Subsidy removal: Coys’ distribution cost jumps to N155bn in Q2’23

The distribution cost for leading consumer goods companies quoted on the Nigerian Exchange Limited (NGX) rose to N166.43 billion in the second quarter ended June 30, 2023, on the back of fuel subsidy removal and rising energy cost.

This represents a 13.32 percent increase compared to N137.17 billion recorded in the corresponding period in 2022.

Mrs Toyin Sanni, Group CEO, Emerging Africa Capital Plc, had said that businesses that heavily rely on transportation and logistics would be directly impacted by the fuel subsidy removal.

According to her, “industries such as manufacturing, agriculture and distribution will experience higher operating costs due to increased fuel expenses. This in turn may result in higher production costs and reduced profit margins for businesses.”

The companies numbering 17, are Berger Paints Plc, Presco Plc, Champion Breweries Plc, Fidson Healthcare Plc, GlaxoSmithKline Plc (GSK) Plc, Dangote Sugar Refinery Plc, Neimeth Pharmaceuticals Plc, Cadbury Nigeria Plc, Lafarge Africa Plc, and BUA Foods Plc.

Others are Dangote Cement Plc, Nestle Nigeria Plc, Meyer Plc, Unilever Nigeria Plc, BUA Cement Plc, NASCON Allied Industries Plc, and May & Baker Plc.

Details in the financial reports of the companies for the period showed that the decline in the distribution cost of GSK (-37%), which is already shutting down its operation in Nigeria, and Unilever Nigeria Plc (-65%), that recently sold its flagship product – Blue Band Margarine – lessened the impact.

BUA Foods recorded the highest increase in its distribution cost to N6.56 billion from N2.49 billion in Q2’22, followed by Meyer Plc with an 80.95 percent increase to N380 million from N210 million in the corresponding period in 2022.

NASCON Allied Plc ranked third with 55.74 percent increase in its distribution cost to N4.78 billion from N3.07 billion in Q2’22, while BUA Cement and Nestle Nigeria Plc recorded 40.5 percent increase each in their distribution costs to N6.77 billion and N20.97 billion respectively.

Naira loses, exchanges at N756.21 to the dollar at investors, exporters window
On the other hand, Unilever Nigeria Plc recorded 64.5 percent decline in its distribution cost to N2.49 billion from N7.03 billion in Q2’22; GSK Plc recorded 36.9 percent decline in to N593 million from N1.099 billion in Q2’22, while Fidson Healthcare Plc posted a 34.1 percent decline to N1.01 billion from N1.53 billion in the corresponding period in 2022.

Commenting, David Adonri, Vice Chairman, Highcap Securities, said: “Discontinuation of fuel subsidy by the federal government as expected, contributed to increase in the distribution cost for manufacturing companies.”

He, however, noted that the impact was minimized by the fact that most haulage vehicles used for distribution run on diesel which had long been deregulated.

He said: “The increased cost of operations by manufacturing companies arising from fuel price increase and currency depreciation will adversely affect the end of year profit the affected companies will make. This will in turn reduce dividend payout to investors. Cost recovery by the companies can hike the prices that consumers will pay. The attendant inflation will erode the purchasing power of consumers and worsen the poverty rate. However, these are all short term impacts before the economy adjusts to the new price level”.

Also speaking, Akinloye Ayorinde, Economic and Investment Strategist at United Capital Plc attributed the increase to higher spend on branding activities and running promotions to strengthen presence in the minds of consumers.

“In addition, logistics costs have risen in response to higher energy and transportation costs,” he added.