Manufacturers in N166bn loss as borrowing costs surge seven-fold

Six out of 10 fast-moving consumer goods (FMCG) firms in Nigeria posted losses in the first nine months of this year as their borrowing costs swelled on the back of rising interest rates and naira devaluation, a BusinessDay analysis of data from their financial statements shows.

Nestle Nigeria, Cadbury Nigeria, Dangote Sugar Refinery, Nigerian Breweries, International Breweries and Champion Breweries suffered a combined loss of N166.3 billion in the nine months of this year.

In the same period of last year, five of them reported a total profit of N83.9 billion, while International Breweries posted a loss of N2.81 billion.

The other four fared better. Guinness Nigeria’s profit declined to N2.59 billion from N2.75 billion. BUA Foods and NASCON Allied Industries saw their profits rise by 53.5 percent and 281.9 percent respectively. Unilever reported a profit of N1.67 billion, compared with a loss of N348 million a year earlier.

“We are seeing the result of the naira devaluation which is affecting the financial performance of companies with foreign currency-denominated loans in their books,” Omobola Adu, an economist at BancTrust & Co, said.

He said coupled with high-cost pressures which are reducing peoples’ spend on discretionary items, FMCG firms’ challenges have worsened. “The impact of the FX devaluation made it worse.”

Uaboi Agbebaku, secretary at Nigerian Breweries, said in a note last month that a combination of foreign exchange losses due to the devaluation of the naira and higher interest costs resulted in the company’s net loss during the period.

Finance costs, also known as the cost of finances, are costs, interests, and other charges involved in the borrowing of money to build or purchase assets.

Further analysis of the companies’ financial statements show that the six firms that reported losses saw their combined finance cost jump to N325.8 billion, an increase of 681.3 percent from N41.7 billion.