Naira depreciation costs Cadbury, Guinness, others N472bn in nine months — Report

A new report by Meristem Securities has shown that the depreciation of naira cost some major fast-moving consumer goods companies, including Cadbury, Guinness Nigeria, and Nestle the sum of N472.3bn in the first nine months of 2023.

The report titled: “Shifting Landscape for Consumer Goods Players,” noted that following the liberalization of forex windows in June 2023, the value of the Naira against the dollar devalued significantly by 45%.

It noted that by December 2023, the naira had reached an all-time low, trading at N1099.55 to a dollar in the official window and N1310/USD in the parallel market.

The report read: “This depreciation of the national currency has left an indelible mark on consumer goods companies, particularly those heavily reliant on the importation of raw materials for their production processes, the weakened Naira translated into significantly higher import bills, thereby leading to a substantial increase in production costs.

“Moreover, companies holding foreign-currency-denominated debts, like Nigerian Breweries Plc, Nestle Nigeria Plc, and Guinness Nigeria Plc, Cadbury Nigeria Plc, faced higher debt burdens, more expensive letters of credit, and substantial.

“This placed significant strain on the profitability of these industry players, leading a number of these players to report after-tax losses for both Q2:2023 and Q3:2023.

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“As of 9M:2023, foreign exchange losses for major players in the industry stood at NGN472.35bn, further underscoring the magnitude of the challenge posed by the naira’s depreciation on the financial health of consumer goods companies.”

Linking the weakened naira with rising inflation, the report said fundamental aspects such as consumer behaviour, purchasing power, and spending patterns felt the impact, leaving an indelible mark on the industry’s overall dynamics.

“Reflecting the broader macroeconomic terrain of the nation, the consumer goods sector has grappled with a host of pervasive challenges.

“These challenges range from foreign exchange shortages and the Naira devaluation, lower purchasing power of consumers due to the unabated inflationary pressures, the rising cost of commodities, amongst others.”

By: Babajide Okeowo

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