Manufacturers operating in the consumer goods sector are battling with rising input costs which are inflation-infused.
Eight firms analysed by BusinessDay recorded an 85.7 percent surge in input cost to N3.12 trillion in 2024.
Analysts are of the opinion that the impact of rising inflation on the consumer goods firms has caused most goods and services to record about a 100 per cent rise in prices of input costs over the last year.
Nigeria’s headline inflation increased marginally to 34.8 percent in December 2024 from 34.6 percent in December 2023, according to the National Bureau of Statistics.
It was noted that the inflation figure in December 2024 was primarily driven by the increased demand for goods and services during the festive season.
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The consumer goods firms have seen a high input cost environment, and naira depreciation weighed heavily on prices of raw materials, resulting in a higher cost of production for the firm.
“The double-digit inflation and currency volatility witnessed in 2024 are a major drag on the earnings of Consumer goods firms, especially those that rely heavily on imported raw materials,” Kayode Eseyin, lead consumer goods and agriculture analyst at Cardinalstone Securities.
“Going into 2025, the expectation of a moderation in inflation and less volatility in the FX market suggests that the cost pressures are likely to abate for these companies, though companies that have taken steps to de risk their supply chain and backward integrate could benefit even more from the improved macroeconomic conditions,” he said.
Nigerian consumer goods firms have recorded higher costs of raw materials needed which drove up input costs to new record highs.
The analysis of five consumer goods firms that recorded raw materials costs in their financial books revealed a cumulative 99 percent year-on-year growth in 2024.
A breakneck rise in the price of raw materials and shortages of key components are creating a logistical nightmare for consumer goods firms whose earnings have been depressed in the face of macroeconomic headwinds.
Analysts also suggested that firms should step up local sourcing of inputs to reduce reliance on imported materials while implementing stricter cost control measures to improve operational efficiency and ease the burden of rising production expenses.
The need for locally sourced materials has become even more important as firms continue to be exposed to foreign exchange volatility, leaving manufacturers with no choice but to up prices.
“The consumer goods firms should focus on local sourcing of made-in-Nigeria raw products which will be cheaper than importing. They should also cut other wastes, such as carrying a lot of inventory; they can opt for downsizing if need be,” Uzo Uchenna, a professor of marketing at Lagos Business School, said.
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He urged consumer goods firms to employ cost management initiatives that have to be holistic for them to affect their business environment.
Since 2020, Nigerians have been battling with persistent increases in prices of goods and services, aggravated by insecurity, Naira depreciation, and supply chain disruption caused by the COVID-19 pandemic.
The eight firms analysed in this report recorded N3.12 trillion in input costs in 2024 from N1.68 trillion in 2023.
These higher input costs could hurt the profitability of companies for a longer period if they are unable to pass the increased expense to consumers and the rising input costs are squeezing profits in the manufacturing sector, driven by higher raw material expenses and weakening demand.
The cost that consumer goods firms have incurred on raw materials importation significantly increased in 2024, indicating that the backward integration is still low to shield the firms from high importation costs driven by high exchange rates.
As costs outpace sales growth, the manufacturing sector faces pressure in maintaining profitability amid growing input and output price indices. This leads to reassessment of pricing strategies and a visible slowdown in industry growth.
BUA Foods’ input cost rose to N984.9 billion from N468.9 billion, while Nestle Nigeria recorded an input cost of N958.8 billion from N547.1 billion.
Dangote Sugar Refinery’s input cost grew to N634.6 billion from N355.1 billion, and Guinness Nigeria’s input cost grew to N200.6 billion from N96.7 billion.
Unilever Nigeria’s input cost grew to N149.8 billion from N103.9 billion, and Cadbury Nigeria’s input cost also rose to N111.7 billion from N63.04 billion.
Nascon Allied Industries’ input cost rose to N64.9 billion from N36.5 billion, while Champion Breweries’ input cost rose to N12.2 billion from N7.63 billion.
The rising input cost shows the magnitude of challenges entrepreneurs face, especially those in the real sector of the Nigerian economy. Consumer goods manufacturers are bearing the brunt of Nigerian economic policy outcomes, which they believe affect business growth.
Nigeria’s manufacturers have been battling rising operational costs amid high borrowing costs and low consumer spending.
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Firms comment on their financial performance
Ayodele Abioye, the managing director of BUA Foods, while commenting on its financial performance said, “The results underscored the company’s ability to navigate challenges with agility and its resilience, as it continues to create value for all stakeholders.
“We are delighted to report an exceptional performance in FY 2024. Despite significant macroeconomic challenges, our business navigated the resulting impact on supply chain costs and foreign exchange losses effectively.
“The cumulative impact of our expansion strategy has enabled our capability to fulfil increased demand from our customers and enhanced internal operational efficiencies,” Abioye said.
Reflecting positivity despite challenges, Wassim Elhusseini, managing director of Nestlé Nigeria, highlighted the positive side of the 2024 results.
“Our 2024 results demonstrate the resilience of our brands and teams and underscore our strong fundamentals in a challenging business environment,” he said.
“The impressive 75.2 percent revenue growth for the year, as well as 35.6 percent improvement of our operating profit to N167.9 billion, reflects the robustness of our operating performance.
“Our net profit and equity were impacted by high finance costs associated with the revaluation of the company’s foreign currency obligations, due to an unprecedented devaluation of the Naira.
“I am very pleased to state that our Q4 2024 standalone results mark a return to profitability with a net profit of Naira 19.7 billion, against a loss of N36.4 billion in Q4 2023,” Elhusseini stated.
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Tobi Adeniyi, managing director of Unilever Nigeria, said, “Our year-on-year sustained growth trajectory is a testament to our commitment to serving consumers with our best brands to meet their daily needs of improved health and hygiene.
“While we are pleased with our performance progress riding on the pillars of operational efficiency, cost optimisation, purposeful brands, and increasing market share across key categories, we are committed to growing our business to enhance our socioeconomic impact in the country,” he said.
Hans Essaadi, managing director/CEO of Nigerian Breweries Plc, while speaking about his company’s results, said, “The impressive year-on-year revenue growth was largely driven by strategic pricing initiatives, market expansion, successful innovations, and operational efficiencies.
“Despite macroeconomic headwinds faced by the company, group operating profit surged by 54 percent, reflecting the success of cost management, process optimisation and strong operational performance,” he said.
