Some of Nigeria’s biggest listed firms have recorded significant foreign exchange losses in the first half of 2023, a development that is posing threats to their ability to pay dividends for the 2023 financial year.
BusinessDay findings showed that Nigerian stocks, which rallied following the implementation of major reforms by President Bola Tinubu, may be dampened by FX losses due to the naira devaluation.
For instance, Guinness Nigeria Plc incurred N49 billion in exchange rate losses in its unique full-year 2023 report. The exchange rate depreciation led the company to a loss of N18.1 billion, its biggest full-year loss since 2020 when Covid-19 ravaged company financials.
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“The full-year dividend for most companies is at risk, especially firms without sufficient buffers,” Tunde Adeniyi, a financial analyst with Sofidam Capital, said.
The brewer also declared a loss per share of N8.29 kobo compared to N7.15 earnings per share a year earlier. The firm’s retained earnings dropped by 81 percent to N7.88 billion from N41.44 billion recorded in the corresponding period of 2022.
“No dividend has been recommended by Guinness’ board of directors for approval at the next annual general meeting,” analysts at CSL Stockbrokers Limited said.
Nigerian Breweries’ FX losses also spiked by 1,071 percent to N85.26 billion in H1 2023 from N7.28 billion in H1 2022.
Will Nigerian companies pay dividends?
Further findings showed that although the FX losses did not impact cash as the company still has a healthy cash balance of N34.9 billion, the losses contributed to a N47.7 billion reduction in net assets.
Its retained earnings also dropped to N33 billion in the second quarter of 2023 from N33.9 billion in the same period of 2022.
“Dividend payment would be challenging in 2023 due to the challenging business environment and higher cost of production,” David Uka, an analyst with one of Nigeria’s biggest consulting firms, said.
The revaluation loss of Unilever Nigeria Plc, one of the country’s biggest manufacturing goods firms, rose to N14.36 billion from N1.06 billion, while restructuring cost increased to N2.36 billion from N0.48 billion in H1 2022.
Unilever said the revaluation loss arose from foreign currency-denominated balances related to trade loans.
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Retained earnings dropped to N9.2 billion in Q2 2023 from N5.11 billion recorded in the same period of 2022.
Another multinational company, Nestle Nigeria Plc, reported an N123.8 billion net foreign exchange loss in H1 2023 from N2.13 billion in H1 2022.
The fast-moving consumer goods firm closed the period with N69.12 billion loss before tax, compared with N43.74 billion profit before tax in the same period of 2022.
The impact of the losses essentially wiped out Nestle’s retained earnings, a development that could impact its ability to pay dividends this year. The firm recorded a retained loss of N49.14 billion, compared to retained earnings of N28.37 million a year earlier.
“It will take a miracle for some companies to pay dividends this year,” Uka said.
Airtel Africa Plc recorded a loss after tax of $151 million in H1 2023. This represents a 184.7 percent decrease compared to the profit after tax of $178 million made in the same period of 2022.
The company’s loss was driven by the $570 million incurred in FX and derivative losses. It also recorded a loss before tax of $221 million.
The communication firm’s earnings per share for the period declined to a negative of 4.5 cents, a 204 percent decrease from 4.4 cents in the same quarter of 2022.
“In the reporting period, the devaluation has had a material impact on our results,” said Olusegun Ogunsanya, chief executive officer of Airtel, said.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said naira devaluation has been a perennial problem for companies that are highly import-dependent.
“The multinationals that are dependent on imported raw materials will be most affected by the naira devaluation, which has been a problem for companies that are highly import-dependent,” Yusuf said.
Analysts at CSL Stockbrokers Limited said the unification of the exchange rate would increase the cost of production for companies that import raw materials and they will be forced to pass on the increase to the final consumer.
They said: “Importers of eligible items at the I&E window will now have to source FX at a higher rate and will likely push the associated increased costs to the end consumers resulting in an increase in the price of goods and services, especially imported goods.
“Consumers still processing the impact of the removal of fuel subsidies will now have to deal with an additional increase in prices of goods and services associated with a depreciation of the currency. Empirical evidence shows a strong pass-through effect of changes in the exchange rate on consumer prices.”
Tajudeen Ibrahim, director of research and strategy at Chapel Hill Denham, said investors who hold dollar assets, such as euro bonds, bank deposits, or placements in dollars, are likely to see FX gains as long as the naira continues to depreciate.
“In the long term, investors who hold foreign currency assets will continue to see foreign currency gains as the naira depreciates. However, these gains will not be as large as they have been in recent months,” Ibrahim said.
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