By the end of September, Nestlé Nigeria and Cadbury Nigeria — two major players in the fast-moving consumer goods (FMCG) scene — were hit with combined after-tax losses of about N300 billion. This figure from their latest unaudited financial reports betrays the impressive revenue growth both companies had recorded in nine months.

Nestlé, for instance, almost doubled its revenue from January to September, relative to 2023. The company saw its revenue soar by 91.6% year-over-year, jumping from N134.8 billion to N258.3 billion. Cadbury wasn’t far behind, growing from N59.2 billion in September 2023 to almost N89 billion this year.

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Despite the revenue momentum, however, Nestlé had racked up an after-tax loss of N7.36 billion in the third quarter as against N6.91 billion last year.

Over nine months, the company’s total loss after tax increased to N184.3 billion. Cadbury also struggled, reporting a third-quarter loss after tax of N2.14 billion. This contributed to a nine-month loss after tax of N11.86 billion.

In June 2023, the Central Bank of Nigeria let the naira “float” — meaning it no longer pegged the currency’s value to a fixed, dictated rate.

Essentially, the CBN let the forces of supply and demand dictate the value of the naira. This change saw the naira nosedive from around N620 per dollar to an all-time low of N1,650 by September 2024.

For companies like Nestlé and Cadbury, which have hefty foreign-denominated debts, the local currency crash meant problems. Repaying loans in dollars and euros became much pricier as the naira weakened.

For instance, Nestlé’s foreign loan obligations have ballooned to $459 million plus €5.04 million. So, if they borrowed at N750 per dollar but now have to pay back at N1,700 per dollar, the debt just got a lot heavier. This results in major foreign exchange (FX) losses for them.

Nestlé alone posted a foreign exchange loss of N285.3 billion. Cadbury, on the other hand, suffered a foreign exchange loss of N15 billion. In 2023, Cadbury alone reported FX losses of N36.9 billion, which snowballed into retained losses of N11.4 billion and pushed its equity into the red at N6.5 billion. In simple terms, even if Cadbury liquidated its assets and sold everything, it would still be in debt by that amount.

To add to the sting, these companies rely on imported raw materials priced in dollars.

As a result, even if the dollar price of goods stays stable, the companies would be shelling out more every time the naira’s value nose dives. Imagine the cost of a package bag priced at $10; it would have cost N6,200 in June 2023. Today, the same $10 package bag will cost N16,500.

Local inflation adds to this headache and makes production more expensive across the board. Nigeria recorded its highest-ever inflation figure in the last 28 years in June at 33.69%.

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Headline inflation rates have danced around this figure since then. Labour costs, local materials and overhead costs have all skyrocketed, leaving both companies scrambling to keep profits afloat.

All of these losses have eroded investor confidence in the companies. Nestlé’s stock has fallen nearly 20% since January, from N1,100 to N885 as of Friday, and Cadbury’s slid from N19 to N16.40 over the same period.

Muda Yusuf, a financial expert also weighed in on the losses. In an interview with EQ, he attributed the losses to the cost of doing business and the drivers for these costs.

“Look at the costs of doing business for these people, the way the cost is increasing is higher than the rate of revenue growth for these companies. Part of the cost drivers include FX,” Yusuf told EQ.

“Some of these companies have to import raw materials, service offshore properties and facilities and even pay loans in foreign currency. Also, look at the cost of energy.

“See how the cost of production has increased from that angle alone. See interest rates too. The financials are not favourable for them. So, all of these bombardments put the companies in these spots.”
The post How Cadbury, Nestlé Nigeria Lost N300bn in 9 Months appeared first on Foundation For Investigative Journalism.