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HomeBusinessNigeria's FMCG manufacturing firm's increased production costs put consumers under pressure

Nigeria’s FMCG manufacturing firm’s increased production costs put consumers under pressure

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The cost of production for most consumer goods manufacturing sector increased by an average of 25 per cent in the six months to June 2022, as Nigeria’s inflation rate jumped across the board, a survey of the sector has shown.

The increased cost of production in the sector has, however, overshot the level of the inflationary trend, which stood at 17 per cent in the period under review.

The companies in the consumer goods segment listed on the Nigerian Exchange Limited recorded increase in the cost of production which rose to N788.7 billion in the first half of the year from N630.7 billion in the same period of last year.

This comes even when the companies are reporting sluggish growth, and in many cases, an outright decline in output levels.

Company executives and industry analysts have listed the source of the cost pressures to include energy cost from the issues around diesel prices, increasing costs associated with foreign exchange for imported raw materials, high transportation costs, and increased labour expense, among others.

For instance, companies such as Nestle Nigeria Plc, Dangote Sugar, BUA Foods Plc, Nigerian Breweries, Guinness Nigeria Plc, Honeywell Flour Mills Plc, Cadbury Nigeria, PZ Cussons Industries, NASCO Allied Industries Plc, and GSK Consumer Nigeria Plc.

Also in the basket of cost leaders in the consumer goods sector are, Unilever Nigeria,  Northern Nigeria Flour Mills, Union Dicon Salt Plc,  Nigerian Enamelware Plc, International Breweries, Golden Guinea Breweries,  Multi- Trex Integrated Foods Plc, amongst many others examined by Financial Vanguard.

Top on the list are NASCO, which recorded about 57.6 per cent rise to N16.8 billion in half year of 2022 compared with N10.6 billion a year ago, while GSK Consumer Nigeria Plc with operating costs rising by 56.1 per cent to N11.0 billion from N7.1 billion in the first half of last year, while Champion Breweries cost of production jumped by 54.0 per cent to N2.2 billion from N1.4 billion in 2021.

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Nestle Nigeria Plc recorded a 43.4 per cent rise in cost to N75.3 billion as against N52.5 billion last year, while Dangote Sugar recorded 41.9 per cent increase compared with N146.6 billion as against N103.5 billion in the half year to June 2021.

Meanwhile, in absolute terms, companies with high cost of production include BUA Foods Plc recording the highest cost at N168.9 billion in H1’21, Nigerian Breweries recorded N146.6 billion, and Dangote Sugar recorded N146.6 billion. Guinness Nigeria Plc recorded N134.2 billion while Nestle recorded N75.3 billion.

In an apparent reflection of the high cost of production transferred to consumers, the consumer goods sector grew in revenue even while the purchasing power of consumers was weakened by inflation, growing unemployment, and other macroeconomic headwinds during the period.

Both the turnover and profit growth rate of these companies in H1’22  surpassed both Gross Domestic Product, GDP, growth rate and inflation rate which stood at 3.54 per cent and 18.6 per cent respectively in the first half of the year.

Specifically, the aggregate turnover of the 18 leading companies in the consumer goods manufacturing segment increased by 29.6 per cent to N1.16 trillion in H1’22 from N892.3 billion in H1’21.

More impressively, their Profit Before Tax, PBT, grew by 56.1 per cent to N173.85 billion in H1’22 from N  111.4 billion in H1’21.

Analysts noted that inflationary growth was behind the performance of the Consumer Goods sector, adding that they must have transferred much more than their costs to the consumers going by their turnover level amidst declining purchasing power which had restrained effective demand.

However, they noted that most of the companies also did well in managing costs, given the impressive performance in their profit growth rate.

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