51 billion and N36.22 billion, respectively.
Cadbury Nigeria: Also experienced a significant rise in cost of sales, from N42.9 billion to N74.8 billion, marking a 74% growth.
2. Economic Context and Challenges
Nigeria’s inflation rate increased to 32.7% in September 2024, adding pressure on both companies and consumers.
As prices for goods and services climbed sharply, companies in the real sector, especially manufacturing, faced mounting expenses in sourcing raw materials and handling production.
3. Industry and Expert Insights
Stakeholders have expressed concerns about inflation's impact, urging policies to support businesses through incentives to weather the economic challenges.
Local Sourcing and Cost Control: Industry experts recommend that FMCGs increase local sourcing and implement stricter cost controls to mitigate rising import costs.
Impact on Profitability: Rising production costs driven by naira depreciation are significantly affecting profitability for these FMCGs, as highlighted by Charles Abuede, a research analyst at Cowry Asset Management Limited.
4. Lending Rates and Salary Increases
Companies like Dangote Cement and MTN Nigeria have turned to commercial papers at around 30% interest rates to secure funding. This is partly due to increased lending rates, which impact businesses relying on borrowed funds.
To retain skilled employees amid economic turbulence, many firms have raised salaries, adding to operational costs.
5. Impact on Consumers
According to Dr. Paul Uzum from Planet Capital, firms may have to pass these costs on to consumers through higher prices, as this will likely be necessary for their survival amidst rising costs.
This surge in costs underlines the financial strain on Nigeria’s FMCG sector as it navigates the complex economic landscape, balancing rising expenses with the challenge of maintaining profitability and consumer affordability.