Inflation, forex losses hit consumer goods sector hard in 2023
Persistent inflation and foreign exchange challenges are expected to impact the fourth-quarter financial results of companies in the consumer goods sector in 2023, according to a report by Meristem Securities Limited.
The report, titled ‘Consumer Goods Sector Update for December 2023,’ highlighted that major players in the industry incurred foreign exchange losses of N472.35bn in the first nine months of the year.
This emphasises the significant impact of the Naira’s depreciation on the financial well-being of consumer goods companies.
“Therefore, our outlook for the consumer goods sector in Q4:2023 is mixed. While positive signs, such as anticipated price hikes and robust sales during the festive season, are set to drive increased revenue, several concerns cast shadows over this outlook. The ongoing inflation surge, coupled with the naira’s continued depreciation and challenges in foreign exchange liquidity, are expected to weigh on companies’ profitability.”
The Central Bank of Nigeria announced the harmonisation of the segments of the currency market in June, a move which led to the depreciation of Naira. The devaluation of the national currency left a mark on consumer goods companies due to their heavy reliance on the importation of raw materials for production.
Also, companies with foreign currency-denominated debts, like Nigerian Breweries Plc, Nestle Nigeria Plc, Guinness Nigeria Plc, and Cadbury Nigeria Plc, faced higher debt burdens, more expensive letters of credit and substantial foreign exchange losses due to the debt revaluation.
According to the National Bureau of Statistics, Nigeria’s inflation rate stood at 28.20 percent as of November.
The report went on to indicate that several players in the sector have been adopting different approaches to contain the situation like price hikes, delisting, mergers and sometimes complete exit from the country like Procter and Gamble.
The report added that in 2024, “We anticipate more players in the industry to engage in business restructuring, strategic acquisitions, and expansions to sustain profitability and navigate the challenging operating conditions in the Nigerian market.
“Despite ongoing struggles with rising costs due to inflation and substantial FX losses affecting their bottom line, we foresee consumer goods companies adapting their product categories to remain relevant and innovative, aiming to stay ahead of the curve in serving evolving consumer needs.
“The recent departure of consumer goods companies from the local market due to challenges holds significant implications for consumers and other industry players. We anticipate price hikes in consumer products due to decreased supply, leaving consumers with limited access to alternative products. Additionally, there’s a possibility that other market players might exploit this situation by raising their product prices.”
Calling on the government, the report said that without “lasting government interventions to alleviate the operational challenges faced by these manufacturers, we might see further scaling down or exits by consumer goods companies in Nigeria.”
