Consumer goods manufacturing giants listed on the Nigerian Stock Exchange, NSE, are facing deeper financial difficulties arising from economic headwinds especially foreign exchange related cost pressures and inflation, leading to sharp increase in manufacturing inputs, particularly, raw materials and packaging items.
This is reflected in the audited financial results of four consumer goods giants – Cadbury Nigeria Plc, Nestle Nigeria Plc, GlaxoSmithKline, GSK Plc and Unilever Nigeria Plc – for the financial year ended December 31, 2016, which shows 25 per cent rise in cost of raw materials procurement, from N96.3 billion in 2015 to N132.8 billion. This was coming despite remarkable decline in volume of output, capacity utilization and Manufacturing PMI during the period.
Cadbury, Nestle, Unilever spent N132bn The results also showed that the companies spent more on raw materials when compared to total cost of sales. While in 2015 cost of raw materials accounted for 63.9 per cent of cost of sales, in 2016, despite reduced level of manufacturing activities, cost of raw materials accounted for 72 per cent of total cost of sales.
Whereas all three companies, with the exception of GSK, recorded different degrees of increase in earnings, high cost of sales and distribution, particularly, cost of raw materials and packaging items, including energy cost meant that profit before tax and dividend for the year was constrained.
Though they posted N296.02 billion in revenue, 16.7 per cent increase over N252.71 billion posted by both companies in 2015, it was wiped out by a combination of high cost, unrealised exchange rate losses and high finance cost resulting in significant decline in profit. Consequently, profit before tax for the four companies fell to N25.28 billion, representing 25.1 per cent decline compared to N33.74 billion achieved by them in the same period in 2015. Cadbury ended up in loss position during the year, while GSK and Nestle managed to stay their heads above the troubled waters, though they recorded steep decline in profitability. However, Unilever, on the other hand, recorded increase in profitability.