Nigeria’s dollar woes leave record N452 billion forex loss across big consumer goods companies

Not showing clear signs of vanishing soon, Nigeria’s dollar drought has become more complicated after Africa’s largest economy allowed its currency to weaken by about 40 per cent in June in a push seeking convergence of the official and parallel market exchange rates of the dollar to the naira.

While the currency exchange policy spelt doom for many import-dependent manufacturers in the first half of the year, even showing some the exit door, lenders holding assets in foreign currency have turned the crisis to their advantage as revaluation of such assets helped them turn record profits.

Were it to be elsewhere like Europe, the mega profits reported by top Nigerian banks would have been an invitation to a windfall tax.

The dollar scarcity cost the nine Lagos-listed fast-moving consumer goods companies (FMCGs) under review here a combined N452.2 billion in net foreign exchange loss for the first half of the year, according to PREMIUM TIMES’ estimate using figures from their financial statements.

That, 37 times higher than the N11.9 billion recorded by the companies a year ago, tipped all but one of those firms into loss.

The humongous exchange loss had been spurred by the manufacturers’ revaluation of their overseas loans and letters of credit after the naira weakened by 40 per cent in June, forcing some FMCGs to pass on the cost to consumers.

Only the foreign exchange loss of Flour Mills of Nigeria spanned three months, April through June, out of the nine companies under our coverage because its financial year-end varies from the rest.

The highest exchange loss, N123.8 billion, was posted by consumer goods powerhouse Nestle Nigeria, which also saw the sharpest deterioration year on year, having recorded just N2.1 billion a year ago. It means the net foreign exchange loss of Nestle Nigeria, the local unit of the world’s biggest food company, increased by roughly 58 times within a year.

The combined half-year (April to June in the case of Flour Mills) loss after tax of the nine FMCGs tracked by PREMIUM TIMES accelerated to N200.5 billion from N26.9 billion.

“Because they have foreign currency loans, the transmission effect will still continue to have an impact on their balance sheet,” Muyiwa Oni, regional head of equity research, West Africa at Standard Bank Group, told PREMIUM TIMES.

“It could mean either recapitalisation at one point or something. Injecting more capital, that could be one of the implications.”

One major ramification of the FX shortage he sees affecting the companies’ operations in the short and medium terms is how it is likely to constrain their capacity to source raw materials.

GlaxoSmithKline Nigeria, the only outlier that survived the loss-making storm of those nine, ironically announced in early August plans by its parent company GSK UK Group to pay out other shareholders and end manufacturing operations in Nigeria.

Instead, it said, it would explore a third-party direct distribution model for its pharmaceutical products.

The drug maker turned in a slightly weaker net profit in the sum of N339.7 million within the period.

Nestle

Because the bulk of Nestle’s financing as a multinational comes from overseas loans and letters of credit, the blow of foreign exchange loss on its financials was ruinous on a sweeping scale.

The food processing giant posted its first half-year loss after tax in at least nine years, having seen its net foreign exchange loss soar 59 times to N123.8 billion within one year.

It recorded a loss after tax of N50 billion for the period in contrast to a loss after tax of N27.8 billion a year earlier.

It imports a sizeable portion of its raw materials, meaning input costs could be pressured by a fast-depreciating naira in the short term or longer.

That is compelling management to root around for local commodities that could fill the place of imports in the supply chain as close substitutes, cheaper and more accessible at the same time. Strategic focus is now on domestic produce like palm oil, maize, soya bean, cassava, cocoa, corn starch and sorghum, which have been adopted as ingredients in some of its products.

Guinness

Guinness’ foreign exchange loss increased to N46 billion from N223 million a year earlier following a revaluation of its letters of credit and intercompany loans to reflect the new rates of converting the naira to the dollar.

That set the liquor manufacturer up for an N18.2 billion loss after tax compared to a post-tax profit of N15.7 billion in the same period of last year.

There is a likelihood that working capital will be stressed in the short term as current liabilities already exceeded current assets by 29.5 per cent in the first half of the year.

Except a substantial turnaround happens to its financing, the Nigerian subsidiary of Diageo could be struggling to meet its obligations in the next few months.

Nigerian Breweries

The net foreign exchange loss of Nigerian Breweries quickened year on year to N85.3 billion from N7.3 billion, making it the main pressure point for bottom line. The company reported a loss after tax of N47.6 billion relative to an after-tax profit of N18.7 billion in the corresponding period of 2022.

For the first six months of the year, current liabilities had already outstripped current assets by 159.5 per cent, complicating the liquidity trouble of the company, which relies on imports for about half of its input costs.

FrieslandCampina

The dairy products maker recorded a foreign exchange loss of N18.6 billion compared to a N648.2 million gain a year before.

The principal driver was revaluation costs arising from foreign currency-denominated loans in the wake of a devaluation of the naira in June.

Loss after tax came to N11.6 billion where it reported an after-tax profit of N7 billion last year.

Cadbury Nigeria

Cadbury’s FX loss for the period stood at N21.3 billion, unlike the same period one year prior when no loss was recorded. The protracted foreign exchange scarcity also ramped up its spending on raw material imports, forcing management to pass on costs to consumers by hiking prices.

“Consumer spending power has really reduced and that has affected sales volumes of companies,” Bloomberg cited the finance director, Ogaga Ologe, as saying in a recent interview.

Bottom line was negative, Cadbury having posted a loss after tax of N14.5 billion. The company had posted a net profit of N2.3 billion during the same period 12 months earlier.

GlaxoSmithKline (GSK)

GlaxoSmithKline Consumer Nigeria Plc
Foreign exchange loss at GSK rose to N10.9 billion from N17.2 million. However, it bucked the trend of loss-making in the industry, turning in a profit of N339.7 million, the only company of the nine under review to make a profit within the period.

International Breweries

International Breweries, the world’s biggest beer company by revenue and volume which AB Inbev controls, saw its bottom line take a hit after incurring N40.7 billion in foreign exchange loss compared to a gain of N4.1 billion in the same period of last year.

Loss for the period stood at N23.6 billion compared to a profit after tax of N336.2 million declared at half year 2022.

Dangote Sugar

The surge in the foreign exchange loss of Dangote Sugar derived from a revaluation of its letters of credit and obligations to foreign vendors, increasing the cost to N83.1 billion, translating to an increase of 1,587.3 per cent within a year.

Loss for the period was N40.8 billion in contrast to a profit after tax of N11.4 billion.

Flour Mills of Nigeria

Flour Mills incurred N22.5 billion in foreign exchange loss for the three months to June, which is 343.7 per cent higher than what was reported a year ago.

The company posted a loss after tax of N9.3 billion compared to a net profit of N5.5 billion a year earlier. (Premium Times)