Companies Groan under Burden of Huge FX Losses in Nigeria
Lagos Business District

Companies Groan under Burden of Huge FX Losses in Nigeria

Many Nigerian companies in the fast-moving consumer goods sector (FMCG) telecom, and brewing industries, have seen strong declines in their earnings due to losses caused by changes in foreign exchange rates. The huge foreign exchange (FX) losses incurred followed the devaluation of the naira by the monetary authority.

The revaluation effects of these companies’ foreign currency transactions and liabilities pushed their obligation in naira term upward, according to their separate result reviewed by MarketForces Africa, forcing their respective profits to drop.

By structural design, Nigerian companies across various sectors of the economy depend largely on imported goods and services to further their production. This often raises their exposure to FX fluctuations – most times negative due to weak local currency.

In their latest separate financial statement, FCMG companies like Nestle, and Cadbury including Airtel Africa saw a strong earnings downturn as FX losses spiked in the segment for some of the operators.

The same development plunged Guinness Nigeria, and Nigerian Breweries downward as FX scarcity and unification policy forced companies to revalue their FX liability positions- at a huge loss due to Naira depreciation.

While other economies have moved higher to the fourth industrial revolution, Nigeria still depends on hydrocarbon revenue, leaving the private sector will an erratic power supply and rising energy costs.

In June, Business confidence fell as the removal of the fuel subsidy in Nigeria caused a sharp strengthening of price pressures, according to Stanbic IBTC Purchasing Manager Index (PMI).

In turn, rates of expansion in output and new orders softened but remained marked nonetheless. Business confidence dipped to a near-record low.

While overall business conditions remained on a positive trajectory, firms faced a much stronger inflationary environment at the end of the second quarter of the year, linked to the removal of the fuel subsidy.

Guinness Nigeria Records N49.1bn FX Loss

Guinness Nigeria Plc’s 2023 audited numbers showed mixed performance across key metrics, according to analysts review. The brewer reported a net loss of N18.16 billion in its latest result, a significant downturn from N15.16 billion profit posted in the previous financial year.

This was driven basically by a significant increase in finance costs to N45.5 billion from about N226 million in the financial year 2022. Guinness Nigeria’s finance costs surge was propelled by an exchange rate loss of N19.603 billion on a letter of credit. There was also an FX loss related to intercompany loans valued at N8.05 billion, with another N21.441 billion loss on the revaluation of other foreign currency balances.

Cadbury Nigeria Broken amidst N21bn FX Losses

Cadbury Nigeria Plc posted about N18 billion loss in the second quarter of 2023, its unaudited financial statement shows. The company’s profit performance was unimpressive despite a surge in revenue, driven majorly by higher prices in the market.

A year-on-year downturn in the company’s earnings was driven by increased net finance costs in the period. The food producer saw more than N20 billion in net finance costs in the second quarter when compared with N218,146,000 net finance income reported in the second quarter of 2022.

This was pushed higher by its exchange rate difference valued at N20.768 billion in the period.  Its unaudited financial statement for the first half stand-alone showed a loss after tax of N14.539 billion, translating to a 721% year-on-year decline from N2.341 billion profit declared in the first half of 2022. The company may be living on borrowed time as negative performance wiped off its shareholders’ fund.

Nestle Nigeria Bleeds Deep

Nestlé Nigeria PLC’s revenue hit N 261.8 billion in the first half of 2023, a 17.7% increase compared to its performance in the same period of 2022.

Gross profit came at N107.3 billion, representing a 34% increase over 80,205 earned in the first half of 2022. The Company posted a loss after tax of N 49.9 billion, a 280% decline over the same period in 2022.

Speaking about the result, Mr. Wassim Elhusseini, Managing Director and CEO of Nestlé Nigeria PLC, said, “… Our profit after tax was, however, negatively impacted by the recent devaluation of the Naira, which necessitated the revaluation of our foreign currency obligations”

Unilever Nigeria Records Operating Loss of N3.28bn

Unilever Nigeria Plc recorded an operating loss of N3.28 billion in Q2-2023 as against an operating profit of N963.30 million in Q2-2022 due to the decline in gross margin, and an impairment loss on trade receivables of N1.40 billion amid lower operating expenses.

The company revenue increased by 27.3% year on year in the second quarter of 2023, outperforming analysts’ expectations.

The positive outturn was driven majorly by the strong growth in the Food Products segment, up by 41.1%. Also, Home and Personal Care segment saw revenue growth of 16.1%.

The FMCG Company’s net finance cost was positive at N3.45 billion in the quarter owing to FX gain of N2.93 billion in the period amid an 810.9% increase in finance income.

The company’s pretax profit declined by 73.0% to N169.94 million in Q2-2023 from N628.28 million in the comparable period in 2022. Following a tax charge of N78.46 million, Unilever’s profit declined to N91.48 million from N110.37 million in Q2-2022.

The company’s profit before tax closed H1:2023 at N4.52 billion, a 51.70% growth from N2.98 billion in H1 2022 while profit after tax also grew by 44.8% to N2.76 billion from N1.91 billion in the first half of the year.

Nigerian Breweries Earnings Tumbled

Nigerian Breweries Plc reported a loss after tax of N67.84 billion compared with N25.7 billion profit the brewer declared in the corresponding period.

The company’s unaudited report showed that revenue jumped by 1.2% to N277.42 billion in the first half of 2023 from N274.09 billion in the comparable period. However, on a q/q basis, revenue grew by 25% in Q2-2023 to N154.11 billion from N123.31bn recorded in Q1 2023.

However, the brewer saw a spike in net loss on foreign exchange transactions, up by 1071% to N85.26 billion in the first half of 2023 from N7.28 billion in H1:2022

FX Loss Threatens Airtel Africa

Airtel Africa recorded a loss after tax of $151 million in the first quarter of 2024 as a result of the Naira devaluation that triggered a $471 million exchange rate loss, its unaudited financial statement submitted to the regulator showed.

Its unaudited report showed that Airtel Nigeria maintained steady growth in revenue, increasing by 9.9% year on year to US$1,384 million in the first quarter of 2024.

Airtel Africa’s Chief Executive Olusegun Ogunsanya told investors conference that the company expects the FX reforms to improve liquidity over time, thereby alleviating the challenges faced by international businesses over the last few years associated with accessing US dollars and thus hindering accelerated growth. However, he said in the reporting period, the devaluation has had a material impact on the telecom company’s results.

MTN Nigeria Loses N238 Billion to FX Reform

MTN Nigeria Plc reported a 238 billion foreign exchange loss to naira devaluation in the first half of 2023.  In its financial statement, MTN Nigeria recognised that its finance charge was impacted by the devaluation of the Naira from N461.10/$1 in December 2022 to N756.08/$1 in June 2023 which followed the policy change.

In the first half of 2023, the telecom giant said its revenue popped higher to N1.158 trillion, a surge of 22% from N950.086 billion in the comparable period in 2022. However, its profit level declined to N128.688 billion, representing a decline of 29% below N181.629 billion profit reported 12 months earlier. #Companies Groan under Burden of Huge FX Losses in Nigeria

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