Most manufacturers in Nigeria faced significant challenges last year, particularly due to the devaluation of the naira.
This resulted in notable financial setbacks for many firms as they reported losses for the first time in some years. The difficulties were exacerbated by cash scarcity, the removal of the petrol subsidy, and the naira devaluation.
BusinessDay analysis of the latest unaudited financial statements of 12 manufacturing firms showed that four of them – Nestle Nigeria Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc and Neimeth International Pharmaceuticals Plc – recorded a total after-tax loss of N215.99 billion in 2023 compared to an after-tax profit of N62.76 billion in the previous year.
Morison Industries posted a loss of N89.4 million, down from N107.5 million.
Other companies like Guinness Nigeria Plc recorded an after-tax loss of N5.23 billion for the six months ended December 2023, the first time in three years as against a profit of N4.02 billion in the same period of last year.
PZ Cussons, for the year ended November 2023, also recorded an after-tax loss of N74.1 billion for the first time since 2019, from a profit of N7.7 billion in the same period of 2022.
Three firms witnessed a combined rise in after-tax profit to N575.66 billion from N478.12 billion, while two experienced a decline in after-tax profit to N4.27 billion from N5.69 billion.
“The prevailing exchange rate environment poses notable challenges. On one front, it induces cost pressure, while on another front, it drives up expenses. Exposure to fluctuations in foreign exchange rates can result in higher finance costs, affecting bottom-line performance,” Ayodeji Ajilore, an investment research analyst with ARM Securities said.
Similarly, cement makers experienced a downturn, with two out of three companies recording declines in their bottom lines due to foreign exchange losses.
Since President Bola Tinubu announced petrol subsidy removal during his inauguration on May 29, pump prices have more than tripled to over N600, while the value of the naira has plunged following the floating of the currency.
The Central Bank of Nigeria in June merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.
The naira has continued to depreciate against the dollar and other major foreign currencies since then.
The liberalisation of the foreign exchange regime weakened the naira from 463.38/$ to 889.86/$ as of December 15 last year. At the parallel market, the naira depreciated to 1,186/$ from 762/$.
A second round of devaluation in January further depreciated the naira to N1,595.1/$ at the official market on February 29. At the parallel market, it weakened to N1,580/$.
Nigeria’s headline inflation rate rose for the 13th consecutive time in January to 29.90 percent from 28.92 percent in the previous month, according to the National Bureau of Statistics.
Food inflation, which constitutes 50 percent of the inflation rate, rose to 35.41 percent from 33.93 percent.
Ajilore of ARM added that this situation also poses a risk of encumbering foreign direct investment.
“Investors are watching as factors such as volatile exchange rates and a general rise in consumer prices weaken consumers in the domestic market,” he said.
“Also, sustained losses drawing from shareholders’ funds could prompt divestment in the economy, triggering a more difficult macroeconomic state through a slowdown in output, elevated unemployment, and even more elevated consumer prices,” he said.
Analysis of data from sectors
Fast-moving consumer goods sector
Companies in the fast-moving consumer goods sector reported a combined after-tax loss of N284.24 billion in 2023, compared to a profit of N78.9 billion in 2022.
The companies analysed were BUA Foods, Nestle Nigeria Plc, Cadbury, Nigerian Breweries, PZ Cusson, Unilever Nigeria and Guinness Nigeria.
Nigeria Breweries, the country’s largest brewer recorded the highest loss of N106.31 billion, its first loss in 10 years from a profit of N13.19 billion recorded in 2022.
The naira devaluation resulted in a foreign exchange loss of N153.33 billion for the brewer maker, causing the brewer to post a rare loss last year compared to an after-tax profit of N13.18.
PZ Cusson reported an after-tax loss of N74.1 billion compared to a profit of N7.67 billion. The company recorded a £88.2 million foreign exchange loss.
Cadbury Nigeria recorded a loss of N27.6 billion, the first time in six years in 2023 against a profit of N583.1 million in 2022, primarily attributable to a substantial foreign exchange difference totalling N36.93 billion in the 2023 financial year.
Similarly, Guinness posted an after-tax loss of N5.23 billion.
This loss was attributed to various factors, including an N17.28 billion loss from the remeasurement of foreign currency balances, N3.66 billion from the exchange difference on foreign currency loans, and N596.74 million from the exchange difference on letter of credit.
Nestle reported its first after-tax loss of N79.47 billion, compared to an after-tax profit of N48.97 billion.
A significant portion of this loss, amounting to N195 billion, stemmed from foreign exchange fluctuations.
Despite the downturn, BUA Foods and Unilever Nigeria performed better.
Unilever recorded an increase in after-tax profit to N8.54 billion from N4.47 billion and BUA Foods reported a 22 percent rise in after-tax profit, reaching N111.54 billion from N91.34 billion.
Drug makers
Companies in the pharmaceutical sector such as Fidson Healthcare, May & Baker and GSK Consumer Nigeria reported a total decline in after-tax profit of N4.81 billion in 2023, down from N6.47 billion in the previous year.
Neimeth reported an after-tax loss of N2.58 billion compared to a profit of N19.1 million, while Morison Industries posted a loss of N89.4 million, down from N107.5 million.
Cement makers
Cement makers also saw a hit in their bottom lines with Lafarge Africa Plc and BUA cement Plc recording a decline in their after-tax profits.
BUA Cement recorded a total profit of N69.45 billion, down from N101.01 billion in 2022, on the FX losses which dragged profitability amounting to N69.95 billion.
Lafarge Cement recorded a decline to N51.14 billion from N53.65 billion. FX losses amounted to N21.04 billion, a rise of 60.3 percent from the N13.3 million reported in 2022.
“The decline in the company’s EPS is attributable to the higher net FX losses (+84.0 percent year-on-year) and tax payments (+83.6 percent year-on-year) for the year, majorly due to its expired pioneer tax incentive,” analysts at Cordros Securities said in a recent note.
Dangote Cement however recorded an increase in its after-tax profit to N455.58 billion compared to N382.31 billion.
