Consumer goods companies in Africa’s most populous nation who have been carrying out price adjustment to fend off rising inflation have seen their earnings vanish in a puff of smoke, no thanks to foreign exchange revaluation losses.
The year 2013 was worst for a sector that is the hardest hit from the macroeconomic headwinds, and perhaps more worrisome that most of them will not be paying dividend to their shareholders, which further undermines their share prices.
Data gathered by MoneyCentral shows the eleven most liquid and capitalised consumer goods firms collectively posted a net after tax of N291.94 billion in December 2023 from a profit of N218.84 billion as at December 2022.
However, BUA Foods, Unilever, and Nascon Allied, bucked the trend as they posted profit of N111.53 billion, N8.58 billion, and N13.72 billion, respectively.
The average industry gross profit margin stood at -16.19 percent in December 2023 from 6.71 percent, as rising input costs continued to wipe out gains from increased sales, according to data gathered by MoneyCentral.
Persistent spiraling inflation, deteriorating consumer purchasing power, and combined inadequate infrastructure have left an indelible mark on the industry’s overall dynamics.
Rising costs of fuel due to the removal of subsidy on Premium Motor Spirit (PMS) and insecurity in the food producing regions have also contributed to price rises that have been ravaging consumers.
The high inflation rate exerted significant pressure on production costs within the consumer goods sector, particularly affecting food and beverage manufacturers, according to analysts at Meristem Securities Limited.
“The increased costs of essential raw materials such as grains, dairy, and meat directly impacted production, leading companies to either absorb these expenses or pass them on to consumers through higher prices,” said analysts at Meristem Securities.
Consumer inflation rose for the 13th straight month in January to 29.90 percent year on year from December’s 28.92 percent, data from the National Bureau of Statistics showed.
The country’s currency has lost 70 percent of its value against the dollar since the unification of the exchange rates carried out last year in a bid to spur or woo foreign investors.
Of course, the deprecation which was due to several devaluations led to foreign exchange revaluation losses in the books of consumer goods firms.
Some firms that recorded negative equity will have to raise capital to stay afloat.
Nestle Nigeria and Cadbury printed negative shareholders’ funds of N78.05 billion and N15.12 billion, according to data gathered by MoneyCentral.
Analysts and industry stakeholders have unanimously agreed that the stability of the Naira will determine the survival of manufacturers.
“Naira needs to be stable for manufacturers to plan and budget their inputs and outputs; producers are being forced to produce at reduced capacity or shut down operations amid declining consumer purchasing power,” said Sola Obadimu, director-general of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture.
“Consumer demand level is elastic, so you cannot just increase prices anytime you want to because their wages are also declining,” he said in a response to questions, “said Obadimu.
Cadbury posted a loss after tax of N27.63 billion; Nestle Nigeria, N79.47 billion; Nigerian Breweries, N106.30 billion; Guinness Nigeria, N5.23 billion; International Breweries, N59.46 billion; PZ Cussons, N74.13 billion, and Dangote Sugar, N73.76 billion.
Consumer goods firms are making strategic moves to improve market share and reduce costs and bolster profit.
GUINNESS has announced its decision to cease the importation and distribution of select Diageo international premium spirits products (Johnnie Walker, Singleton, and Baileys and others) by April 2024 as another fallout of the recent and further expected exchange rate devaluation in the domestic market.
“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,” said analysts at Meristem Securities.
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