Most Nigerian consumer goods companies struggled to secure cheaper finances for their businesses, as evidenced in their rising finance costs seen to have reached record highs with attendant impact on margins accretion.
Financing cost, also known as the cost of finances, is the cost and interest and other charges involved in the borrowing of money to build or purchase assets.
Also, in line with the trends seen with other consumer goods firms that have reported earnings so far, analysts say the adoption of a more flexible exchange rate regime by the Central Bank of Nigeria (CBN) and the consequent downward shift in the naira exchange rate to around N295/USD from N197.50 severely impacted consumer goods cost of sales and was the primary driver behind their gross margin contraction.
Flour Mills of Nigeria (FMN) plc, the largest miller in the country, recorded a 19.75 percent increase in finance costs to N22.39billion; the borrowing costs would have dented bottom lines but thanks to gains on disposal of associate firm that helped net income rise by 70.16 percent as at March 2016.
Nigeria Breweries (NB) plc, the largest brewer, had finance costs spike by 299.86 percent to N 5.56 billion as at June 2016 resulting in a 24.16 percent drop in net income to N8.61 billion.
Nestle Nigeria plc’s finance costs surged by 461.46 percent to N14.89 billion in June 2016 culminating in a 93.56 percent drop in net income to N535.81 million.
Honey Flour Mills plc finance costs spiked by 218 percent to N989 million as at June 2016 resulting in a 64.31 percent drop in net come to N101.12 million; though its cost of sales reduced by 27.54 percent to N7.59 billion as at June 2016.
Also, Flour Mills of Nigeria cost of sales increased by 11.54 percent to N304.96 million in 2016. Nigerian Breweries cost of sales was up by 4.04 percent to N43.11 billion in June 2016; while Nestles’ input costs jumped by 28.07 percent to N47.71 billion in the period under review.
Inflation spiked to 16.50 percent in June, as against 15.60 percent in May, the highest in 11 years, according to the National Bureau of Statistics (NBS). In a move to stop recent inflationary trend, the Monetary Policy Committee last week increased the Monetary Policy Rate (MPR) to 14percent from 12percent.
Iheanyi Nwachukwu & Bala Augie
