NIGERIA'S CURRENCY PROBLEMS CAUSE RECORD N452 BILLION IN FOREX LOSSES

Nestle Nigeria, a leader in consumer goods, reported the largest exchange loss of N123.8 billion. Nestle Nigeria also experienced the most drastic decline year over year.

Nigeria's dollar shortage is becoming increasingly difficult to deal with after the continent's largest economy allowed the naira to drop by roughly 40% in June in an effort to bring the official and black market exchange rates of the dollar to parity.

While many import-dependent manufacturers were doomed by the currency exchange policy in the first half of the year, with some even being forced to close their doors, lenders holding assets in foreign currencies were able to take advantage of the situation by revaluing their holdings, which allowed them to make record profits.

That, which was 37 times greater than the N11.9 billion the companies reported a year prior, sent all but one of those businesses into the red.

After the naira declined by 40% in June, forcing some FMCGs to shift the cost onto consumers, the manufacturers had to revalue their international loans and letters of credit, which contributed to the enormous exchange loss.

Out of the nine companies we monitor, only Flour Mills of Nigeria had a foreign exchange loss that lasted three months, from April to June. This is because its financial year end is different from the other eight.

Ironically, GlaxoSmithKline Nigeria, the sole outlier among the nine to survive the hurricane of losses, revealed plans by its parent company GSK UK Group to pay out other stockholders and shut down manufacturing in Nigeria in early August.

The pharmaceutical company reported a somewhat lower net profit for the time period of N339.7 million.

NESTLE

The impact of a foreign exchange loss on Nestle's financials was catastrophic on a large scale because the majority of the multinational company's funding originates from overseas loans and letters of credit.

After seeing its net foreign exchange loss increase by 59 times to N123.8 billion in only one year, the world's largest food processing company reported its first half-year deficit after taxes in at least nine years.

In contrast to a loss after tax of N27.8 billion a year earlier, it reported a loss after tax of N50 billion for the period.

Given that a sizable amount of its raw materials are imported, the short- or long-term impact of the naira's rapid depreciation on input costs is uncertain.

A devaluation of its letters of credit and intercompany loans to take into account the new rates for converting the naira to the dollar resulted in an increase in Guinness Guinness' foreign exchange loss from N223 million to N46 billion from N1 billion a year earlier.

This resulted in an after-tax loss of N18.2 billion for the alcohol producer as opposed to a profit of N15.7 billion in the same period previous year.

As current liabilities already exceeded current assets by 29.5% in the first half of the year, working capital is likely to be under pressure in the near future.

BREWERIES IN NIGERIA

The biggest pressure point on the bottom line is the Nigerian Breweries' net foreign exchange loss, which increased year over year to N85.3 billion from N7.3 billion. In comparison to an after-tax profit of N18.7 billion in the same quarter of 2022, the corporation reported an after-tax loss of N47.6 billion.

Current liabilities had already exceeded current assets for the first half of the year by 159.5%, aggravating the company's liquidity issues given that imports account for nearly half of its input expenses.

FRIESLANDCAMPINA

The manufacturer of dairy products reported a N18.6 billion foreign exchange loss as opposed to an N648.2 million gain the year before.

Revaluation charges from loans denominated in foreign currencies as a result of the naira's devaluation in June were the main cause.

Whereas it declared an after-tax profit of N7 billion the previous year, the loss after taxes this year was N11.6 billion.

CADBURY NIGERIA

Compared to the same period last year, when there was no loss, Cadbury's FX loss for the period was N21.3 billion. Long-term currency shortages increased the amount spent on importing raw materials, requiring management to raise prices to pass costs on to customers.

According to the finance director, Ogaga Ologe, in a recent interview, “consumer spending power has really reduced and that has affected sales volumes of companies,” according to Bloomberg.

Bottom line: Cadbury reported a loss after tax of N14.5 billion, which was negative. In the same quarter a year prior, the company had reported a net profit of N2.3 billion.

GlaxoSmithKline (GSK) GSK's foreign exchange loss increased from N17.2 million to 10.9 billion Naira. The only business out of the nine under examination to produce a profit during the time, it defied the industry's norm of loss-making by posting a profit of N339.7 million.

WORLDWIDE BREWERIES

The bottom line of International Breweries, the largest beer firm in the world by sales and volume under the control of AB Inbev, suffered after it suffered a foreign exchange loss of N40.7 billion as opposed to a gain of N4.1 billion during the same time last year.

In contrast to a profit after taxes of N336.2 million reported at half year 2022, the period's loss was N23.6 billion.

DANGOTE SUGAR

The increase in Dangote Sugar's foreign exchange loss resulted from a devaluation of its letters of credit and commitments to overseas vendors, which increased the cost to N83.1 billion, or an increase of 1,587.3% in a year.

In contrast to a profit after taxes of N11.4 billion, the period's loss was N40.8 billion.

MILLS OF FLOUR IN NIGERIA

For the three months ending in June, Flour Mills reported a foreign exchange loss of N22.5 billion, a 343.7% increase over the same period last year.

In contrast to a net profit of N5.5 billion the previous year, the company reported an after-tax loss of N9.3 billion.