Devaluation erodes manufacturers’ N2.3trn revenues

Manufacturers’ revenues rose by 78.7 percent to N2.27 trillion in the first quarter (Q1) of 2023, but the earnings were eroded by naira devaluation.

Latest financial statements of 13 listed consumer goods firms show that their revenue increased by 78.7 percent to N2.27 trillion in the first quarter of this year from N1.27 trillion in the same period of last year.

The firms are: Dangote Cement Plc, BUA Foods Plc, Nigerian Breweries Plc, Nestle Nigeria Plc, BUA Cement Plc, Lafarge Africa Plc, Dangote Sugar Refinery Plc, International Breweries Plc, Guinness Nigeria Plc, Unilever Nigeria Plc, Cadbury Nigeria Plc, NASCON Allied Industries Plc and Champion Breweries Plc.

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However, these earnings mean little in real terms due to naira devaluation and inflation.

“What crippled the performance of businesses in Nigeria are exogenous actors. The biggest blow to the companies is the foreign exchange (FX). Ninety percent of them would have done well if the FX crisis was not there. Revenue will still grow because our local productivity is still short of demand and the population is still growing,” Damilare Asimiyu, macroeconomic strategist & head of investment research at Afrinvest West Africa Limited, said.

He noted that most Nigerian companies learnt a lot during COVID-19 in terms of managing their costs of sales, and many of them have a lot partnerships that help them get their raw materials.

He further said that some have also reduced their reliance on importing raw materials to a large extent.

“Breweries and consumer firms are now sourcing their materials locally, but the 30-40 percent they’re still exposed to externally is what affected them. So, fix the environment, don’t let finance costs be high, and businesses will do well,” Asimiyu said.

Further analysis of the statements shows that Dangote Cement recorded the highest revenue of N817.4 billion, followed by BUA Foods with N356.9 billion, Nigerian Breweries (N227.1 billion), Nestle (N 183.5 billion) and BUA Cement (N161.1 billion).

“I believe that if not for the FX in terms of profitability, manufacturers would have performed much better because the FX component of that cost would be less,” Muda Yusuf, chief executive of the Centre for the Promotion of Private Enterprise (CPPE), said.

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Seven of the firms which are International Breweries, Cadbury Nigeria, Nigerian Breweries, Nestlé, Dangote Sugar Refinery, Champion Breweries, and Guinness Nigeria posted a combined loss of N388.6 billion in Q1.

Of the six remaining companies, BUA Cement, Lafarge Africa, and NASCON reported earnings declines by 37.6 percent, 65.2 percent, and 24.9 percent respectively.

The remaining three posted increases in profit. They include: BUA Foods, Unilever Nigeria, and Dangote Cement which posted a combined profit of N171.9 billion, up from N152.6 billion in the same period of 2023.

Analysts say that further devaluation of the naira coupled with rising interest rates led to increased operating costs for the companies, particularly the multinationals whose major costs are denominated in foreign currencies.

The naira suffered a near 30 percent devaluation this year following 40 percent devaluation last June.

The naira devaluation has so far put more pressure on the margins of companies already dealing with double-digit inflation rates and the weak purchasing power of consumers.

“A lot of consumer firms had higher finance costs because of FX losses and higher interest rates,” Ayorinde Akinloye, a Lagos-based investor relations analyst, said.

“Despite some of them having good operating performance, their profit declined while others recorded huge losses,” Akinloye noted.

The losses affected tax payments to the Federal Government as manufacturers’ contributions dropped to the lowest in three years in the first quarter of 2024. According to the latest Company Income Tax (CIT) report from the National Bureau of Statistics (NBS), the tax revenue from both local and foreign manufacturing firms fell by 70.4 percent to N43.2 billion in Q1 from N145.1 billion in the same period of last year.

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George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited, said instability and inconsistency in the currency, coupled with insecurity, creates problems for many businesses.

“You will limit what you have been able to do or limit your exposure. The erosion of working capital for businesses, especially for manufacturers, is happening massively.”

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.

Upon his assumption of office last year May, President Bola Tinubu 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 NBS shows that the headline inflation quickened for the 17th straight time to 34.19 percent in June, up from 33.95 percent in May.

Food inflation, which constitutes more than 50 percent of headline inflation, also increased to 40.87 percent from 40.66 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.