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Forex crunch pushes Berger Paints, CAP’s input costs to N17.2 billion in 2023

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Two leading Nigerian paint companies, Chemical and Allied Products (CAP) Plc and Berger Paints Plc, reported spending N17.172 billion on raw materials in the year ending December 31, 2023.

This marks a 22.85% increase from N13.978 billion in 2022. Raw material costs accounted for 85.48% of the total cost of sales (N20.088 billion) and 54% of the total revenue (N31.800 billion) for these firms in 2023. The rise is attributed to inflationary pressures and the depreciation of the Naira.

The information is contained in the audited full-year results of the companies tracked by Naijaonpoint.

The recently released Q1 2024 report showed a similar trend as the total cost of sales of the companies grew by 85.42% to N7.120 billion from N3.840 billion reported in 2023.

The cost of sales represents 65.36% of the total revenue of N10.892 billion posted by the companies in Q1 2024.

Cost pressures: Some of these cost pressures were due to the depreciation of the Naira while others were due to macro-economic inflationary pressure, especially in the domestic market where average inflation heightened.

Rising costs of key raw materials due to escalating foreign exchange have also continued to affect the operations of the companies with a negative effect on their profit margins.

Paints are produced with raw materials such as pigments, solvents, and resins, including additives. Due to the lack of petrochemical industries in Nigeria, they are mostly imported from India, China, and other parts of the world.

With the naira depreciation and the forex crunch, their costs have risen by over 100% since late 2015 when forex scarcity started.

The headline inflation rate in April 2024 rose to 33.69%, up from 33.20% in March 2024, marking an increase of 0.49% points according to the Nigeria Bureau of Statistics (NBS).

Comparing year-on-year data, the inflation rate in April 2024 was 11.47% points higher than in April 2023, where it stood at 22.22%. This indicates that the headline inflation rate has risen significantly over the past year.

Additionally, on a month-to-month basis, the inflation rate for April 2024 was 2.29%, which is 0.73% lower than the 3.02% recorded in March 2024. This suggests that the rate at which prices increased in April 2024 was slower than the rate in March 2024.

There is fear that the surge may lead to more cost pressure on manufacturers, especially on gas and other raw materials. To mitigate this risk, most cement manufacturers have increased prices.

The high cost of raw materials due to the importation of the raw materials and the low disposable income of consumers have remained major challenges facing paint manufacturers in Nigeria.

The combination of these factors has made many paint companies listed on the Nigerian Exchange Limited (NGX) face low consumer demand as their products are not considered by consumers as a priority because of the squeeze in household wallets.

Though raw materials import with its attendant foreign exchange burden has remained a militating factor, it is not the only factor responsible for the less than sterling performance of paints manufacturers.

Though raw materials import with its attendant foreign exchange burden has remained a militating factor, it is not the only factor responsible for the less than sterling performance of paints manufacturers.

Other challenges facing the industry include a dearth of infrastructure, especially a stable electricity supply, poor road network, multiple taxation, stiff competition, and high import duties and tariffs, among others.

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