Uncertainties Threaten Survival of Companies in Nigeria
As foreign exchange losses continue to impact earnings performance negatively, companies operating in fast fast-moving consumer goods (FMCG) sector are facing multiple unpriced risks.
According to results churned out on the Nigerian Exchange, most of the companies posted losses as a result of foreign currency liabilities. Cadbury Nigeria Plc was unable to repay its foreign debt owed to its majority shareholder, Cadbury Schweppes. The company recently announced debt to equity conversion which raised its parent stake to about 80%.
Unilever Nigeria Plc is under the weather. The company’s earnings plunged due to large exposures to FX and an increased cost profile. PZ Cussons isn’t finding the Nigerian market interesting as such while the International Breweries balance sheet was broken as a result of FX losses that damaged its earnings for 2023.
Nestle Nigeria appears to have hanged boot as an economic field is filled with thorns and nails. GSK Plc strategically made an exit due to uncertainties in earnings stream generation for the company.
While weak macroeconomics has tempered consumption, most of these companies are fighting to survive not just cost inflation impacts on production but also instability in the value of the local currency. MarketForces Africa gathered that some operators have planned to downsize workforces in the first half of 2024 to reduce payroll burden and manage their operation exposure to inflation.
Rivalry across industries has set limits on price hikes. Companies are recording reduced volume sales as households continue to pro-rate income on basic needs. Based on the earnings results reviewed, net finance costs posted by all listed companies appear to have increased. This was a result of an increase in prices of input, interest on borrowings and foreign exchange losses.
Analysts believe that tightening macroeconomic conditions would continue to plunge companies’ earnings downward until reforms begin to yield results.
“The market will remain tight. Companies’ earnings will continue to reduce due to tight margins in the first half of 2024. Without strong economic growth, businesses survival will depend largely on how to manage costs”, research analysts at LSintelligence Associates said in an email.
The price level has continued to worsen in 2024 after 12 months straight uptick recorded in 2023. Energy costs have pushed corporate operating expenses upward following subsidies removal. The middle-class economy has also nosedived as a result of growth scarcity. The lending rate has increased in line with the Central Bank monetary policy tightening.
An increased borrowing rate is a disincentive to business expansions, analysts said, noting that job creation by the private sector has remained unimpressive.
“Nigerians are losing their jobs as companies performance comes under threat. The naira has plunged, inflation has become so threatening and interest rates have increased. At a point, some companies will be worth more by realising their asset value than to continue operation as costs continue to outpace revenue”, LSintelligence Associate said.
Inflation has damaged consumer wallets, and companies are selling less due to the need to hike prices. Despite increased prices across the markets, companies’ earnings have not been impressive, MarketForces Africa gathered from corporate financial scorecards. #Uncertainties Threaten Survival of Companies in Nigeria# US Dollar Inflows to FX Market Slumps 39%
