The first half of 2024 was been significantly challenging for Fast-Moving Consumer Goods (FMCG) companies in Nigeria as they contended with the difficulties of inflation and economic instability. Despite impressive revenues, many companies in the sector grappled with substantial losses, underscoring the tough business environment they operate in.
The 2024 half-year financial statements of seven FMCG companies reveal a combined loss before tax of N818.3 billion. These companies include Nestlé Nigeria Plc, Dangote Sugar, International Breweries, Cadbury, Champion Breweries, Guinness Nigeria, and Nigerian Breweries.
This figure represents a 233 per cent increase in losses from N246.5 billion collectively reported within the same period in 2023. Their losses after tax stood at N577.5 billion. Daily Sun’s analysis of their interim financial statements revealed that the balance sheets of these companies were impacted mainly by increased cost of sales, finance costs, and other operating expenses, which reduced their profit.
For instance, Guinness posted N299.5 billion in revenue, representing a 31 per cent growth for the corresponding period in 2023. However, due to a 126.8 percent rise in finance costs reaching N120.9 billion and a 37.48 per cent rise in cost of sales reaching N208.1 billion, they ended up with a N54.7 billion loss for the period under review. The impact of forex depreciation on its foreign currency loans and the rising cost of raw materials was far-reaching. Guinness’ raw materials cost for the period increased to N149 billion, a 40 percent appreciation from the N106.6 billion in 2023. They incurred a total FX revaluation loss of N112.3 billion.
Nestlé Nigeria, another major player in the sector, reported a revenue of N407 billion but suffered a massive loss before tax of N252.5 billion and a loss after tax of N176.9 billion. Similarly, International Breweries recorded a revenue of N223.2 billion but faced a staggering loss before tax of N150.2 billion and a loss after tax of N106.8 billion. Dangote Sugar also struggled with a loss before tax of N211.4 billion for the first half of 2024 despite recording a revenue growth of 46 percent to N295.6 billion. Its loss after tax stood at N144 billion.
Nigerian Breweries, while having a substantial revenue of N479.7 billion, reported losses of N116.3 billion before tax and N85.2 billion after tax. Cadbury Nigeria, with a revenue of N51.4 billion, also reported losses both before and after tax, amounting to N13.8 billion and N9.7 billion, respectively. Champion Breweries, on the other hand, had a revenue of N9.54 billion and reported a loss before tax of N333 million and a loss after tax of N125.6 million.
Several factors contributed to these financial strains, including increased operational costs, particularly transportation and logistics, which have risen significantly. Companies find it challenging to pass these costs onto consumers without dampening demand. Moreover, economic instability, marked by fluctuating exchange rates and uncertain policies, has further complicated the business environment. This has made it difficult for companies to plan and execute long-term strategies.
With headline inflation at 34.19 percent and its attendant impact on the purchasing power of many Nigerians, consumers have resorted to prioritizing only essential purchases and focusing on basic necessities, leading to a decline in demand for non-essential consumer goods. This shift in consumer behavior has significantly affected the sales volumes of various products, putting additional pressure on companies in the sector to adapt their strategies in response to reduced consumer spending power. The Central Bank of Nigeria has continued to tighten its monetary policy measures with the aim of taming rising inflation. Following its 296th Monetary Policy Committee meeting, the apex bank raised the MPR to 26.75 percent from 26.25 percent.
Providing insights, the CEO of Arthur Stevens Asset Management Ltd, Olatunde Amolegbe, explained that the survival of FMCG companies is hinged on their ability to backward-integrate to increase local content. “This will reduce reliance on sourcing expensive FX to finance imports. Additionally, they need to raise equity capital rather than continue relying on very expensive bank loans or bonds,” he said.
Amolegbe believes this would reduce aggregate finance costs. He added that these companies should expand their product offerings to capture customers seeking product substitution and adopt alternative measures to cut administrative and operational costs.
On his part, David Adonri, Vice Chairman at Highcap Securities, said that although the damage done to their balance sheets due to heavy FX losses will take time to repair, “conscious efforts to reduce their import dependency can protect them from currency risk in the future. They can also mitigate their exposure to currency fluctuations by using financial derivatives. These notwithstanding, a distressed macroeconomic condition and pervasive insecurity can reduce consumer pull and heighten the cost of production.”
Adonri added that the continued use of demand management strategies, as exemplified by the CBN’s contractionary monetary policy, punishes production by increasing costs, noting that it has so far failed. “In the absence of a reduction in public spending and supply-side fiscal stimulus to rebalance the economy, investors in those companies should therefore shift their investment horizons to the long term,” he advised.
-By Chukwuma Umeorah