Six Consumer Goods Companies listed on the Nigerian Exchange (NGX) Limited have posted a total net loss of N179.561 billion in the first half (H1) of the year 2023 due to foreign exchange devaluation.
The six companies are; Guinness Nigeria, International Breweries, Nigerian Breweries, Nestle Nigeria, Cadbury Nigeria, and Dangote Sugar Refinery. They all attributed the loss position to a significant increase in unrealized FX loss and higher net finance cost.
The devaluation of the naira has a significant impact on the operations of multinational companies operating in Nigeria. The naira devaluation led to an increase in use costs for multinationals whose significant costs including finance costs are denominated in foreign currencies.
On 14 June 2023, the Central Bank of Nigeria announced changes in the Nigerian forex operations which required the immediate collapse of all segments of the market into the investor and exporter (I&E) window and reintroduced the ‘willing buyer, willing seller’ model. This led to an approximately 60 percent movement in the exchange rate, since the announcement, to N756.24/US$ at the end of June 2023 as the market seeks an equilibrium level.
In H1, 2023, Guinness Nigeria recorded a loss after tax of N18.168 billion. International Breweries’ loss after tax stood at N21.287 billion, while Nigerian Breweries posted a net loss of N47.599 billion in H1 2023.
Also, Nestle Nigeria, Cadbury Nigeria, and Dangote Sugar Refinery declared losses of N49.981 billion, N14.539 billion, and N27.987 billion in H1, 2023.
Analysts noted that “the negative impacts of a weaker currency and stubbornly-high inflation worsen in the first half of 2023. The naira devaluation at the I&E window that trailed the monetary policy reforms drove the costs of imported raw materials higher and stoked material foreign exchange losses.”
They added that even though most consumers are insulated from the impact of the depreciation at the I&E (as they mainly access FX at the parallel market), the combined impact of subsidy removal and the potential increase in electricity tariffs suggests that discretionary income could become weaker.
A senior stockbroker, Mr. Tunde Oyediran stated that “the Nigerian Consumer Goods Industry experienced growth in topline earnings across companies in the first half of 2023. However, this growth was eroded by foreign exchange losses due to the FX reforms. Amidst the macroeconomic headwinds and the fall in consumers’ purchasing power, Fast-Moving Consumer Goods companies (FMCGs) were strongly affected by the currency depreciation.”
The managing director/CEO of Nestle Nigeria, Mr. Wassim Elhusseini explained that “in H1, our profit after tax was however, negatively impacted by the recent devaluation of the naira, which necessitated the revaluation of our foreign currency obligations.
“Going into the second half of the year, we will continue to focus on optimizing our operations to ensure the availability and accessibility of the nutritious food and beverages our loyal customers expect from us.”
Also, the managing director of Cadbury Nigeria, Oyeyimika Adeboye, noted that businesses operating in Nigeria continued to face tough challenges, with rising inflation and devaluation, leading to higher manufacturing and operational cost.
According to him, despite recording an operating profit of N6.072 billion, this performance was significantly impacted by the recent devaluation of the naira. We shall continue to remain resilient and innovative to navigate the challenging operating environment.
In its report titled ‘Consumer Goods: A tale of currency woes and inflationary fears’, Cardinalstone stated that, “FMCG companies transferred input cost burdens to Nigerian consumers, resulting in strong EBIT margins for some of our coverage companies despite some volume pullback.
“However, volume contraction was a focal problem in 2023, with negative reactions to higher prices and, notably, the currency redesign policy, leading to a material decline in consumer demand for products. As a result of the latter, the average topline growth of coverage names nosedived to 5.0 per cent YoY between January and March 2023 as against 28.1 per cent YoY in the corresponding period of 2022.”
The research firm noted that “the effect of the cash disruption was more pronounced on retail customers, who mostly transact with cash compared to large institutional off-takers of FMCG products. Hence, companies strategically positioned to serve these huge institutions were mostly insulated.”
