FMCGs’ borrowing costs soar on high interest rates

Nigerian fast-moving consumer goods firms (FMCGs) have been faced with economic headwinds characterised by Naira devaluation that has left foreign exchange losses piling.

And with rampant inflation, the central bank has no choice but to remain hawkish, continuously raising interest rates in a bid to control prices.

As a result of the higher interest rate, it became difficult for the consumer goods firm to borrow as borrowing became more expensive as a result of the increasing cost of servicing debts.

BusinessDay analysis of ten fast-moving consumer goods firms reveals that nine firms recorded an increase in borrowing cost while only Champion Breweries recorded a decline in finance cost to N20.03 million from N56.03 million.

The other nine firms which are International Breweries, Nigerian Breweries, BUA Foods, Dangote Sugar, Nascon Allied Industries, Unilever Nigeria, Cadbury Nigeria, and Nestle Nigeria and BUA Cement recorded a cumulative 144 percent growth in borrowing cost.

The nine FMCG firms’ finance costs grew to N857.7 billion in the nine months of 2024 from N351.1 billion in the similar period of 2023.

“High interest rate environment, Naira devaluation on FX denominated loans led to the increase in borrowing cost for the fast- moving consumer goods firms,” Bolade Agboola, consumer goods analyst at ChapelHill Denham, said.

In September, the CBN raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25 percent despite concerns around petrol price rise, which has been seen as triggering a renewed inflation after two consecutive declines in commodity prices.

But as prices continue in its uptrend in October, the monetary policymakers raised its benchmark interest rate by 25 basis points to 27.50 percent in November to anchor the stubbornly high inflation.

Since the beginning of the year, the CBN has 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.

Uzo Uchenna, a professor of marketing at Lagos Business School said borrowing cost has been rising because of the way interest rate has increased with the effort to curb inflation.

He said some FMCGs firms need to borrow more to manage their cash flow problems and a lot of companies are suffering from high input cost hence the cost of doing business has risen while sales has dropped.

“FMCG firms can manage increased borrowing costs by revising product portfolios to remove the ones with high cost of sales and low return. Inventory, idle machinery can be evaluated and all of these will require business models to reduce wastage and have more financial reward,” he stated.

Analysts say consumer goods firms can refinance short term loans with their bankers, issue commercial papers, extend credit lines with suppliers, raise equity to pay off debt and good working capital management can help them manage the impact from the high interest rate environment.

“The movement in interest rate and the devaluation impact are the two major elements that are affecting the cost of securing finance for the consumer goods firms,” Abiodun Keripe, managing director at Afrinvest Consulting Limited, said.

He stated that the companies’ bottom-line will be weaker and margins will become slimmer, thereby affecting their profitability.

Firm analysis

Nigerian Breweries

Nigerian Breweries borrowing cost grew to N72.04 billion in the nine months of 2024 from N18.8 billion in the same period of 2023.

After-tax loss stood at N149.5 billion from an after-tax loss of N57.19 billion and revenue grew to N710.9 billion from N401.8 billion.

Nigerian Breweries Plc, established in 1946, stands as Nigeria’s pioneer and largest brewing entity. With its inception marked by the launch of STAR lager beer in 1949, the company has grown into a dominant market force, boasting a diverse portfolio that includes lager, stout, non-alcoholic drinks, and soft beverages.

Dangote Sugar

Dangote Sugar’s finance cost rose to N300.2 million in the nine months of 2024 from N108.7 billion in the similar period of 2023.

After-tax loss stood at N184.4 billion from an after-tax loss of N27.03 billion. Revenue surged to N484.4 billion from N309.7 billion.

Dangote Sugar Refinery Plc 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.

Nestle Nigeria

Nestle Nigeria’s finance cost rose to N369.2 billion in the nine months of 2024 from N156.5 billion in the same period of 2023.

After-tax loss stood at N184.3 billion from an after-tax loss of N43.1 billion while revenue surged to N665.3 billion from N396.6 billion.

Nestle Nigeria Plc 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.