Nigerian Breweries, Nestle Nigeria and other leading companies in the West African country have lost about N472 billion to the dip in local currency, the naira, according to Meristem report.
The report by Meristem, a wealth management company traced the high inflation and pressure on production costs especially on consumer goods as indicators for the loss.
The report also identified the high cost of purchasing raw materials like grains, dairy, and meat directly impacted production as consumers are paying more for fast-moving consumer goods.
“For the majority of companies in the consumer goods sector, which heavily rely on the importation of raw materials, the weakened Naira translated into significantly higher import bills, thereby leading to a substantial increase in production costs,” the Meristem report said.
“Companies holding foreign-currency-denominated debts, like Nigerian Breweries Plc, Nestle Nigeria Plc, and Guinness Nigeria Plc, Cadbury Nigeria Plc, faced higher debt burdens, more expensive letters of credit and substantial.
“This placed significant strain on the profitability of these industry players, leading a number of these players to report after-tax losses for both Q2:2023 and Q3:2023.
“As of 9M:2023, foreign exchange losses for major players in the industry stood at NGN472.35bn, further underscoring the magnitude of the challenge posed by the naira’s depreciation on the financial health of consumer goods companies.”
The report noted that with inflation climbing to 28.20 per cent in November 2023 – the highest in 18 years – consumer behaviour, purchasing power, and spending patterns were impacted leaving an indelible mark on the industry’s overall dynamics.
“Reflecting the broader macroeconomic terrain of the nation, the consumer goods sector has grappled with a host of pervasive challenges. These challenges range from foreign exchange shortages and the naira devaluation, lower consumer purchasing power due to the unabated inflationary pressures, and the rising cost of commodities, amongst others,” the Meristem report said.
The wealth management company predicted that inflation will continue to rise, adding that, naira’s continued depreciation and challenges in foreign exchange liquidity, are expected to weigh on companies’ profitability.
“Moving forward, into 2024, we anticipate more players in the industry to engage in business restructuring, strategic acquisitions, and expansions to sustain profitability and navigate the challenging operating conditions in the market.
“Despite ongoing struggles with rising costs due to inflation and substantial FX losses affecting their bottom line, we foresee consumer goods companies adapting their product categories to remain relevant and innovative, aiming to stay ahead of the curve in serving evolving consumer needs.”
According to the half-year financial reports of the firms, the steep devaluation of the naira, following the Central Bank of Nigeria’s attempt to close the gap between the official and parallel rates of the naira, negatively impacted their businesses.
The firms included MTN Nig Communications Plc, Airtel Africa Plc, Dangote Cement Plc, Dangote Sugar Refinery Plc, Nestle Nigeria Plc, MRS Oil Nig Plc, Guinness Nigeria Plc, Nigerian Breweries Plc, and Seplat Energy Plc.
