FMCGs’ net finance costs mirror 46% surge in interest rate hike

Fast-moving consumer goods recorded a 46 percent increase in their cumulative net finance costs in the first half of 2022 compared to the same period last year, the analysis of their half-year 2022 financial results has revealed. The companies analysed included Unilever, NASCON, UACN, Nestle, International Breweries, Dangote Sugar, Nigerian Breweries, and Cadbury.

In May 2022, the Central Bank of Nigeria raised the Monetary Policy Rate(MPR) by 150 basis points to 13 percent, and later by another 100 basis points to 14 percent in July. Consequently, financial institutions repriced their assets and increased their lending rates.

“FMCGs borrowing will be costlier because the monetary policy rate should be the benchmark lending rate and banks won’t lend money below 14 percent. MPR would affect their financial cost and would cause further pressure on their profitability,” Ayodeji Ajilore, an investment research analyst with ARM Securities, said.

“MPR usually increases the cost of borrowing and could also mean FMCGs will get more finance income if they have a decent cash flow position where the interest rate is rising,” he added.

The cash flow from financing activities recorded by the firms’ financial books revealed that majority repaid principals and interests in the first half of 2022.

According to a report by Cordros Securities on the Nigerian consumer goods sector, some companies have implemented substantial price increases to cushion the impact of currency depreciation on margins, especially food staples producers who implemented more robust price increases due to the essential nature of their products, with some of those products having price inelastic demand.

The report also stated, “industry players will continue to grapple with the high costs of operations, consequently we expect the price hikes to spur revenue growth and support earnings in 2022, although we remain cautious about the weak demand as consumers down trade or opt for cheaper substitutes.”

BusinessDay analysis of Unilever, NASCON, UAC of Nigeria, Nestle, International Breweries, Dangote Sugar, Nigerian Breweries, and Cadbury financial books revealed their cumulative net finance costs were N45.11 billion in the first half of this year from N30.76 billion in the half year of 2021.

Firm by firm analysis

Unilever

Unilever led the pack with the highest net finance cost of N0.17 billion in the first half of 2022, as against a net finance income of N0.61 billion in the first half of 2021.

The consumer goods firm reported a negative net cash used in financing activities of N397.2 million in the half-year of 2022. Part of what formed Unilever’s cash outflow for financing activities is the interest paid which amounted to N76 million in the half-year of 2022.

Read also: FMCG firms’ input costs surge 25% in 6 months

Unilever plc is a British multinational consumer goods company with headquarters in London. Unilever products include food, condiments, ice cream, cleaning agents, beauty products, and personal care.

NASCON Allied Industries

NASCON posted a net finance cost of N0.86 billion in the first half of 2022 from N0.13 billion in the first half of 2021. The consumer goods firm had a long-term borrowing of N1.67 billion in the first half of 2022 from N38.6 million in the first half of 2021.

NASCON’s net cash used in financing activities reached a positive N417.4 million from a negative N1.2 billion in the period under review.

NASCON Allied Industries produces salt, vegetable oil, tomato paste, and seasoning products. The company has since evolved with additional production facilities in Lagos State (Apapa and Oregun), Ogun State (Ota), and Rivers State (Port Harcourt).

United Africa Company of Nigeria

United Africa Company of Nigeria ranked third with net finance costs amounting to N1.54 billion in the first half of 2022 from N0.10 billion in the first half of 2021. The consumer goods firm recorded a total borrowing of N29.6 billion in the first half of 2022.

UAC of Nigeria repaid borrowings of N32.7 billion in the first half of 2022, a huge 251 percent increase over N9.3 billion paid in the first half of 2021. The interest paid on loans rose to N954.7 million, 53 percent higher than N624.3 million paid in the first half of 2021.

The firm’s net cash flows generated from financing activities dropped by 9.3 percent to N5.8 billion from N6.4 billion in the comparable period.

The United Africa Company of Nigeria(UACN) is a Nigerian publicly listed company based in Lagos. Its areas of operations include manufacturing, services, logistics and warehousing, agricultural, and real estate. UACN’s food operations include UAC franchising, UAC restaurants, and UAC dairies.

Nestle

Food and beverages giant, Nestle, ranked fourth with its net finance cost at N2.44 billion in the first half of 2022, 17 percent higher than N2.95 billion in the same period last year. In June 2022, Nestle recorded N89.3 billion as short-term loans and borrowings while its long-term loans and borrowings amounted to N3.3 billion.

The firm’s net cash used in financing activities amounted to N3.1 billion in the first half of 2022, coming from a negative N19.4 billion recorded in the same period of last year. Part of what formed Nestle’s cash outflow for financing activities is repayment of borrowings at N4.4 billion in the first half of 2022, 79 percent lower than N21 billion in the first half of 2021.

The repayment of loans involved both inter-company loans and bank loans. Nestle Nigeria Plc is a publicly listed food and beverage specialty company headquartered in Lagos. It is mostly owned by a holding company based in Switzerland and has ties to the company Tolaram Group.

International Breweries

International Breweries ranked fifth with N3.58 billion as its net finance cost in half-year 2022 up from N0.82 billion in half-year 2021. The firm recorded its net cash outflow from financing activities at a negative N67 billion in half-year 2022 far more than N822 million in half-year 2021.

In half year 2022, part of what formed cash outflow for financing activities was the repayment of borrowings and interest paid which amounted to N62.3 billion, and N4.5 billion respectively.

International Breweries’ interest paid rose to N4.5 billion in June 2022, a huge 410 percent increase over N822 million in June 2021. International Breweries plc is a brewery in Nigeria which produce beers and non-alcoholic beverage drinks

Dangote Sugar

Dangote Sugar ranked sixth with a net finance cost of N5.36 billion in half-year 2022, 25 percent higher than N4.29 billion in half-year 2021.

The sugar maker saw its net cash used in financing activities amounting to a negative N12.2 billion from a negative N19.5 billion in half-year 2021.
Interest paid stood at N107 million in the first half of 2022.

Dangote Sugar is a brand that has made a remarkable impact in the Nigerian sugar sector. It operates to international standards in food production, health and safety and has been honoured with numerous awards for its quality standards.

Nigerian Breweries

Nigerian Breweries recorded a net finance cost of N10.14 billion in half-year 2022, 27 percent higher than N7.97 billion in half-year 2021. The firm’s loans and borrowings jumped 173 percent to N82 billion in the first half of 2022, up from N30 billion in the first half of 2021.

Net cash used in financing activities climbed to N50.4 billion in half year 2022, 73 percent better than a negative N29 billion in the half year 2021.
Part of what formed its cash outflow for financing activities was the interest paid which amounted to N1.7 billion, up from N3.3 billion, indicating a 48 percent decrease year on year.

The firm’s repayment of loans and borrowings amounted to N69 billion in half-year 2022. Nigerian Breweries Plc is the largest brewing company in Nigeria which serves the Nigerian and West African markets.

Few odds

Cadbury

Cadbury had an exception with a net finance income of N0.50 billion in half-year 2022, 45 percent lower than N0.92 billion in half-year 2021. The food and beverage maker’s total borrowing rose to N13 billion, 24 percent higher than N10.5 billion in the period under review.

In June 2022, Cadbury’s long-term borrowing stood at N6.7 billion while its short-term borrowing stood at N6.1 billion. Cadbury saw its net cash generated from financing activities dip 46 percent to N2.2 billion from N4.1 billion in the comparable period.

Part of what formed its cash outflow for financing activities was the loan repayment which amounted to N1.05 billion, 51 percent lower than N2.14 billion in half-year 2021.

Cadbury is a British multinational confectionery company fully owned by Mondelez International since 2010. It is the second largest confectionery brand in the world after Mars.