Manufacturing companies, especially those under the Fast-Moving Consumer Goods (FMCG) sector, have extended last year’s losses into the first quarter (Q1) with financial reports of four firms in the sector reporting combined foreign exchange (FX) losses of about N300 billion.
This is in addition to FX losses of N420 billion incurred by the listed firms in their 2023 full-year (FY) performances.
The exchange rate losses reported for FY2023 were based on the N912/$ closing exchange rate from N460/$ at the beginning of the year.
The new round of FX losses in 2024 is based on the depreciation of the naira from N912 to about N1300 in Q1.
The four firms – Cadbury Plc, Flour Mills of Nigeria Plc, Nestle Nigeria Plc and Nigerian Breweries Plc – suffered FX losses of N13 billion, N22 billion, N191 billion and N72 billion respectively, even as the companies are still battling impacts of the huge losses suffered in 2023.
Indeed, shareholders who invested their hard-earned money in these firms may have to embark on an endless wait to recoup their investment.
This is because firms that have FX loan obligations on their statement of financial position will continue to suffer from any depreciation of the Naira until the loans are fully repaid.
Also, those that require imported raw materials to aid their production, will report higher cost of sale as a result of the Naira depreciation. Although this can easily be transferred to the final consumer room support revenues operators have argued that for any company exposed to either FX loans or imports, a weak Naira will continually impact their bottom line and possibly threaten the company’s existence if the losses are extended for too long.
Head of Research, FSL Securities Limited, Victor Chiazor said: “The reality is that for any company exposed to either FX loans or imports, a weak Naira will continually impact their bottom line and possibly threaten the company’s existence if the losses are extended for too long.
“To manage this, the firms will have to engage in hedging contract around its FX exposures to moderate its losses around such borrowing or purchases until the fiscal and monetary authorities can get a lasting solution to the FX situation.”
Head Equity, Planet Capital, Dr Paul Uzum expressed optimism that the FX losses may end this year, especially as the naira is expected to gain stability later this year.
According to him, it will take these companies that made huge FX losses up to three years to recover by cleaning up their books while those that have decided to raise fresh equity by way of rights like NB and International Breweries would clear the financial losses this year.
“I do not see the naira getting devalued any further especially now that we anticipate full operation of Dangote Refinery that is expected to cut off fuel import bill,” he said.
Cadbury posted a net loss of more than N7 billion in its first quarter operation as a result of about N13.4 billion loss sustained due to exposure to FX.
The company turnover came from domestic sales which grew to N21.95 billion from N16.08 billion in Q1 2023 while its export sales also increased to N1.75 billion.
In 2023, the group recorded a N36.9 billion FX loss, resulting in a retained loss of N11.4 billion and a negative equity of N6.5 billion.
Flour Mills (FMN) recorded N31 billion operating profit before adjustment for foreign exchange losses.
However, overall profit before tax was impacted by N22.5 billion foreign exchange losses during the quarter, leading to a N9.3 billion loss.
For Nestle, naira devaluation in Q1, 2024 caused the company a net loss of N142.7 billion.
According to the company, sales grew by 43.4 percent to N183.5 billion, compared to N127.97 billion in the same period last year while gross profit stood at N49.1 billion, against N51.6 billion in the same period of 2023. Operating profit also stood at N20.9 billion.
However, it recorded a net loss of N142.7 billion mainly driven by a surge in foreign exchange losses of N191.7 billion.
Nigerian Breweries posted a loss after tax of N52.1 billion, representing a 79 per cent year-on-year decline from the N10.7 billion net loss reported in Q1 2023.
The group recorded N227.1 billion gross turnover an 84 per cent year-on-year growth from the N123.3 billion sales posted during the corresponding quarter of last year.
However, a net finance cost of N90.8 billion caused the group to post a pre-tax loss of N65.6 billion within the period.
Research Analysts at Cowry Asset Management Limited, Charles Abuede, said the persistent losses coming from foreign exchange (FX) issues in Nigeria for listed firms remain worrisome, despite the CBN’s efforts to address currency challenges.
According to him, these issues have continued to plague firms since the devaluation exercise by the apex bank in June 2023 as firms especially those within the consumer goods space report huge FX losses.
To wriggle out of this dilemma, Abuede suggested that firms should implement robust FX risk management practices, such as diversifying currency exposure and utilising forward contracts or options to hedge against exchange rate fluctuations.
Additionally, he said further sensitivity analysis can be conducted to ascertain expected material effects while these firms can review and optimise costs in the mid-term and also explore revenue diversification opportunities and enhance operational efficiency.
