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Manufacturers Pass on Rising Producer Prices as Profit Jumps 

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Consumer and industrial goods companies are coming out of the woods as profitability jumped, thanks to an elevated inflationary environment that gave them the leeway to raise prices of their products.

The largest manufacturers quoted on the NGX exchange collectively grew net income by 46.77 percent to N300.18 billion in June 2021 from N204.47 percent the previous year, according to data gathered by MoneyCentral.

It is worth noting that 77.77 percent of the 25 companies from different sub sectors are profitable, while 72 percent recorded an uptick at the bottom line (net income).

What is more, they collectively posted N2.07 trillion in sales, and that is 41.21 percent higher than 2020’s N1.47 trillion, according to data gathered by MoneyCentral.

Companies are beginning to ramp up production in anticipation of stronger demand following an economic rebound and successful roll out of vaccines.

The cement makers and some consumer goods firms benefited from favorable price increases that underpinned volume while border reopening enhanced the shipment of goods across African countries.

Based on the recently published Stanbic IBTC Purchasing Managers Index (PMI) report for July, the economy had a PMI reading of 55.4, and a reading is an improvement over June 2021 figure of 53.6 as the economy continues to open and the figure is an eighteen-month high (dipped to 37.10 in April 2020).

The performance was driven by growth in output, new orders, purchase, and employment.

The composite PMI is a reading from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change.

According to the report, greater output requirements led firms to raise their buying activity during the month, and this was at the fastest rate in eighteen months.

Dangote Cement, BUA Cement, and Lafarge Africa, saw combined net income spike by 46.63 percent to N240.98 billion as at June 2021 as deleveraging of the balance sheet, acceleration in construction activities on the back of reopening of the economy, and public and private investment continues to buoy margins.

The largest consumer goods firms collectively grew net income by 45.04 percent to N54.42 billion as at June 2021, despite huge losses suffered by International Breweries and Cadbury Nigeria.

Analysts at United Capital Research expect to see a significant rise in cost for these companies considering the global rebound in commodity prices, devaluation of the naira and the high inflationary environment.

“All in, we expect the impact of revenue growth on the bottom-line to outweigh the drag from increased costs,” said analysts at United Capital.

Local manufacturers and other industry operators in the country have cried out over the high cost of clearing cargoes at Nigerian seaports, describing it as a cankerworm that has forced so many companies into extinction.

The largest companies incurred N1.60 trillion in total cost in the first six months through June 2021, and that is 37.84 percent higher than 2020’s N1.16 trillion.

Interestingly, they spend on average N88 to produce each unit of products, according to data gathered by MoneyCentral.

For instance, Unilever Nigeria’s N38.75 billion total cost of production is 99.15 percent of total revenue of N39.15 billion, leaving the company with a very slim profit margin.

Cadbury Nigeria Plc’s total cost is 1.03 times revenue, little wonder it posted a loss of N516.16 billion. International Breweries’ total input cost is 1.19 times revenue, and the company posted a loss of N13.88 billion.

Analysts at United Capital project decent growth in profitability for FMCGs, Brewers, Food Processors and Cement companies.

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