Persistent inflation and currency issues are expected to have an impact on the fourth-quarter financial results of enterprises operating in the consumer products sector of the economy in 2023.
According to The PUNCH, this was announced in Meristem Securities Limited’s Consumer Goods Sector Update for December 2023.
According to the research, foreign exchange losses for significant participants in the industry totaled N472.35 billion in the first nine months of 2023, “further underscoring the magnitude of the challenge posed by the Naira’s depreciation on the financial health of consumer goods companies.”
“As a result, our forecast for the consumer goods sector in Q4:2023 is mixed. While positive signals, such as planned price increases and healthy holiday sales, are expected to fuel greater revenue, many uncertainties cast a shadow over this view.
“The current inflation increase, combined with the naira’s persistent depreciation and foreign exchange liquidity issues, is projected to weigh on corporate profitability.”
The Central Bank of Nigeria announced the harmonization of the currency market segments in June, causing the Naira to depreciate. The depreciation of the national currency had an impact on consumer goods companies because they rely heavily on raw material imports for production.
Companies having foreign currency loans, such as Nigerian Breweries Plc, Nestle Nigeria Plc, Guinness Nigeria Plc, and Cadbury Nigeria Plc, also suffered increased debt burdens, more expensive letters of credit, and significant foreign exchange losses as a result of the debt revaluation.
Nigeria’s inflation rate was 28.20 per cent in November, according to the National Bureau of Statistics.
According to the survey, multiple industry participants have adopted various strategies to contain the situation like price hikes, delisting, mergers and sometimes complete exit from the country like Procter and Gamble.
According to the report, “we anticipate more industry players to engage in business restructuring, strategic acquisitions, and expansions to sustain profitability and navigate the challenging operating conditions in the Nigerian market in 2024.
“Despite ongoing costs due to inflation and significant FX losses affecting their bottom line, we anticipate 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 exit of consumer goods companies from the local market due to challenges has significant ramifications for consumers and other industry participants.” We foresee price increases in consumer goods due to lower supply, leaving consumers with restricted options. Furthermore, there is a chance that other market players might exploit this situation by raising their product prices.”
The report, which urged the government to intervene, stated that if “Lasting government interventions to alleviate the operational challenges faced by these manufacturers are not made, we may see further scaling down or exits by consumer goods companies in Nigeria.”
