BY FESTUS OKOROMADU
The devaluation of the naira against the US dollar has had a significant impact on Nigerian businesses, with some firms reporting significant foreign exchange losses in the first half of 2023.
The policy initiator, the CBN has in recent times confirmed that it had some serious impacts on the economy.
Reviewing the impacts of these policies at the last Monetary Policy Committee meeting, Acting CBN Governor, Folashodun Shonubi, said output growth continued at a moderate pace, while the general price level remained elevated as markets adjust to the new policies introduced by the Federal Government.
He expressed confidence that, “output growth recovery in 2023 would remain positive as economic agents adjust to the recent policies on zero subsidy on the price of Premium Motor Spirit and convergence of exchange rates.”
However, financial reports of quoted companies have indicated that the introduction of these monetary policies punched a deep hole in their performance.
Though the policies were initiated in mid-June, companies that depended largely on foreign currencies in funding their activities seem to have been the worst hit.
Half year reports declared by leading companies showed that some major Nigerian firms have reported a cumulative N716.8 billion in FX losses in the second-quarter earnings season.
The firms include MTN Nigeria, Dangote Cement, Dangote Sugar, Nigerian Breweries, Guinness Nigeria, International Breweries, Unilever Nigeria, Sterling Financial Holdings Company, Jaiz Bank, Neimeth, Airtel Africa, and Seplat Energy.
“Half year reports declared by leading companies showed that some major Nigerian firms have reported a cumulative N716.8 billion in FX losses in the second-quarter earnings season”
MTN Nigeria
MTN Nigeria recorded an FX loss of N131.45 billion in H1 2023, up from N13.63 billion in the same period of last year.
The firm’s retained earnings stood at N245.04 billion, down from N343.29 billion in the same period of 2022.
Nestle Nigeria
Nestle recorded an FX loss of N123.77 billion in H1 2023, up from N2.13 billion in the same period of 2022.
The firm recorded a retained loss of N49.14 billion, compared with retained earnings of N28.37 million a year earlier.
Dangote Cement
Dangote Cement’s net exchange loss on foreign-denominated transactions stood at N113.63 billion in H1 2023, up from N40.66 billion in the same period of 2022.
The cement maker’s retained earnings grew to N804.71 billion from N701.43 billion.
Dangote Sugar
Dangote Sugar’s exchange loss stood at N83.1 billion in H1 2023, up from N4.92 billion in the same period of 2022.
The sugar maker’s retained earnings dipped to N112.64 billion from N124.35 billion.
Nigerian Breweries
Nigerian Breweries reported a net loss on foreign exchange of N70.6 billion in the second quarter of 2022.
The brewery’s retained earnings declined to N32.59 billion in H1 2023 from N99.56 billion in the same period of 2022.
Guinness Nigeria
In the brewery sub-sector, Guinness Nigeria incurred N49 billion in exchange rate loss in its 2023 half-year operations. The exchange rate depreciation led the company to a loss of N18.1 billion, with a loss per share of N8.29 kobo.
The retained earnings stood at N7.88 billion, which indicates an 81 percent decline from N41.44 billion.
International Breweries
International Breweries’ net FX loss stood at N40.67 billion in H1 2023, compared to N4.09 billion in the same period of 2022.
The brewer recorded a retained loss of N81.9 billion as against N58.31 billion a year earlier.
Unilever Nigeria
Unilever Nigeria’s revaluation loss increased to N14.36 billion in the second quarter of 2023 from N1.06 billion in Q1 2023.
The company said the revaluation loss arose from foreign currency-denominated balances related to trade loans.
“Revaluation loss arising from foreign currencies denominated balances in respect of trade loans,” Unilever said in a note.
Unilever’s retained earnings grew 80 percent to N9.2 billion in H1 2023 from N5.11 billion in the same period of 2022.
Sterling Holdings
Sterling Holdings recorded an FX loss of N3.63 billion in H1 2023, compared with a gain of N804 million in the same period of 2022.
The holding company retained earnings stood at N72.99 billion in H1 2023.
Jaiz Bank
Jaiz Bank’s unrealized exchange loss stood at N110.31 million in H1 2023, compared to N69.51 million in the same period of 2022.
Jaiz Bank’s retained earnings stood at N2.28 billion from a retained loss of N739.35 million in the comparable period.
Neimeth
Neimeth’s FX loss stood at N22.82 million in H1 2023, down from N103.15 million in the same period of 2022.
Neimeth recorded a retained loss of N665.16 million, compared with retained earnings of N93.02 million a year earlier.
Airtel Africa
Airtel Africa reported an FX loss of $471 million recorded in finance cost before tax and $317 million after tax, because of the devaluation of the naira. “This impact has been classified as a non-operating exceptional item,” the company said in a note.
Seplat Energy
Seplat Energy said the revaluation of financial assets arising from exchange rate devaluation resulted in a net (non-cash) loss of $33.8 million.
It attributed the decline in its operating profit to a combination of lower oil prices and FX losses due to changes in exchange rates.
The energy firm’s retained earnings dropped to N232.07 billion in Q2 2023 from N241.39 billion in the same period of 2022.
Africa Prudential
Operators in the service sector are not spared of the negative impacts of the policies under review as Africa Prudential Plc has blamed the 55% drop in pre-tax profit for the second quarter of 2023 on declining investable funds.
The company reported that revenue from contracts with customers fell by 13.1% while interest income also fell 19% to N488.1 million in the quarter under review.
Pre-tax profits fell by 43.4% to N340.4 million compared to N601.6 million in the same period last year.
Commenting on the performance, the company said the drop in interest income was due to a decrease in the available investible funds.
“The company explained that the decline was driven “by the interplay of the YTD expenses.
“However, the cyclical nature of our business also impacted on revenue anticipated for the period. We are assured of improved performance in H2 2023.”
TotalEnergies
Although, TotalEnergies Nigeria Plc, a petroleum marketing company did not report loss in its second quarter financial statement for June 2023, the company made a provision of N1.5 billion as net foreign exchange losses for the period.
Revenue grew by 25% to N139.3 billion compared to N111.4 billion. Operating profit during the period was N8.1 billion beating the company estimates of N5.5 billion and topping the prior year’s operating profit of N6.9 billion.
Pre-tax profits also grew by 14.7% to N7 billion from the N6.1 billion reported a year earlier
Experts’ view
Reacting to the situation, the Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf said the losses recorded by the companies due to foreign exchange exposure are a reflection of the instability in the market.
He however expressed concerns over the situation calling for some form of intervention to salvage the market.
“The unification of the exchange rate can affect a company either positively or negatively. If you have assets in foreign currency in your books the revaluation due to the liberalisation of the market will at this point be beneficial to you but if it’s in debt then it can lead to posting losses as the value of the Naira has depreciated,” he said.
He noted that the current situation where quoted companies are posting losses can affect investment in the market negatively.
“Many investors may be skeptical in patronizing the capital market as the share value of their investment continues to dwindle due to poor performance by the companies.
“Once a company is declaring losses all the people that have invested in them will be worried because when a company posts a negative financial result it will affect the share price of the stock. The implication is that less people will be willing to invest. Of what value is it to hold the stock of a company making losses?”
“The unification of the exchange rate can affect a company either positively or negatively. If you have assets in foreign currency in your books the revaluation due to the liberalisation of the market will at this point be beneficial to you but if it’s in debt then it can lead to posting losses as the value of the Naira has depreciated”
Yusuf stated that though he was a strong advocate of the unification of the exchange rate, recent developments have made him become worried as the expected results are yet to be seen.
According to him, the policy seems to benefit only the government for now as the window for revenue generation continues to expand.
On what could be responsible for the continue devaluation of the local currency in the forex market, Yusuf said, “I think there is a very strong speculative component, low level of confidence, and uncertainty, this is why I think the autonomous inflow foreign currency into the economy has not risen to the level that we expect to stabilize the market.”
He charged the CBN to do some kind of intervention by providing foreign currency in the market as it is the only source and custodian of the nation’s foreign earnings.
He said doing so would ease the pressure and make the Naira appreciate.
“The CBN has not been intervening in the market by providing liquidity, I don’t know what is responsible for that,” he said.
“Under the suspended CBN Governor, Mr. Godwin Emefiele, at least averagely every month you could have an intervention of about $1.5 billion every month from the CBN. So far I am not sure that the CBN has been able to put out that kind of intervention that is also not a good signal on the capacity to stabilize the currency.
Also speaking financial analyst and capital market expert, Okechukwu Unegbu, the unification policy is being affected by the rise in all other economic indices like inflation and lending rate.
He noted that the decision of the CBN monetary policy committee to increase the monetary policy rate to 18.75% penultimate week simply meant a hike in the cost of funds.
“I was surprised that the CBN monetary policy committee members raised the MPR to 18.75% in the last MPC meeting.
“I have proposed that they should reduce the MPR so as to bring down the borrowing rates. Now that they have raised it, the borrowing rates will increase and other indices will go up and once that happens the company’s margin will continue to fall,” he said.
He noted that with the continued rise in inflation rates, hikes in lending rates via MPR and declining savings capacity of the citizen, the capital market may be in for some serious challenges.
He called on the government to recruit public policy experts to help navigate the economy from the present situation, stressing that the capital market is the barometer of the economy.
“When companies are reporting losses for any reason, especially big portfolios like Airtel Africa, Breweries, Nigerian Breweries, for whatever reason it is not good for the market,” Unegbu said.
