Finance costs among major fast-moving consumer goods (FMCG) companies in Nigeria surged by 133.3% year-on-year, reaching approximately N1.074 trillion in the first nine months of 2024, up from N460.22 billion recorded during the same period in 2023.

The sharp increase reflects mounting economic pressures caused by foreign exchange losses, rising debt profiles, and higher interest rates, which have significantly impacted profitability across the sector.

Major companies affected include Nestlé Nigeria, Nigerian Breweries, BUA Foods, Dangote Sugar Refinery, Cadbury Nigeria, Unilever Nigeria, NASCON Allied Industries, International Breweries, and Champion Breweries.

Economic Pressures Driving Rising Finance Costs

Nigeria’s economic environment has placed significant strain on corporate balance sheets. Rising interest rates — driven by efforts to control inflation — have increased borrowing costs, while the depreciation of the naira has triggered major foreign exchange losses for companies with dollar-denominated obligations.

At the same time, weakened consumer purchasing power has limited companies’ ability to transfer rising costs to buyers, creating a triple burden of higher finance expenses, squeezed margins, and weaker earnings.

Company Breakdown: Key Financial Impacts

Nestlé Nigeria

Nestlé Nigeria recorded the highest finance costs among peers at N369.159 billion, driven largely by foreign exchange losses and higher interest expenses.

• FX losses: N285 billion

• Interest expense: N83.87 billion

• Debt increased by 114% to N684.657 billion

Impact:

• Loss before tax: N255.384 billion

• Retained losses: N262.904 billion

• Shareholders’ funds remained negative at N112.083 billion

• Interest coverage ratio fell to 1.32x

Dangote Sugar Refinery

Dangote Sugar Refinery saw finance costs rise 176% year-on-year to N300.175 billion.

• FX losses: N233.499 billion

• Debt rose 51% to N616.303 billion

Impact:

• Loss before tax increased 567% to N275.583 billion

• Negative shareholders’ funds at N105.111 billion

Nigerian Breweries

Nigerian Breweries reported finance costs of N232.528 billion, largely from FX losses and higher borrowing costs.

Impact:

• Loss before tax widened to N203.124 billion

• Interest coverage ratio dropped to 0.40x

The company plans to use proceeds from its rights issue to strengthen its balance sheet and reduce foreign exchange exposure, with support from major shareholder HEINEKEN.

BUA Foods

Despite finance costs of N109.619 billion, BUA Foods remained profitable, recording a pre-tax profit of N215.657 billion.

• Strong interest coverage ratio: 14.5x

• Slight decline in profit margin due to rising costs

International Breweries

International Breweries posted finance costs of N37.098 billion, excluding a large N155 billion FX loss.

Impact:

• Pre-tax loss rose 255% to N154.55 billion

Cadbury Nigeria and Others

Cadbury Nigeria reported finance costs of N23.184 billion despite debt reduction efforts, while Unilever and NASCON recorded moderate increases. Champion Breweries posted the lowest finance costs at N20 million.

FX Losses and Interest Rates Remain Key Threats

A common challenge across the sector is the impact of currency volatility and elevated borrowing costs. As finance costs consume larger portions of revenue, profit margins are shrinking, and negative equity positions are becoming more widespread.

What This Means for Nigeria’s FMCG Sector

Industry analysts suggest that survival will depend on strategic actions such as:

• Debt restructuring

• Rights issues and equity financing

• Improved operational efficiency

• Stronger financial discipline

In an increasingly volatile economic environment, companies’ ability to adapt will likely determine the future shape of Nigeria’s FMCG landscape.

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