Analysis of the financial statements of International
Breweries Plc, Cadbury Nigeria Plc, Morison Industries Plc and Neimeth
International Pharmaceuticals Plc show that they posted a combined loss of
N89.8 billion in 2023.
In 2022, three of them reported a total profit of N0.72
billion, while International Breweries posted a loss of N21.6 billion.
Fidson Healthcare Plc, May & Baker Plc and
GlaxoSmithKline (GSK) Consumer Nigeria Plc recorded a combined after-tax profit
of N4.81 billion, down from N6.47 billion. Okomu Oil Palm Plc, BUA Foods Plc
and Unilever Nigeria Plc saw their after-tax profits rise 22.5 percent, 22
percent and 10 percent respectively.
Presco Plc posted a profit of N6.9 billion as against an
after-tax loss of N2.8 billion in the previous year.
“The movement in interest rates and the devaluation impact
are the two major elements that are affecting the cost of securing finance for
the firms,” Abiodun Keripe, managing director at Afrinvest Consulting Limited,
said.
He added that the companies’ bottom line will be weaker and
margins will become slimmer, thereby affecting their profitability. “Volumes
may not rise quite aggressively or revenue may not increase at a faster pace.”
The total finance or borrowing cost of the six companies
jumped to N70.1 billion from N12.9 billion. A breakdown shows that Cadbury had
the highest of N38.3 billion, followed by International Breweries with N29.5
billion. Fidson had N1.38 billion, May & Baker (N0.37 billion), Neimeth
(N0.56 billion) and Morison (N0.02 billion).
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.
Analysts say the increase in finance cost is a result of the
naira devaluation in June and the rise in the benchmark interest rate, also
known as the monetary policy rate, which has been raised by 725 basis points to
18.75 percent since May 2022.
“The huge increase in finance cost is a result of the naira
devaluation. Finance cost and local cost of energy, which has increased, have
caused the big numbers of losses,” Gabriel Idahosa, president of Lagos Chamber
of Commerce and Industry, said.
Other companies like Guinness Nigeria Plc recorded an
after-tax loss of N5.23 billion for the six months ended December 2023 for the
first time in three years as against a profit of N4.02 billion in the same
period of last year.
PZ Cussons, for the year ended November 2023, also recorded
an after-tax loss of N74.1 billion for the first time since 2019, compared to a
profit of N7.7 billion in the same period of 2022.
“The rise in finance cost shows that some of the consumer
goods firms have foreign currency loans in their books and by the time the
naira was devalued, it increased the naira value of those foreign currency debt
obligations which led to it widening,” Israel Odubola, a Lagos-based research
analyst, said.
He said the firms were badly affected because they had FX
exposure.
The Central Bank of Nigeria (CBN) in June merged all
segments of the FX market into the Investors and Exporters window and
reintroduced the willing buyer, willing seller model.
The naira has continued to depreciate against the dollar and
other major foreign currencies since then.
The currency depreciated from N463.38/$ to N889.86/$ as of
December 15. At the parallel market, the naira depreciated to 1,186/$ from
762/$.
The rising cost of energy and FX pushed the country’s
inflation rate to 28.90 percent in December, the highest in at least 20 years
from 28.20 percent in the previous month, according to the latest inflation
report by the National Bureau of Statistics.
Last year, business activities contracted four times than
the three times recorded in 2020.
“The Nigerian private sector returned to growth in December,
with renewed increases in both output and new orders recorded amid some signs
of recovery in demand,” the Purchasing Managers’ Index by Stanbic IBTC Bank
said.
It said this was despite continued intense inflationary
pressure, with purchase costs and selling prices each rising at sharper rates
than in November.
“Meanwhile, business confidence dropped to the joint-lowest
in the decade-long survey so far. The reading signalled a solid improvement in
the health of the private sector, and one that was the most marked since June.”
Before the NBS adopted a new methodology for labour
statistics, unemployment had quadrupled to 33.3 percent as of Q4 2020 from 8.2
percent in Q2 2015. It was put at 4.2 percent for the second quarter of 2023
from 4.1 percent in Q1.
In the second half of 2023, Procter & Gamble,
GlaxoSmithKline Consumer Nigeria, Equinor, Sanofi and Bolt Food announced plans
to leave the country.
In August, the Manufacturers Association of Nigeria (MAN)
said manufacturing activities continued to suffer due to the persisting
scarcity of FX and further depreciation of the naira.
“Only 14.7 percent of manufacturers enumerated claimed that
the rate at which forex was sourced improved in Q2; 66 percent disagreed while
19.3 percent were not sure if forex sourcing had improved in the quarter under
review,” it said.
The association added that the lingering FX scarcity and
continuous depreciation of the naira have left manufacturers bleeding and
limited their capacity utilisation since the importation of non-locally
produced critical input has become a nightmare.
“The government has to address the root cause of this
problem by giving priority to manufacturers. Manufacturing is the bedrock of
any economy. And if you are failing in that space, you will trigger inflation
and unemployment which could result in a decline in revenues,” Segun
Ajayi-Kadir, director-general of MAN, said.