A combination of rising interest rates and naira devaluation has almost tripled the borrowing costs of some manufacturing companies in Nigeria, data compiled by BusinessDay shows.
BusinessDay analysis of the data from their financial statements shows that the total finance cost of the eight firms surged by 297.4 percent to N91 billion last year from N22.9 billion in 2022.
The firms are BUA Foods Plc, Unilever Nigeria Plc, International Breweries Plc, Cadbury Nigeria Plc, Fidson Healthcare Plc, May & Baker Plc, Morison Industries Plc and Neimeth International Pharmaceuticals Plc.
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.
This puts more pressure on the margins of manufacturers, already dealing with a double-digit inflation rate and weak purchasing power of cash-strapped consumers.
“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 said 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.”
Further analysis of the firms’ statements shows that Cadbury Nigeria recorded the highest year-on-year growth of 7,560 percent followed by Neimeth International Pharmaceuticals with 194.7 percent. International Breweries and BUA Foods recorded 175.7 percent and 117.2 percent respectively.
Unilever Nigeria had 75.7 percent growth in finance cost, May & Baker (20.7 percent), Fidson Healthcare (16.7 percent) and Morison Industries recorded nothing.
Analysis of data from individual firms
Cadbury Nigeria’s finance cost rose to N38.3 billion in 2023 from N503.8 million in 2022.
The firm’s revenue increased to N80.4 billion from N55.2 billion. It recorded an after-tax loss of N27.6 billion compared to an after-tax profit of N583.1 million.
International Breweries’ finance cost grew to N29.5 billion in 2023 from N10.7 billion in 2022.
The firm’s revenue increased to N264.3 billion from N218.7 billion. It recorded an after-tax loss of N59.5 billion from an after-tax loss of N21.6 billion.
BUA Foods’ finance cost grew to N18.9 billion in 2023 from N8.7 billion in 2022.
Turnover rose to N728.5 billion from N418.3 billion. After-tax profit grew to N111.5 billion from N91.3 billion.
Fidson Healthcare’s finance cost rose to N2.1 billion in 2023 from N1.8 billion in 2022.
Revenue grew to N53.1 billion from N40.6 billion. After-tax profit dropped to N3.3 billion from a profit of N4.2 billion.
Unilever Nigeria’s finance cost increased to N1.3 billion in 2023 from N737.2 million in 2022.
Revenue grew to N30.5 billion from N18.7 billion. Profit for the period rose to N6.9 billion from N6.3 billion.
Neimeth International Pharmaceuticals
Neimeth’s finance cost rose to N560.9 million in 2023 from N187.9 million in 2022.
Revenue dipped to N2.2 billion from N3.5 billion. After-tax loss increased to N2.6 billion from an after-tax profit of N19.1 million.
May & Baker
May & Baker’s finance cost grew to N346.1 million in 2023 from N286 million in 2022.
Revenue grew to N19.7 billion from N14.3 billion. Profit dropped to N985.6 million from N1.49 billion.
The finance cost of Morison Industries grew to N19.7 million in 2023 from N19.6 million in 2022.
Revenue dropped to N145.2 million from N154.9 million. Loss for the year stood at N89.4 million from a loss of N106.4 million.