Heritage Reporter

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Blue chip firms groan under FX Woes

…Nestle, NBL, MTN, Guinness, others lose N1.24 trillion


Multinational corporations and indigenous companies operating in the country are bitten hard by Foreign Exchange losses as exchange rate woes continue to pose a challenge to their operations.


From June last year to March 1, 2024, the average exchange rate at the Nigeria Autonomous Foreign Exchange Market, NAFEM, surged by about 144 %, from an average rate of N634.56/$ in June 2023 to N1,548.25/$ in March.

The same applies to the parallel market otherwise known as a black market where the exchange rate per dollar as of March 1, 2024, stood at N1,600.00/$.

Analysts and economy experts have said the effects of the forex losses include job loss, reduction in company income tax earnings by the government, absence of dividend payment for shareholders and closure of plants that may result in further exit of multinationals.

According to analysts, the devaluation of the naira coupled with rising interest rates, led to increased operating costs for multinationals, whose major costs including finance costs are denominated in foreign currencies.

The Central Bank of Nigeria, CBN, increased the Monetary Policy Rate MPR, also known as its benchmark interest rate, for the eighth consecutive time in July. At the last Monetary Policy Meeting, MPC, held February 27 and 28, the CBN further raised the interest rate to 22.75%.

When finance costs skyrocket significantly, it can erode all the significant profit companies make such that in terms of net profits, they are making losses.

Recall that on June 14, 2023, the CBN merged all segments of the foreign exchange market into the Investors and Exporters window, and reintroduced the ‘willing buyer, willing seller’ model. The naira has continued to depreciate against the dollar and other major foreign currencies ever since.

Findings revealed that seven big firms operating in the country have suffered severe losses in their operations for the financial year ended December 31, 2023, owing majorly to ravaging forex losses, high production and operating costs among others.

A review of companies that have released their full-year 2023 financial results showed that they incurred whopping forex losses of about N1.24 trillion, leading to poor performance as they recorded loss before tax of about N415.43 billion.

The companies include Nestle Nigeria Plc, N195 billion, Nigeria Breweries, N153 billion, BUA Cement N69.95 billion, Lafarge Africa N21 billion, Guinness Nigeria, N49.1 billion, MTN, N740 billion and Cadbury Nigeria, N13.5 billion.

Details of performance

Lafarge Africa : The Company announced its full year 2023 results, saying its profits were impacted by significant FX loss.

Full-year 2023 profit before tax, PBT, went up by 15.7 percent Year on Year, YoY, despite N21 billion FX losses in 2023.

FY 2023 net sales rose to 8.6 percent year-on-year.

Lafarge Africa noted that a higher effective tax rate in 2023 ,after expiry of Pioneer Status Incentive in 2022, coupled with pressures from FX losses led to a PAT decline of 4.7 percent YoY.

Lolu Alade-Akinyemi, CEO of Lafarge Africa, said: “The fundamentals of our business remain strong. Despite extremely challenging macroeconomic headwinds, we grew the top line by 8.6 percent and improved Operating Margin from 22.6 percent to 25.3 percent in FY 2023.”

BUA Cement: The Company reported a profit after tax of N69.45 billion for the financial year ended December 2023, representing a 31.2% decline YoY.

The YoY reduction in profits was largely due to a foreign exchange loss of N69.95 billion—an increase from N5.50 billion recorded in 2022.

Like most manufacturing companies in Nigeria, BUA Cement experienced profit decline as a result of the impact of the naira depreciation following the reunification of the exchange rate announced mid-last year.

Guinness Nigeria: The company’s foreign exchange expenses eroded the operating profit of Guinness Nigeria Plc for the year ended December 2023, resulting in N5.233billion loss.

Reacting to the performance, former Managing Director, John Musunga, blamed the forex harmonisation policy.

“In this situation, our retained earnings declined quite a bit because we had to service that change in FX and our profit and loss position also became adverse as we recorded N18billion in losses. Good practice says that if you don’t have retained earnings or declare a loss, you don’t pay dividends,” Musungu said.

MTN Nigeria: It recorded a forex loss of N740 billion for the financial year 2023, according to its report released on the Nigeria Exchange Limited, NGX on Friday.

Consequently, the forex losses impacted negatively on its performance as it posted a loss before tax of N177.8 billion compared to a pre-tax profit of N518.8billion in the previous year.

The company’s audited results for the year ended 31 December 2023, showed a loss after tax amounting to N137billion. This sharp contrast was evident compared to the restated Profit After Tax (PAT) of N348.7 billion reported in 2022.

MTN stated that the repercussions of this financial decline extended to negative retained earnings and shareholders’ equity, reported at N208 billion and N40.8billion respectively, as of December 2023.

Nestle Nigeria: The company reported a loss before tax of N104 billion for the year ended 2023 compared to a profit before tax of N71 billion same period in 2022.

This is according to the 2023 financial statement of the company published on the NGX on Wednesday, 28th February 2024.

It reported a foreign exchange loss of N195 billion which was the major reason for the overall loss reported by the company.

Nigerian Breweries: The country’s largest brewery, reported an after-tax loss of N106.3 billion in 2023, its first loss in six years, according to its audited financial results.

That’s after the naira devaluation resulted in a foreign exchange loss of N153.33 billion, causing the brewer to post a rare loss last year compared to an after-tax profit of N13.18 billion recorded in 2022.

“Despite strong and aggressive cost savings and other efficiency measures, coupled with the impact of the devaluation of the naira which resulted in a foreign exchange loss of N153 billion, the Company recorded a net loss of N106 billion during the year,” Hans Essaadi, Managing Director/CEO of Nigerian Breweries Plc said.

David Adonri, Economy Expert/ Executive Vice Chairman at Highcap Securities Limited, said: “The Nigerian manufacturing industry is fully dependent on imports for production inputs. As a result, when the Naira was suddenly floated, most manufacturers incurred foreign exchange losses attendant to their foreign currency exposures.

Therefore, what happened to Nigerian Breweries and Nestle is expected to be replicated by many other import-dependent companies.”

On the impact of the losses, he said: “With these massive forex losses, the companies have suffered collateral damage to their balance sheets which may take long time to recover from. Consequently, in the intervening period, they might not be able to meet their obligations to investors and creditors. Their ability to pay tax will be highly constrained. We only hope that some of them will not exit Nigeria like GSK if they continue to face an existential threat.”

Adonri further said, “The market reforms target macroeconomic corrections and not sectoral empowerment. Having become victims rather than beneficiaries, government can expedite their recovery through specific subsidies to help production. Without a rescue package, they may require years to recover.”

Reacting as well, Dr Muda Yusuf, Economist and CEO, Centre for the Promotion of Private Enterprise, CPPE ,said : “The flurry of forex losses are some of the negative outcomes of currency depreciation.

The magnitude of the losses is proportional to the degree of foreign exchange exposure of the businesses.

“For most multinationals, this exposure is very high. The exchange rate risk is correspondingly elevated. These companies have huge credit exposure to their parent companies offshore. They also have significant foreign currency exposure about ownership.

This has also resulted in huge contractions in returns on investment. Shareholder value has also been massively eroded. It is a case of a huge currency risk which has crystallized.

“The fortunes of the companies may witness a turnaround if the local currency appreciates. One of the expected outcomes of the current reforms is to ensure exchange rate stability and price discovery.”

On recommendation, he said: “In the meantime, CPPE recommends that the losses suffered by the companies be made tax-deductible to ease the shocks on the finances of the companies.”

Victor Chiazor, Analyst and Head of Research and Investment at Fidelity Securities Limited, said: “Any consumer goods and manufacturing company exposed to significant foreign currency loans would be negatively impacted by the liberalisation of the foreign exchange market as exchange rate differential applied on these loans may be significant enough to wipe off profits and even clear out its shareholders funds.”

On the implications of the losses, he said : “ The implications are that these companies would not be able to pay dividends to shareholders and most would also need to raise working capital to support the operations of their business, while some may opt for the option of closing their businesses and exiting the country, especially for the foreign companies. This capital raising exercise would also have its implications as debt capital will also put pressure on future earnings given the current elevated interest rate environment as MPR currently stands at 22.75%. Also, raising equity capital would depend on the investors’ sentiment, expected return on equity in the near term and also the consent of major shareholders of the company. Whatever the case, most of these will impact the economy at large as these costs would be redirected to the final consumers as prices of goods and services are expected to further increase thereby weakening the purchasing power of the consumer.

On reforms, he said : “Given the current reforms and policies by government, we do not expect to see a positive impact in the near term but believe the pressure on manufacturers is expected to ease in the medium term, hence we may not see improvement in the 2024 first-quarter earnings for manufacturing and most consumer goods companies.”


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