Consumer goods giants, Fast-Moving Consumer Goods (FMCG) companies, are grappling with substantial foreign exchange losses following the move towards exchange rate unification.
These losses have taken a toll on their profitability, evident in the reported pre-tax losses of these major firms. The impact of this economic policy reveals both positive and negative outcomes.
The challenge lies in crafting and executing policies that effectively manage drawbacks while capitalizing on benefits.
The Nigerian government’s decision to consolidate the naira’s exchange rates has exposed potential pitfalls linked to foreign exchange losses.
This is chiefly responsible for the significant pre-tax losses sustained. Notably, data from 10 leading consumer goods firms listed on the Nigerian Exchange Limited (NGX) indicates an alarming rise in net foreign exchange losses, reaching around N400 billion by June 2022.
Among these companies are BUA Foods, Dangote Sugar Refinery Plc, NASCON Allied Industries Plc, Unilever Nigeria Plc, Nestle Nigeria Plc, Cadbury Nigeria Plc, PZ Cussons Nigeria Plc, Guinness Nigeria Plc, Nigerian Breweries Plc, and International Breweries Plc.
With the exception of BUA Foods, Unilever, and Nascon, the others reported foreign exchange losses. Unilever notably stood out with N2.834 billion in foreign exchange gains.
Nestle Nigeria Plc faced the heaviest net foreign exchange loss burden. The company’s foreign currency obligations were revalued due to the Naira’s devaluation in Q2, resulting in a staggering exchange loss of N123.79 billion in H1 2023. This accounted for nearly 89.8% of the finance cost and significantly contributed to the pre-tax loss of about N69 billion for the period.
Nestle Nigeria’s financial structure, including foreign currency-denominated intercompany loans and payables, was severely affected by the exchange rate shift from N462/$ in 2022 to N765/$ by the reporting period’s close.
Following Nestle, Nigerian Breweries reported around N85 billion in foreign exchange losses, with N70.62 billion incurred in Q2 alone. This fueled finance cost growth and played a major role in the N67.6 billion pre-tax loss in H1.
Dangote Sugar Refinery faced a similar predicament within the food product subsector, recording a substantial N83.1 billion foreign exchange loss, signifying a remarkable year-on-year growth of about 1,587%.
The Group suffered a considerable revaluation loss of N68.7 billion due to Letters of Credit and foreign vendor balances revalued at the prevailing market rate of N756/$ by June 30, 2023.
Even within the beverages and brewing sub-sector, companies like Guinness Nigeria Plc and International Breweries faced net foreign exchange losses. Guinness Nigeria Plc reported an unrealized net foreign exchange loss of N45.95 billion in 2023 FY.
While the revenue of these companies generally grew, except for BUA Foods, Nascon, Unilever, and PZ Cussons, the majority reported pre-tax losses, underscoring the significant impact of Naira devaluation on the consumer goods sector.
Discussion about this post