• Thursday, April 18, 2024
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Consumer firms to sidestep FX losses from naira volatility in 2019

Consumer firms

Consumer firms are set to sidestep any loss due to naira volatility in 2019.
Also, experts added that some of these firms had embarked on backward integration to reduce reliance on imported raw materials, but there are downside risks for those that have not hedged against financial risk.

“Not all firms have exposure to foreign exchange risk. A lot of them have reduced Foreign exchange borrowing in the last two years. We may not see the magnitude of the hit of 2016 that nearly crippled businesses,” said Christian Orajekwe, equity research analyst at Cordros Capital Ltd.

“Nestle has gone far in the area of backward integration as it sources material locally,” said Orajekwe.

Foreign exchange losses for the 10 largest consumer goods firms quoted on the floor of the Nigerian Stock Exchange (NSE) stood at N396.05 million as at September 2018, this compares with N15.07 billion and N39.88 billion incurred in the corresponding period of 2017 and 2016.
The Naira traded at around N364.41 per dollar in the Investors and Exporters (I&E) window on Friday, Data from FMDQ shows.

Firms have reduced burden on operating profit as combined interest expense fell by 49.08 percent to N25.13 billion in September 2018 from N49.37 billion in 2017.
That compares with an 86.65 percent increase in finance cost recorded in 2016 financial year.
Oil prices have slumped in recent weeks, as concerns mount about a glut of crude supply and fears that global economic headwinds could lessen demand.

After reaching a high of more than $86 a barrel in early October, which prompted warnings that it would climb further to $100, the oil price has since plunged by more than 30 percent.
Analysts at Vetiva Capital Ltd forecast a +50 basis points rise in benchmark borrowing costs and upend in money market rates in 2019 will dive a modest rise in finance expenses.
“This comes in contrast to the notable moderation recorded in net finance costs in 2018, supported by declining market rates for most of the year and benefits from the significant deleveraging exercises in 2017 to early 2018,” said analysts at Vetiva Capital.

“In tune with this, most consumer goods companies will continue to enjoy relief from any debt burden despite the mild uptick in rates on borrowing,” summed analysts at Vetiva Capital.
Nestles’ foreign exchange loss fell by 99.13 percent to N96.067 million in September from N11.14 billion the previous year, an improvement from N19.43 billion incurred in 2016. Flour Mills recorded a foreign exchange gain of N372.12 million in the period under review as against a loss of N2.12 billion in the corresponding period of 2017 and N13.26 billion in 2016.
Low consumer purchasing power, sluggish economic growth, and menacing gridlock at the Apapa Ports, has battered consumer companies margins.