Consumer goods firms’ interest expense jumps more than five-fold in one year

Out of 11 consumer goods firms listed on the Nigerian Exchange Limited, nine saw their interest expense swell by more than five-fold in the first half of this year following the rate hikes implemented by the Central Bank of Nigeria (CBN).

The firms analysed are Dangote Cement Plc, Nestle Nigeria Plc, Nigerian Breweries Plc, International Breweries Plc, BUA Cement Plc, BUA Foods Plc, Cadbury Nigeria Plc, Unilever Nigeria Plc, Lafarge Africa Plc, Nascon Allied Industries Plc and Dangote Sugar Refinery Plc.

According to the manufacturers’ latest financial statements, their combined interest expense surged by 434.8 percent to N280.5 billion in the first half of 2024 from N52.4 billion in the same period of 2023.

“Consumer goods firms’ interest expense increased in the first half as a result of the high interest rate environment or additional loans by the firms during the period as the CBN has been increasing the monetary policy rate,” Bolade Agboola, consumer goods analyst at ChapelHill Denham, said.

She stated that foreign exchange repricing must have affected the consumer goods firms’ interest expense due to the Naira devaluation.

“Consumer goods firms are heavily affected with higher interest expense through payables when they want to import raw materials, dollars import, and those with USD borrowings are affected,” Oluebube Nwosu, a consumer goods analyst at Vetiva Capital, said.

Uchenna Uzo, professor of marketing at Lagos Business School, while speaking about how consumer goods firms can manage high-interest expense, said: “The firms have to reduce costs generally such as energy cost, fuel cost and also renegotiate margins.

‘The consumer goods firms have to consider reducing the sizes of what they sell to fit into their cost portfolio and the price that people can buy. Consumer goods business has to be innovative to see how to improve costs by stopping leakages.”

Since the beginning of the year, the CBN intensified its efforts to fight the country’s inflation rate which is at record high by increasing the country’s benchmark interest rate, known as monetary policy rate.

Last July, the apex bank raised its monetary policy rate for the third straight time by 50 basis points to 26.75 percent in a bid to fight inflation, defend the ailing naira and foster a favorable climate for foreign investment.

That takes the total hikes since February to a combined 800 basis points.

According to the National Bureau of Statistics, the headline inflation rate in Africa’s most populous nation rose to 34.19 percent in June, up from 33.95 percent in May, reflecting a 0.71 percent increase.

The jumbo interest rate hikes are expected to take a toll on economic growth in the second quarter, according to multiple economists and analysts.

The NBS shows that Africa’s most populous nation saw its Gross Domestic Product (GDP) rise to 2.98 percent in real terms in the first quarter of 2024 from 2.3 percent in the same period of 2023.

Compared to the previous quarter, growth slowed from 3.46 percent in Q4.

“The year-on-year growth makes sense given that in the first quarter of last year, we were affected by the uncertainty about currency replacement, fuel queues, and elections,” Ayo Teriba, CEO of Economist Associates, said.

Analysis of individual firms

Dangote Cement

Dangote Cement’s interest expense surged to N130.1 billion in the first half of 2024 from N0.05 billion in the similar period of 2023.

Dangote Cement is a Nigerian publicly traded multinational cement manufacturer headquartered in Lagos. The company 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.

Unilever Nigeria

Unilever Nigeria’s interest expense surged to N1.17 billion in the first half of 2024 from N0.08 billion in the similar period of 2023.

Unilever Nigeria is a publicly listed company with trading and manufacturing interest in the consumer goods market. In 2014, it was listed among the top 20 most valuable companies quoted on the Nigerian Stock Exchange. Unilever Nigeria PLC is a subsidiary of Unilever Overseas Holding B.V.

Cadbury Nigeria

The fast-moving consumer goods firm’s interest expense surged to N2.68 billion in the first half of 2024 from N0.44 billion in the similar period of 2023.

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

Dangote sugar and Lafrage reported a decline

Dangote Sugar Refinery

Dangote Sugar Refinery recorded a 50 percent decline in interest expense for the first six months of 2024.

The fast-moving consumer goods firm’s interest expense dropped to N40 million in the first half of 2024 from N80 million in the similar period of 2023.

Dangote Sugar Refinery is a household name in the sugar refining sector of the Nigerian Food and Beverage Industry. Our entry into the sugar business is dated back to the 1970s with the import and sale of sugar by our parent company, Dangote Industries Limited.

Lafarge Africa

Lafarge Africa’s interest expense dropped by 2.5 percent in the first six months of 2024.

The cement maker’s interest expense dropped to N460 million in the first half of 2024 from N472 million in the similar period of 2023.

Lafarge Africa is a building solutions company headquartered in Lagos and quoted on the Nigerian Stock Exchange. It is majorly controlled by the Holcim Group.