By Mike Abbah
The 2024 half-year financial results of Nigeria’s listed companies showed that many consumer goods firms are battling for breath as they struggled to lift margins. Their profit and revenue haul were severely impacted, while the key cost indices revealed an average of 80 percent increase.
The major cost areas include cost of sales, administrative cost, sales/marketing, distribution, raw materials/inventory and employee expenses. Of particular concern are finance cost and foreign exchange revaluation losses. These cost elements impacted severely on the revenue performance of these companies which have battled huge losses since the second half of 2023 following the devaluation of the naira.
Although some of the firms have seen their losses reduced, or marginally erased by slim profits in the second quarter (Q2) mainly on account of a drop in finance cost and foreign exchange losses, industry outlook generally remains worrying.
For example, the combined loss of major five consumer goods firms dropped by 48.9% to N222.5 billion in H1 2024 from N331.4 billion in the corresponding period of last year. The companies include Nestle Nigeria, Nigerian Breweries, Dangote Sugar Refinery, Cadbury Nigeria and Nigerian Breweries.
In the same vein, Dangote Cement, Bua Cement and Unilever recorded a drop of N116.5 billion reflecting a 665.7% decline in their combined earnings from N134.0 billion in H1 2023 to N17.5 billion in H1 2024.
“The manufacturing sector will continue to bear the brunt of the poorly conceived economic policies of the Bola Tinubu-led government which hinge on the fuel subsidy removal and the floating of the naira without adequate contingency plans. The real sector is the major victim and the ripple effects will be far-reaching,” said Ben Ikugbomire, a financial analyst. He added that many consumer goods firms have started downsizing or rebranding to remain competitive in the struggling market as shown in industry reports.
The latest report by NielsenIQ, a leading global consumer intelligence company, revealed that Nigeria’s Fast-Moving Consumer Goods (FMCG) market has seen a 17.4% decline in the volume of transactions this year as the country continues to battle with high cost of goods.
The report, which measured the market’s performance and consumer behaviour as of March 2024, indicated that the volume of transactions in the market plunged further from the 4% decline recorded in 2023.
NielsenIQ in the report noted that the market now faces a daunting challenge with the declining purchasing power of the consumers as they grapple with rising inflation which has been on the upward trend in recent times.
As of June 2024, Nigeria’s inflation stood at 34.2%, forcing Nigerians to continue to pay more for less. Although inflation rate has decelerated to 33.40% as of July 2024, according to data by the National Bureau of Statistics (NBS) on Thursday, August 15, high cost of goods and living generally remains unbearably high.
This was captured in the report which further revealed that “the cost-of-living crisis is devastatingly impacting Nigerian consumers, with 81% of respondents surveyed reporting that they are worse off this year than last”. The main drivers of this crisis are rising costs, particularly fuel and food, and the economic slowdown.
Although the manufacturing companies battle numerous challenges, the most outstanding impact came from the devaluation of the naira.
The Central Bank of Nigeria (CBN) had on June 14, 2023, announced the unification of the multiple exchange windows of the forex market. This resulted in significant depreciation of the naira by 235 percent as of August 15, 2024. when the naira traded N1,564.48/$1 on the Nigerian Foreign Exchange Market (NAFEM) against N465/$1 prior to the new forex policy in 2023 which also abolished the multiple exchange rates. This development impacted negatively on the operations of firms in the manufacturing sector beginning in the second quarter of 2023.
The 2023 half-year financial results of these firms proved they were walking a tight rope, and literally trudging the valley of shadow of death with signals that some of them would shut down or drastically downsize soon.
For example, findings from 10 sampled major manufacturing firms, mainly in the consumer goods group, showed they reported a total of N517.1 billion in non-recovery, net foreign exchange losses in the first half of the year (H1 2023), occasioned by the devaluation of the naira.
Specifically, Nestle Nigeria Plc and Dangote Cement Plc were the worst hit with non-recovery net forex losses of N123.7 billion and N113.6 billion respectively. They are followed by Nigerian Breweries Plc N85.26 billion, Dangote Sugar Refinery Plc N83.09 billion and Guinness Nigeria Plc N41.9 billion.
Others are International Breweries Plc with N40.66 billion, Neimeth Pharmaceuticals Plc N22.82 billion, Unilever Plc N2.93 billion and Cadbury Nigeria Plc N1.03 billion.
The eroding wave of depreciation resulted in total post-tax loss of N370.57 billion by the 10 firms, compared to N175.9 post-tax profit they posted in the equivalent period of the preceding year. The development impacted severely on the balance sheets of Nigerian businesses as they had to source extra funds in local currency to meet their dollar-denominated obligations.
The 10 selected firms suffered huge forex losses which impacted severely on their earnings and drained their bottom lines as inflation surged. This resulted in a total pre-tax loss of N695.03 billion in H1 2023 against pre-tax profit of N637.61 in the corresponding period of 2022.
“It is a bad omen.” said Ezekiel Anyanko, an investment and financial analyst. “Their balance sheets have been significantly eroded, their earning power vitiated, and their expansion capacity weakened.
“Top among the victims is the employees who may be laid off, downgraded or suffer a salary cut. Some companies will have to increase the price of their products and that would impact their sales revenue because of declining consumer power,” Anyanko added.
The umbrella body of major manufacturers in Nigeria, the Manufacturers Association of Nigeria (MAN) had declared that 767 manufacturing companies shut down while 335 others became distressed in 2023 as CBN’s tight monetary policy bites harder.
The manufacturers lamented that the continuous adoption of tight monetary policy was worsening the already bad situation of the real sector, and called for a robust synergy between the monetary and fiscal authorities.
Segun Ajayi-Kadir, Director General of MAN, said: “In broad terms, the implications of maintaining the same pattern of monetary policy decisions in the last two years is evident in the continuous macroeconomic instability prevalent in the economy with overwhelming impact on the manufacturing sector in Nigeria.
