Consumer firms with biggest FX losses in Q1

Nestle Nigeria Plc, International Breweries Plc, and Dangote Sugar Refinery Plc were among the top consumer firms that reported the highest foreign exchange loss in the first three months of 2024, according to BusinessDay’s analysis of their latest financial statements.

Read also: Pension funds flock to T-bills in hunt for higher returns

The near 30 percent devaluation of the naira this year hit the consumer firms hard but analysts expect the FX losses to moderate in subsequent quarters as the risk of a further naira devaluation fades.

Nestlé posted an FX loss of N166.9 billion in Q1 from an FX gain of N390 million in the same period of last year followed by International Breweries with a loss of N162.2 billion from a gain of N1.22 billion.

The foreign exchange loss of Dangote Sugar Refinery widened to N102.9 billion from N4.38 billion while Nigerian Breweries Plc reported an FX loss of N72.85 billion, up from N14.64 billion and Dangote Cement Plc had N63.77 billion, up from N9.79 billion.

BUA Foods’ FX loss stood at N27.29 billion while Lafarge Africa Plc recorded an FX loss of N21.8 billion from a gain of N320 million.

BUA Cement’s FX loss jumped to N10.06 billion from a gain of N1.71 billion. NASCON Allied Industries Plc recorded a N3.06 billion FX loss, with no loss recorded in the previous year. Champion Breweries reported an FX loss of N740 million.

“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 N142.7 billion for the quarter,” Nestle said in a statement last week.

Lolu Alade-Akinyemi, CEO of Lafarge Africa, 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 devaluation in the quarter, resulted in an after-tax profit decline of 65 percent.

“In the first quarter of 2023, there was no FX issue and it became a big issue in the second quarter. Firms were not likely to record FX losses in Q1 last year because the exchange rate was fixed in a way,” Muda Yusuf, chief executive officer of the Centre for Promotion of Private Enterprise, said.

Last June, the Central Bank of Nigeria merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.

The liberalisation of the foreign exchange regime in June weakened the naira from N463.38/$ to N1,354.2/$ as of May 4, 2024. At the parallel market, the naira is being traded at around 1,410/$ as against 762/$ before the FX reform.

“The FX loss widening is due to the effect of the naira depreciation. These companies had foreign currency-denominated obligations in their books,” Israel Odubola, a Lagos-based research economist, said.

Over the past eight years, Africa’s most populous nation has slumped into two recessions owing to the collapse of oil prices, disruptions caused by the COVID-19 pandemic, and an inability of the government to reform the economy.

In Q2, the Tinubu administration implemented bold reforms including the removal of petrol subsidy and naira devaluation to boost revenues for the welfare of its citizens.

However, the reforms have increased inflationary pressures to the highest on record and weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.

Data from the National Bureau of Statistics shows that the headline inflation quickened for the 15th straight time to 33.20 percent in March, up from 31.70 percent in February

Food inflation, which constitutes more than 50 percent of headline inflation, also increased to 40.01 percent from 37.92 percent.

Rising inflation and sluggish growth in one of Africa’s biggest economies increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year, according to the World Bank.

Business activity in Nigeria rose to the highest in three months in April 2024 as a result of the improvement in the strength of its currency,

The latest Purchasing Managers’ Index (PMI) also shows that business activity in the country improved marginally to 51.1 last month from 51.0 in March. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.

The tough business environment also pushed multinationals to exit Africa’s biggest economy as Procter & Gamble, GlaxoSmithKline Consumer Nigeria, Equinor, Sanofi and Bolt Food announced plans to leave the country in 2023.