The performance of Nigeria’s consumer goods companies in 2023 showed increasing divergence in performance and profitability positions as the effect of challenging macroeconomic conditions continued to impact operational costs and profitability positions of consumer goods industry players.

Despite these challenges, BUA Foods Plc demonstrated remarkable resilience, mirroring its strategy, and delivering double-digit growth.

The spectre of inflation loomed as businesses raised prices to cover surging input, operational, and finance costs. currency devaluation, escalating energy expenses, and heightened insecurity also remained elevated in 2023.

Households grappled with dwindling disposable incomes, eroding their purchasing power, and altering consumption patterns compared to preceding years.

The impact of this economic strain was acutely felt by lower-income households, while even those of average means found themselves grappling with the pervasive effects of rising inflation and challenging macroeconomic conditions.

In an outlook statement for 2023 and while delivering the FY 2022 financial report of BUA Foods Plc, Ayodele Abioye, the managing director of BUA Foods Plc, stated that “we remain resolute to navigate the numerous business headwinds to continue delivering double-digit growth with a sustained focus on our market expansion strategy across our business segments.”

This unwavering focus on strategy is what sets BUA Foods Plc apart, leading to its highest sector market capitalisation at N6.84 trillion and its position as one of the most profitable FMCG companies listed on the Nigerian Exchange Limited (NGX).

Revenue and Profitability

BUA Foods Plc’s revenue continued its upward trend, as seen in the past four years. The company’s revenue grew by +74.36 percent to N729.44bn in FY 2023 from N418.35bn in FY 2022. Major contributors to the FY 2023 revenue were the sale of sugar (Fortified), flour and pasta, contributing 86 percent of the FY 2023 revenue. Despite +75.60 percent growth in operating profits to N206.32bn in FY 2023 from N117.49bn, growth in selling and distribution expenses and finance cost by +110.36 percent and +1,054.59 percent to N29.85bn and N100.68bn respectively had a major impact in squeezing pretax returns which grew only by +0.83 percent to N108.12bn FY 2023

Segmental Performance

In 2023, sugar (fortified) emerged as the primary driver of revenue growth for BUA Foods, closely followed by bakery flour and sugar (non-fortified). Molasses, the byproduct of the sugar refining process, made the smallest contribution to revenue.

Despite its significant growth, the wheat bran segment ranked fourth in revenue contribution. Nevertheless, the wheat bran segment holds promise within BUA Foods’ vertical integration strategy and segmental growth initiatives, showing notable potential for future revenue growth

Financial Position

The company’s assets rose by +76.28 percent in FY 2023 to N1,070.44bn from N607.22bn in FY 2022. Asset growth in FY 2023 is attributable to inventory growth, cash and cash equivalents, and, due from related parties, growth by +277.27 percent, +211.30 percent, and +265.60 percent, respectively. BUA Food’s Liability increased by +114.84%, driven by a +207.59 percent growth in total borrowings.

Shareholders’ equity capital climbed by +13.46 percent as growth in returns saw retained earnings grow by +13.95 percent in FY 2023 to N262.06bn from N230.96bn in FY 2022.

Cash Flow

BUA Food Plc’s cash position rose by +259.75 percent as cash and cash equivalents increased to N99.55bn in FY 2023 from N27.67bn, supported by a +212.06 percent growth in current borrowings.

Cash generated from selling the companies’ products and services increased as cash from operating activities rose by +21.72 percent from N124.47bn in FY 2022 to N151.51bn in FY 2023. Net cash received from investment activities grew to N34.59bn in FY 2023 from N15.44bn in a corresponding period in 2022.

Ratios

The fiscal year 2023 witnessed notable enhancements in BUA Foods Plc’s capability to fulfil its short-term obligations, as evidenced by improvements in the current and acid test ratios.

Specifically, these ratios advanced to 0.91 and 1.41, respectively, from 0.90 and 0.81 in the previous fiscal year.

However, the company experienced increased operational and financial costs, leading to a decline in the return on equity (ROE) by -4.57bps to 10.47 percent in FY 2023 from 15.04 percent in 2022. Similarly, the return on assets (ROA) observed only a marginal increase of +3.23bps in FY 2023, reaching 42.78 percent compared to 39.55 percent in 2022.

While the gross profit margin (GPM) expanded to 35.71 percent in FY 2023, reduced net earnings during the same period resulted in a decline of -6.47bps in the net profit margin (NPM) to 15.37 percent, down from 21.83 percent in the corresponding period in 2022.

Notably, BUA Foods Plc experienced a decrease in inventory turnover in FY 2023, with inventory growing to N112.28bn from N29.76bn in 2022. This inventory growth could have contributed to higher storage and holding costs for the FMCG industry leader.

Conclusion

Nigeria’s FMCG sector has been pressured by rising operating costs, growing inventories (probably because of lower demand), and steeper debt. The combination of these factors has doused investor enthusiasm. This does not imply that investors are largely pulling away from the sector, but they are looking closer at how economic fundamentals will affect the sector’s future earnings. Several suppliers have bitten the dust as rising costs and increased insecurity from farm gates to factory floors have squashed profit margins. Insecurity has led to a large pullback in miller suppliers, raising the cost of flour products and exported goods.

A sustained rise in the foreign exchange rate in 2023 led to FMCGs’ foreign exchange losses and put pressure on their costs of goods sold (COGS). Analysts expect the situation to be less severe in 2024 as the naira strengthens against other global currencies.

However, for FMCGs to reduce inventories and lower their prices to encourage higher domestic demand, the domestic security situation must improve, and multiple logistics levies must be tackled.

According to a manager at one of the companies who requested anonymity, ‘with energy costs going up (the federal government has approved a 200% increase in energy tariff for band A power sector consumers), FMCGs will see further operating cost pressures on their bottom lines. Profit margins may be squashed like pancakes.’

He further observed that ‘FMCGs will have to pull out all the stops to get several costs down. BUA has some temporary tax shields from its pioneer status for its pasta and flour milling plants, but the reliefs have started ticking down from last year; the truth is that depending on temporary reliefs for a strategic plan is like swimming in the ocean until the tide runs out, then we will know whose swimming shorts are dangling around their ankles.’