Cadbury, Nestlé lead other manufacturers in borrowing cost growth

Cadbury Nigeria Plc, Nestlé Nigeria Plc, and Lafarge Africa Plc were the three manufacturers that recorded the highest increase in borrowing cost, also known as finance cost, in the first three months of 2024, according to data compiled by BusinessDay.

The firms’ latest financial statements show that on a year-on-year basis, Cadbury, Nestle and Lafarge Africa saw their finance costs rise by 6,757.9 percent, 3,997.4 percent, and 3,336.01 percent respectively.

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

Further analysis reveals that the combined finance cost of 11 manufacturing firms amounted to N550.2 billion in Q1, indicating a 771 percent increase from N63.18 billion in the same period of the previous year.

“A lot of consumer firms had higher finance costs because of FX losses and higher interest rates,” Ayorinde Akinloye, a Lagos-based investor relations analyst, said. “Despite some of them having good operating performance, their profit declined while others recorded huge losses.”

Dangote Sugar Refinery Plc recorded finance cost growth of 1,419.9 percent followed by BUA Foods Plc (611.74 percent), Nigerian Breweries Plc (284.32 percent), and Unilever Nigeria Plc (279.49 percent).

Dangote Cement Plc Plc, International Breweries, NASCON Allied Industries Plc, and BUA Cement Plc recorded finance cost growth of 279.08 percent, 110.48 percent, 47.22 percent, and 10.41 percent respectively.

The cost of borrowing is higher because all the banks have reviewed their interest rates in line with the monetary policy rate changes, according to Gabriel Idahosa, president of Lagos Chamber of Commerce and Industry.

“The cost of borrowing has been going up very quickly, and with the volume of working capital you need and linking the exchange rate, there’s a need to borrow more naira,” he said.

George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited, said most manufacturing businesses have shrunk as the working capital or funds available to manufacturers have reduced by 40-60 percent.

“If the money for buying raw materials has shrunk by that percent and you don’t have enough dollars to back that up, it means a lower capacity utilisation for manufacturers,” he added.

The Central Bank of Nigeria (CBN) in March raised its monetary policy rate for the second straight time by 200 basis points to 24.75 percent in a bid to fight inflation. In February, the CBN increased the interest rate by 400 basis points to 22.75 percent.

Before the rate was hiked to 24.75 percent, the apex bank had increased it by 750 basis points to 18.75 percent last July from 11.25 percent in March 2022.

Analysis of individual firms

Nestlé

Nestle Nigeria’s finance cost surged to N218.8 billion in the first three months of 2024 from N5.34 billion in the same period of 2023.

The firm is a publicly listed food and beverage specialty company headquartered in Lagos. It’s mostly owned by a holding company based in Switzerland and has ties to the company Tolaram Group. The company was founded in 1961 and conducted trading under the name of Nestle Products Nigeria Limited.

Dangote Cement

Dangote Cement’s finance cost grew to N123.2 billion in the first three months of 2024 from N32.5 billion in the same period of 2023.

The firm is a Nigerian publicly traded multinational cement manufacturer headquartered in Lagos. It is engaged in the manufacture, preparation, import, packaging, and distribution of cement and related products in Nigeria, and has plants or import terminals in nine other African countries.

Dangote Sugar Refinery

Dangote Sugar Refinery’s finance cost increased to N122.5 billion in Q1 2024 from N8.06 billion in the same period of 2023.

The firm is an agribusiness firm which specialises in refining raw sugar into edible, fortified, and non-fortified granulated white sugar. Based in Lagos, Nigeria, with a robust annual production capacity of 1.44 million metric tons, the company is committed to Nigeria’s self-sufficiency in sugar production.

Lafarge Africa

Lafarge Africa’s finance cost surged to N23.09 billion in the first three months of 2024 from N0.67 billion in the same period of 2023.

The firm provides cement products and solutions. The company offers concrete, aggregates, admixture, storefronts, and other related products, as well as building and construction materials for landmark projects. Lafarge Africa serves customers in Nigeria and South Africa.

Nigerian Breweries

Nigerian Breweries’ finance cost increased to N18.14 billion in Q1 2024 from N4.72 billion in the same period of 2023.

The firm engages in the brewing, marketing, and selling of lager, stout, non-alcoholic malt drinks, and soft drinks in Nigeria. It offers its products under Star, Heineken, Gulder, Star Radler, More, Desperados, 33 Export, Star Lite, Goldberg, Life, Tiger, Turbo King, Legend, Williams, Legend, and Climax.

Others are Amstel Malta, Amstel Malta Ultra, ZAGG, Maltina, Malta Goldberg lager, Malta Gold malt drink, Life Continental lager, Hi-Malt, and fayrouz brands. It also provides Climax herbal energy drink and spirits

BUA Foods

BUA Foods’ finance cost surged to N15.16 billion in the first three months of 2024 from N2.13 billion in the same period of 2023.

The firm operates as a food and fast-moving consumer goods company. It processes, manufactures, and distributes food products such as flour and pasta, sugar, refined oil, and rice.

Cadbury Nigeria

Cadbury Nigeria’s finance cost grew to N13.03 billion in Q1 2024 from N0.19 billion in the same period of 2023.

The firm is a food, sweets, and drink company headquartered in Lagos, Nigeria, and traded on the Nigerian Stock Exchange. It is a subsidiary of Mondelez International, one of the largest snacking companies in the world.

International Breweries

International Breweries’ finance cost increased to N9.64 billion in the first quarter of 2024 from N4.58 billion in the same period of 2023.

It is a Nigeria-based brewing company. The principal activities of the Company are brewing, packaging, and marketing of beer, alcoholic flavoured/non-alcoholic beverages, and soft drinks. The firm’s geographical segment includes Nigeria with brands that include Budweiser, Trophy Lager, and Trophy Stout. It has four breweries, which are located in different parts of Nigeria.

BUA Cement

BUA Cement’s finance cost increased to N4.88 billion in the first three months of 2024 from N4.42 billion in the same period of 2023.

The firm is engaged in the manufacturing and marketing of cement products. It offers its products under the brand name BUA Cement. The company was founded in 2008 and is headquartered in Lagos, Nigeria.

Unilever Nigeria

Unilever Nigeria’s finance cost grew to N 1.48 billion in Q1 2024 from N0.39 billion in the same period of 2023.

Its product portfolio encompasses toothpaste, soaps, washing detergents, dishwashing liquids, baby products, lotions and petroleum jelly, margarine, tea, and bouillon cubes.

NASCON

NASCON Allied Industries’ finance cost surged to N0.27 billion in the first three months of 2024 from N0.18 billion in the same period of 2023.

It is a Nigeria-based company that is engaged in the processing of raw salt into refined, edible, and graded salt.

The company’s products include salt, seasoning, and spices. Its salt products include table salt, pure dried and vacuum (PDV) salt, tannery salt, butter salt, edible industrial salt, and non-edible industrial salt.