Eight manufacturers suffer N627bn forex losses

Eight manufacturers, including Dangote, BUA and Lafarge saw their foreign exchange-related losses rise to N627.7bn in the first quarter of the year, according to our findings.

This is according to an analysis of the financial statements of the firms, published on the Nigerian Exchange Limited.

The listed firms include Lafarge Africa Plc, BUA Foods, Nestle Nig, BUA Cement, Dangote Sugar, International Breweries, Nigerian Breweries and Dangote Cement.

Since the turn of the new year, the naira, which was floated almost a year ago has witnessed a dramatic depreciation, leaving a devastating mark on organised businesses across the board.

The height of the depreciation came in February when the local currency traded as high as N1,900 against the dollar at the parallel market.

Forex obligations

This led firms with forex-denominated obligations on their books to revalue those obligations in line with the depreciation of the local currency, which represents the currency of its earnings.

Cement manufacturer, Lafarge Africa Plc’s forex loss increased to N21.8bn from a gain of N320m in the corresponding period last year.

Due to significant forex revaluation losses and higher operating expenses, the company’s pre-tax and post-tax profits fell by 61.25 per cent and 65.34 per cent to N8.71bn and N5.19bn, respectively.

The Chief Executive Officer of Lafarge Africa, Lolu Alade-Akinyemi, said even though the company experienced growth in cement sales as the market recovered in the quarter, the foreign exchange losses due to further naira depreciation in the quarter, resulted in an after-tax profit decline of 65 per cent.

Financial profitability ratios slipped, especially return on assets, which fell below one per cent to 0.77 per cent in Q1 2024 from 2.56 per cent in Q1 2023.

Another major cement producer, Dangote Cement saw its forex loss increase to N63.77bn, up from N9.79bn.

The manufacturing giant, however, shrugged off headwinds to double its revenue to N817.35bn in Q1 2024 from N406.72bn recorded in Q1 2023.Completing the trio of cement-making heavyweights was BUA Cement, whose forex loss jumped to N10.06bn from a gain of N1.71bn in the corresponding quarter in 2023.

The company’s revenue rose to N161.13bn in Q1 2024 from N106.35bn in Q1 2023 as the sale of cement increased by 51.51 per cent.

Like other cement manufacturers, the company weathered a number of challenges including inflation and forex volatility, which led to a rise in its cost of sales and cement prices.

BUA Cement took advantage of its newly commissioned plants (Obu Line Three and Sokoto Line Five) to grow sales volume, which was insufficient to improve earning margins in Q1 2024.

The cumulative revenues of the industry’s top three producers grew to N1.12tn from N604.8bn in Q1 2023.

In the food/beverage sector, Nestle Nig led the line with a forex loss of N166.9bn.

The depreciation of the naira in the first quarter of 2024 imposed a net loss of N142.7bn on the company.

Commenting on the results, the Chief Executive Officer of Nestlé Nigeria, Wassim Elhusseini, said the business environment was challenging in the first quarter.

“Further devaluation of the naira in Jan-March 2024 led to the revaluation of our foreign currency obligations which had an adverse impact on the profit after tax resulting in a net loss of N142.7bn for the quarter,” the company said.

Another major manufacturer in the consumer goods sector, Dangote Sugar recorded a forex loss of N102.9bn in the first quarter of the year.

This company recorded a N68.9bn loss in the first quarter of the year, with naira depreciation playing a major role in the numbers recorded during the period in review.

Similarly, International Breweries’ forex loss rose to N162.2bn in the first quarter of the year. The company, like its counterparts in the brewing business, has fallen on hard times due the the volatility in the forex market.

The company reported a loss of N60.39bn compared with a loss of N2.31bn in Q1 2023, making it the sixth consecutive loss-making quarter.

Its counterpart, Nigerian Breweries also saw its forex loss hit N72.8bn. The brewer has equally struggled to offset a €205m debt it had on its books since the depreciation of the naira.

The company recorded a loss after tax of N52bn for the first quarter ended 31 March indicating a 386.13 per cent increase, compared to N10.715bn posted in the same quarter ended March 31, 2023.

Completing the list was BUA Foods, which recorded a forex loss of N27.2bn.

Despite growing its gross profit by 37.93 per cent to N115.42bn in Q1 2024 from N56.66bn in Q1 2023, the company’s Managing Director, Ayodele Abioye, noted that ‘the bulk of our raw materials are FX-dependent…” FX constituted a major challenge for manufacturers in Q1.”

He added, “The depreciation of the naira by 24.51 per cent from N988.46/$ at the start of January to N1,309.4/$ at the end of March 2024 was a major driver of the N27.29bn FX loss incurred by BUA Foods in the quarter.”

Speaking with The PUNCH, a senior lecturer at the Pan-Atlantic University, Olusegun Vincent, noted that forex-related losses do not always come with any degree of finality.

According to him, only forex obligations fully paid for against an increased exchange rate regime translate to an actual forex loss.

He said, “Some of these exchange losses are unrealised. Unrealised exchange loss means the loss cannot be translated into actual cash flow. For example, if I have an obligation to pay a foreign debt in two years time.

“As the exchange rate is moving I have to translate it to the current rate. As the exchange rate increases, the loss incurred by the debt which is yet to be paid is called unrealised exchange loss. So, it will still be reported in the statement that the company made losses.”

SOURCE: PUNCH