A recent report by Meristem has indicated that leading fast-moving consumer goods (FMCG) companies in Nigeria, such as Cadbury, Guinness Nigeria, and Nestle, collectively suffered a financial setback of N472.3 billion during the first nine months of 2023 due to the depreciation of the naira.
The report underscores the impact of high inflation rates on production costs within the consumer goods sector, particularly affecting food and beverage manufacturers.
The surge in inflation has led to increased costs of essential raw materials, including grains, dairy, and meat, which directly affected production. FMCG companies were compelled to either absorb these additional expenses or pass them on to consumers through higher prices. Companies heavily reliant on the importation of raw materials faced substantially higher import bills, leading to a significant increase in production costs.
The report highlighted that firms holding foreign-currency-denominated debts, such as Nigerian Breweries, Nestle Nigeria, Guinness Nigeria, and Cadbury Nigeria, faced elevated debt burdens, more expensive letters of credit, and substantial foreign exchange losses. The naira’s depreciation has strained the profitability of these industry players, resulting in several reporting after-tax losses for Q2:2023 and Q3:2023.
As of 9M:2023, the foreign exchange losses for major players in the industry reached NGN 472.35 billion, emphasizing the magnitude of the challenge posed by the naira’s depreciation on the financial health of consumer goods companies.
The report noted that Nigeria’s inflation, reaching its highest levels in over 18 years (28.20 percent YoY as of November 2023), has significantly impacted consumer behavior, purchasing power, and spending patterns, leaving an indelible mark on the industry’s overall dynamics.
While positive signs, such as anticipated price hikes and robust sales during the festive season, are expected to drive increased revenue, concerns about the ongoing inflation surge, the naira’s continued depreciation, and challenges in foreign exchange liquidity cast shadows over the industry’s outlook.
Looking ahead to 2024, the report anticipates industry players engaging in business restructuring, strategic acquisitions, and expansions to sustain profitability and navigate the challenging operating conditions in the Nigerian market. Despite ongoing struggles with rising costs due to inflation and substantial foreign exchange losses affecting their bottom line, consumer goods companies are expected to adapt their product categories to remain relevant and innovative, aiming to stay ahead of the curve in serving evolving consumer needs.
This report follows previous indications that top Nigerian firms across various sectors collectively lost N960.18 billion due to the impact of the new forex policy in the second quarter of 2023. The steep devaluation of the naira negatively affected businesses, emphasizing the challenges posed by currency fluctuations. Financial experts recommend that companies adopt measures such as hedging against currency devaluation, making investments in foreign currencies, and managing foreign debts to mitigate these challenges.
