A new report by Meristem says major consumer goods companies, including Cadbury, Guinness Nigeria and Nestle have lost the sum of N472.3bn as result of naira depreciation in the first nine months of 2023.
According to the report, the high inflation rate had significant pressure on production costs within the consumer goods sector, affecting food and beverage manufacturers in particular.
The report added that the increased costs of essential raw materials such as grains, dairy, and meat directly impacted production, leading companies to either absorb the expenses or pass them on to consumers through higher prices.
The report read in part:
“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.
“Moreover, 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 said fundamental aspects such as consumer behaviour, purchasing power, and spending patterns felt the impact, leaving an indelible mark on the industry’s overall dynamics.
It added, “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 purchasing power of consumer due to the unabated inflationary pressures, the rising cost of commodities, amongst others.”
The report noted that positive signs, like anticipated price hikes and robust sales during the festive season, are set to drive increased revenue, several concerns cast shadows over this outlook.
The report read further:
“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 Nigerian 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.”
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