August 27, (THEWILL) – The 2023 interim half-year financial results of Nigeria’s manufacturing companies revealed that they are battling for breath as they struggled to lift margins. Their profit and revenue haul were severely impacted, while the key six cost/expenses indices revealed an average 92 percent increase. The selected key cost areas include Tax Expenses, Cost of Sales, Administrative Cost, Sales/Marketing Distribution, Raw Materials/Inventory and Employee Expenses/Entitlements.
The firms are confronted with a difficult environment that is not likely to improve any time soon. With growing evidence of worsening economic uncertainties as the firms groan under chock of thistles from multidimensional challenges.
These include multiple taxes, high operating costs, rising inflation, low consumer demand, decrepit infrastructure, volatile exchange market, forex scarcity, policy summersault and insecurity among others. The most outstanding impact came from the devaluation of the naira.
The Central Bank of Nigeria (CBN) had on June 14, 2023, announced the unification of the multiple exchange windows of the forex market. This resulted in significant depreciation of the naira by 67 percent to the average of N777/$ (as of August 2023) against N465/$ prior to the announcement. Also, the naira traded N800/$ at the parallel market compared to N765/$ before the abolition of multiple exchange rates. This development impacted negatively on the operations of firms in the manufacturing sector.
The 2023 half-year financial results of these firms proved they are working a tight rope, and literally trudging the valley of shadow of death. It is obvious that some of them might shut down or drastically downsize soon.
Findings from 10 sampled major manufacturing firms, mainly in the consumer goods group, showed they reported a total of N517.1 billion in non-recovery, net foreign exchange losses in the first half of the year (HY 2023), occasioned by the devaluation of the naira.
Nestle Nigeria Plc and Dangote Cement Plc were the worst hit with non-recovery net forex losses of N123.7 billion and N113.6 billion respectively. They are followed by Nigerian Breweries Plc N85.26 billion, Dangote Sugar Refinery Plc N83.09 billion and Guinness Nigeria Plc N41.9 billion.
Others are International Breweries Plc with N40.66 billion, Neimeth Pharmaceuticals Plc N22.82 billion, Unilever Plc N2.93 billion and Cadbury Nigeria Plc N1.03 billion.
The eroding wave of depreciation resulted in total post-tax loss of N370.57 billion by the 10 firms, compared to N175.9 post-tax profit they posted in the equivalent period of the preceding year. The development impacted severely on the balance sheets of Nigerian businesses as they had to source extra funds in local currency to meet their dollar-denominated obligations.
The 10 selected firms suffered huge forex losses which impacted severely on their earnings and drained their bottom lines as inflation rises. This resulted in a total pre-tax loss of N695.03 billion in HY 2023 against pre-tax profit of N637.61 in the corresponding period of 2022.
“It is a bad omen.” said Barnabas Ikuru, an investment and financial analyst. “Their balance sheets have been significantly eroded, their earning power vitiated, and their expansion capacity weakened. Top among the victims are the employees who may be laid off, downgraded or suffer a salary cut. Some companies will have to increase the price of their products and that would impact their sales revenue because of declining consumer power,” Ikuru added.
An earlier report by THEWILL revealed that the challenge had started before now.
Data from the firms’ interim reports showed a significant increase in their operating costs which could lead to downscaling in the firms’ operations to remain in business.
Six major FMCG firms surveyed include Nigerian Breweries Plc, Unilever Nigeria Plc, Nestle Nigeria Plc, Guinness Nigeria Plc, Cadbury Nigeria Plc and Dangote Sugar Refinery Plc. They had a combined market capitalisation of N2.3 trillion and constituted over 60 percent of total market capitalisation of the Consumer Goods Sector amounting to N3.36 trillion as of Friday May 13, 2022.
The highest expenses window recorded by the six surveyed firms was in cost of sales (COS) which jumped from N216.3 billion in Q1 2021 to N269.9 billion in Q1 2022, representing a 24.8 percent increase. The COS is the accumulated total of all costs used to create a product or service which has been sold.
The companies’ raw/packaging materials inventories showed a total of N161.4 billion during the three months of that year, a 20 percent rise from N134.7 billion spent in the corresponding period in 2021. Nigerian Breweries report showed N54.7 billion worth of raw/packaging materials inventory during the period. Others are Dangote Sugar and Nestle with N48.2 billion and N32.3 billion respectively.
Employee expenses/entitlements during the period grew by 23 percent to N63.6 billion from N51.8 billion posted in Q1 2021, with Unilever recording the highest employee/personnel expenses/entitlements of N37.9 billion followed by Nigerian Breweries with N13.6 billion. The other higher number was that of Nestle which recorded N8.4 billion.
Sales/Marketing/Distribution expenses by the six firms totaled N57.9 billion against N40.5 billion in the corresponding period, which reflects a 43.3 percent increase. Nigerian Breweries recorded N32.2 billion during the period, followed by Nestle and Guinness with N14.3 billion and 8.3 billion respectively.
Tax expenses by the surveyed firms rose by 66.5 percent to N26 billion from N15.6 billion in Q1 2022 with Nestle, Nigerian Breweries and Dangote Sugar posting the highest: N9.9 billion, N7.2 billion and N4.8 billion respectively. Two companies recorded net losses on foreign exchange transactions: Nigerian Breweries N1.9 billion and Guinness N286 million.
Stakeholders and industry experts urged the firms to take drastic measures to avoid sinking in the miry clay of high operating expenses and go out of business as inflation rate surges.
