The finance costs of major FMCG companies in Nigeria surged by 133.3% year-on-year, reaching N1.074 trillion in the first nine months of 2024 compared to N460.22 billion in 2023.
The companies, including Champion Breweries, International Breweries, Nigerian Breweries, BUA Foods, Dangote Sugar, NASCON, Unilever, Cadbury, and Nestle, faced mounting pressures from increased foreign exchange losses, debt profiles and higher interest rates.
This significant increase highlights the broader economic challenges these companies face.
Nigeria’s economy has been grappling with rising interest rates, driven by the central bank’s efforts to combat inflation. This has made borrowing more expensive, increasing the cost of servicing debt.
Furthermore, the devaluation of the naira has led to massive foreign exchange losses for companies with dollar-denominated liabilities.
For FMCG companies, these challenges are compounded by declining consumer purchasing power, which has limited their ability to pass on rising costs to consumers.
The result has been a triple burden of higher finance costs, squeezed profit margins, and weaker earnings, leaving many firms struggling to maintain financial stability.
Here’s a breakdown of how the companies were impacted in this challenging economic environment:
Nestlé Nigeria
Nestlé had the highest finance costs among its peers at N369.159 billion, driven largely by foreign exchange losses of N285 billion (124% higher than in 2023) and N83.87 billion in interest expenses (up 188%).
Debt: Grew 114% to N684.657 billion.
Impact:
- Loss before tax of N255.384 billion.
- Retained losses reached 262.904 billion
- Shareholders’ funds fell deeper into negative territory at N112.083 billion
- The Interest coverage ratio dropped to 1.32 showing struggles to meet debt obligations.
Dangote Sugar
Finance costs rose by 176% YoY to N300.175 billion, with foreign exchange losses of N233.499 billion (157% higher).
- Debt: Increased 51% to N616.303 billion.
Impact:
- Loss before tax soared by 567% to 275.583 billion
- Retained losses hit N117.465 billion.
- Shareholders’ funds turned negative at N105.111 billion.
Nigerian Breweries
Finance costs surged by 118% YoY to N232.528 billion, mostly from foreign exchange losses and higher borrowing costs.
Impact:
- Loss before tax worsened to N203.124 billion.
- Retained losses reached N176 billion.
- The interest coverage ratio dropped to 0.40, indicating severe difficulty in covering interest payments.
The company explained that the loss before tax was largely due to foreign exchange losses caused by the naira’s devaluation.
To tackle these issues, the company expects to use the proceeds from the rights issue which closed on October 18, 2024, to strengthen its balance sheet, reduce foreign exchange exposure, and support its business recovery plan. HEINEKEN, its major shareholder, fully participated in the rights issue, showing strong support for the company’s turnaround efforts
BUA Foods
BUA Foods reported a pre-tax profit of 215.657 billion, the first nine months of 2024, the highest among the companies under review, despite incurring finance costs of N109.619 billion, including N87.96 billion in foreign exchange losses.
The company’s interest coverage ratio is strong at 14.5x, meaning it can easily cover its interest payments from its earnings.
However, the high finance costs still had an impact, as its pre-profit margin dropped slightly by 5.19%, bringing it to 20.14%.
This shows that while BUA Foods remains highly profitable, rising costs are putting some pressure on its earnings.
International Breweries
International Breweries reported finance costs of N37.098 billion, of which N32.97 billion was interest paid on borrowings.
Notably, this figure does not include the substantial N155 billion in foreign exchange losses.
These combined financial pressures significantly worsened the company’s performance, resulting in a pre-tax loss of N154.55 billion, a 255% year-on-year increase.
Cadbury Nigeria
Cadbury’s finance costs rose 14% YoY to N23.184 billion, even after reducing total debt by 26.5%.
- Foreign Exchange Losses: N18.865 billion due to naira depreciation.
- Impact:
- Loss before tax worsened by 65.36% to N16.94 billion.
- The interest coverage ratio fell to 1.5x, signalling tight cash flow for debt payments.
Other Companies:
- Unilever: Finance costs rose 14.4% to N2.94 billion.
- NASCON: Finance costs up 6.64% to N934 million. This excludes foreign exchange loss of N1.8 billion
- Champion Breweries: Recorded the least finance costs at N20 million, a 64% decline YoY.
The common thread across these companies is the crippling impact of foreign exchange losses and elevated borrowing costs, fueled by high interest rates and volatile naira.
As finance costs eat into margins and pre-tax profits plunge, shareholder confidence is eroding, and negative equity positions are becoming more prevalent.
As the FMCG sector navigates these choppy waters, companies must reassess their capital structures and prioritize financial discipline. Rights issues, debt restructuring, and operational efficiencies will be critical to survival.
The ability to withstand these pressures will not only define winners and losers in this challenging environment but will also shape the future trajectory of the Nigerian FMCG sector
Without bold, strategic interventions, many may find themselves in even deeper financial distress by the end of 2024.
In an economy as unpredictable as Nigeria’s, resilience will be the ultimate differentiator.
