Escalating raw material costs hit BUA Foods, Dangote firms as spending tops N534bn

NIGERIA – Leading Nigerian food companies, BUA Foods, Dangote Sugar Refineries Plc, and Nascon Allied Industries Plc, have collectively spent over N534 billion (US$640.8 billion) on raw materials in September 2023.

According to data compiled by media analysts, this expenditure has marked an 18.10% surge compared to the N452.22 billion (US$542.6 billion) spent in the same period in 2022.

The analysts revealed that among the three companies, BUA Foods experienced the most substantial increase in raw material costs, soaring by 78%. Its spending on raw materials reached N310.15 billion (US$372.1 billion) from N173.53 billion (US$208.2 billion).

In a trading update accompanying its financial statement, BUA Foods attributed the surge in its cost of sales up by 74.1% to N340.6 billion (US$408.7 billion) in the first nine months of 2023 to increased raw material and energy costs.

The company noted that the high input cost environment and the devaluation of the Naira against the US Dollar significantly impacted raw material prices, leading to higher production costs.

Nascon Allied Industries Plc saw a relatively modest increase of 4.04% in the cost of raw materials, reaching N23.27 billion (US$27.9 million) from N22.37 billion (US$27.9 billion) in September 2022.

Despite the increase in raw material costs, Nascon recorded an impressive profit of N11.01 billion (US$13.2 billion) during the period, reflecting a remarkable 281.95% increase compared to the previous year. Its revenue also rose to N59.11 billion (US$70.9 billion) from N40.61 billion (US$48.7 billion) in September 2022.

In contrast, Dangote Sugar Refineries experienced a dip in raw material costs by 21.71%, amounting to N200.66 billion (US$240.8 million) from N256.33 billion (US$307.5 billion) in September 2022.

The company achieved a turnover of N309.71 billion (US$371.6 billion), indicating a 7.42% increase over the same period in the previous year.

However, the company posted a loss after tax of N27.027 billion (US$432.4 billion) as of September 2023, in contrast to a profit of N24.83 billion (US$29.8 billion) in the corresponding period.

Meanwhile, Dangote Sugar and Nascon have agreed to a merger, including Dangote Rice Company Limited. The merger aims to create a formidable food company to compete with competitors in the industry for market share.

Despite the financial strength of Dangote Sugar Refinery, international rating agency Moody’s projected a high-risk profile for its international debt due to exposure to a volatile Nigerian market and global economic uncertainties.

International rating agency, Moody’s in October, attributed this risk to the devaluation of the Nigerian currency following the exchange rate unification by the Central Bank of Nigeria, anticipating increased sugar import costs that could exert pressure on gross margins.

The challenging economic conditions, particularly the significant increase in overall input costs, as indicated by the Stanbic IBTC Bank Nigeria Purchasing Managers’ Index for September, have created headwinds for these food companies.

The report highlighted that both overall input costs and output charges increased to the largest extent since the survey began, reflecting higher transportation costs and currency weakness.

In response, companies raised their selling prices at a record pace, surpassing previous inflation peaks.