Why Nestle, Dangote Sugar, three other FMCGs post over N224bn loss in six months

NESTLE Nigeria, Dangote Sugar Refinery and three other fast-moving consumer goods (FMCGs) companies have reported a total of N224.299 billion pre-tax loss.

According to the companies’ financial statements for the six months ended June 30, 2023, Nestle posted a N69.12 billion loss, while Dangote Sugar recorded N31.37 billion.

The other three companies, International Breweries, Nigerian Breweries, and Cadbury Nigeria, reported N41.43 billion, N67.84 billion and N14.54 billion losses.


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A pre-tax loss is the total loss made by a company before an income tax obligation is deducted.

Relative to the half-year ended June 30, 2022, Nestle reported a N43.74 billion pre-tax profit; Dangote Sugar, N29.73 billion; International Breweries, N1.82 billion; Nigerian Breweries, N18.74 billion; and Cadbury, N3.35 billion.

The ICIR analysis of the financial statements showed that losses arose from huge finance costs (borrowing costs) incurred by the companies.

Pre-tax loss
Pre-tax loss. Chart by The ICIR

These include interest expense on leases, interest expense on borrowings, and exchange difference (realised and unrealised).

Following from the above, a total of N339.29 billion net finance costs were incurred by the five consumer goods companies in their half-year business operations that ended June 2023.

A net finance cost is the difference between finance income and finance cost (expense).

Nestle reported N129.91 billion finance costs in June 2023 from N2.44 billion; Dangote Sugar, N85.81 billion, compared to N5.36 billion; International Breweries, N6.74 billion relative to N3.58 billion; Nigerian Breweries, N96.22 billion from N10.14 billion; and Cadbury, N20.61 billion from N497.05 million.

Net finance cost
Net finance cost. Chart by The ICIR

According to analysts, the negative performances stemmed from the companies’ inability to hedge against “revaluation losses,” which arose from foreign exchange unification as most FMCGs companies have foreign currency-denominated obligations.

“What we are seeing is revaluation loss; it is like market-to-market loss,” an analyst, Ayokunle Olubunmi, pointed out.

“What we are seeing is revaluation loss; it is like market-to-market loss

He explained, “Assuming a subsidiary company took a loan of $100 from the parent company when the exchange rate was about N450, that amounts to N450,000 the company is owing the parent.

“Let’s assume that as of today, the exchange rate is N750, that means the amount the subsidiary is owing the parent will no longer be N450,000 but N750,000. So the difference (N300,000) is what is called revaluation loss.”

Another analyst, David Adonri, said it was anticipated that the floating of the naira and removal of fuel subsidy would make currency risks to crystallise and the cost of operations to increase for enterprises that have hard currency-denominated obligations.

But unfortunately, most of the companies did not hedge to mitigate the risk, Adonri, the executive vice chairman of Highcap Securities Limited, pointed out.

“Now that it has crystallised, they are left with no option but damage control,” he added.

According to him, the implication is that the losses would impair the companies’ balance sheets and cause their values to diminish.

“This may adversely affect their prices as the market corrects them to reflect current realities,” he asserted.

Adonri believed that the short-term impact of the public policies would fizzle out as the economy readjusts to change, giving rise to long-term benefits for the economy.

“The long-term prospects of the affected companies remain bright,” the Highcap Securities chief stressed.

Hedging against revaluation risk

According to Olubunmi, head of financial institutions ratings at Agusto and Co, with the liberalisation of the foreign exchange market, many companies would be resorting to a lot of forwards and derivatives transactions to meet their forex needs.

“What we are anticipating is that before the end of the year, volatility in the forex market should have at least settled to a large extent. By then, we won’t see that volume of revaluation loss again.

“I suspect that many of the companies will find a way to establish the liabilities owned to the parent companies. For some of them that actually took the loan from their parent companies, they may be forced to convert it into equities,” he said.

He was optimistic that the revaluation loss might still be in the companies’ books by the full year results, but added, “I don’t think we will see it in their 2024 accounts.”

Breakdown of the companies’ performances

Nestle Nigeria Plc

The company reported in the half-year ended 2023 a slight revenue growth of N261.77 billion from N222.450 in June 2022.

In June 2023, gross profit stood at N107.33 billion, operating profit fell to N60.79 billion, while a net finance loss of N129.91 billion dragged the company’s pre-tax loss to N69.12 billion.

“Included in interest expense on financial liabilities measured at amortised cost is interest expense on inter-company loan amounting to approximately N13.9 billion (2022: N4.8 billion) excluding the impact of foreign exchange differences,” the company stated in its financial report.

International Breweries Plc

The beverages – brewers/distillers – consumer goods company slightly grew its revenue to N116.13 billion in June 2023 from N111.40 billion in June 2022. An increase in cost of sales, brought the gross profit to N24.02 billion.

However, deductions, including administrative, marketing, impairment and other expenses, pulled the company’s operating loss down to N34.69 billion, while net borrowing loss to N6.75 billion dragged its pre-tax loss to N41.43 billion.

According to International Breweries, the balance of a loan amounting to $278 million obtained in 2018 with a maturity date of May 2021 was rolled over for an additional three years period.

It said, “The Company has entered into non-deliverable forward contracts to mitigate the forex risk on the contractual interest and principal repayments. There is also a loan (revolving credit facility) of N57 billion that has not been drawn down by the company as at end of the reporting period.”

Nigerian Breweries Plc

Also, a beverages – brewers/distillers – consumer goods company, NB Plc’s revenue rose minimally to N277.42 billion from N274.08 billion as gross profit settled at N112.324 billion after deduction from the cost of sales.

Deductions from the company’s marketing and administrative, and other expenses left the operating profit at N28.38 billion.
Net borrowing cost, which rose to N96.22 billion, pulled down the pre-tax loss to N67.84 billion.



    “The 2nd Quarter of 2023 was significantly impacted by various factors, including the effects of fuel subsidy removal on consumers, naira devaluation and its effect on input cost, and mostly the revaluation of foreign exchange obligations.

    “Together with the cash crunch, which materially impacted the 1st quarter, the Company’s net loss was escalated in H1,” the company said in its financial statement signed by its secretary, Uaboi Agbebaku.

    Cadbury Nigeria Plc

    A food products and diversified company, Cadbury reported a slight increase in revenue at N35.61 billion from N27.88 billion. Gross profit stood at N10.25 billion and operating profit to N6.07 billion. However, a N20.61 billion net finance cost brought the company’s pre-tax loss for the period to N14.54 billion.

    Dangote Sugar Refinery Plc

    Also, a food product consumer goods company, it grew its revenue to N202.78 billion from N185.46 billion. Cost of sales impacted gross profit to settle at N58.19 billion. Operating profit rose to N52.198 billion from N34.12 billion. It reported a net finance cost at N85.81 billion, and pre-tax loss at N31.37 billion.

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