Naira Devaluation Woes: Operators Express Concerns Over N179.56bn Loss In Six Months 

 Aminat Gusanu


Six prominent consumer goods companies listed on the Nigerian Exchange, NGX Limited have collectively recorded a substantial net loss of N179.561 billion during the first half, H1 of 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 significant increase in unrealised FX loss and higher net finance cost.


The devaluation of the naira has significant impact on the operations of multinational companies operating in Nigeria. The naira devaluation led to increase in operating costs for multinationals whose major 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 per cent 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 loss 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 stoke 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 mostly 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 optimising 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.”



Naira Devaluation Woes: Operators Express Concerns Over N179.56bn Loss In Six Months


By Aminat Gusanu


The Nigerian Exchange, NGX Limited, bore witness to a collective blow as six prominent consumer goods companies grappled with a staggering net loss of N179.561 billion during the first half of 2023, a somber outcome attributed to the tumultuous waters of foreign exchange devaluation.


The sextet of companies, including the likes of Guinness Nigeria, International Breweries, Nigerian Breweries, Nestle Nigeria, Cadbury Nigeria, and Dangote Sugar Refinery, found themselves entwined in the shadow of financial distress. 


Their compromised financial positions were traced back to the substantial rise in unrealized FX loss and heightened net finance costs.


The reverberations of the naira’s devaluation were felt keenly in the operations of multinational corporations navigating the Nigerian landscape. 


This currency depreciation amplified operating costs for these global giants, whose financial endeavors hinged on foreign currencies for matters as critical as finance costs.


On the pivotal date of June 14, 2023, the Central Bank of Nigeria orchestrated a transformation in the realm of Nigerian forex operations.


 A sweeping directive collapsed the market’s various segments into the investor and exporter (I&E) window while breathing new life into the ‘willing buyer, willing seller’ model. 


This seismic shift promptly set forth a dance of the exchange rates, with an approximate 60 percent movement propelling the rate to N756.24/US$ by the close of June 2023, a market in flux striving to ascertain its equilibrium.


In the realm of statistics, Guinness Nigeria found itself tallying a loss after tax of N18.168 billion for H1 2023. 


The plight of International Breweries was equally grim, registering a loss after tax to the tune of N21.287 billion.


 Nigerian Breweries, too, stumbled upon a nettlesome outcome, manifesting as a net loss of N47.599 billion during H1 2023.


Nestle Nigeria, Cadbury Nigeria, and Dangote Sugar Refinery stood in solidarity with their counterparts, echoing tales of financial strife. 


The former lamented a loss of N49.981 billion, while the latter two faced off against losses of N14.539 billion and N27.987 billion, respectively.


In the realm of analysis, discerning minds acknowledged the emergence of “negative impacts of a weaker currency and stubbornly-high inflation” as primary architects of discontent in the first half of 2023.


 The I&E window’s naira devaluation, triggered in the wake of monetary policy reforms, drove the costs of imported raw materials to staggering heights and ignited a fervor of foreign exchange losses.


While most consumers might find themselves insulated from the I&E’s depreciation effects, their sanctuary may prove to be short-lived. 


A potential double-whammy—comprising subsidy elimination and the ominous specter of electricity tariff hikes—casts a pall over discretionary income, foretelling a potential weakening.


From the vantage point of a senior stockbroker, Mr. Tunde Oyediran, the Nigerian Consumer Goods Industry experienced a topsy-turvy affair in the first half of 2023.


 Though topline earnings experienced growth across the board, the glow of this achievement was quickly dimmed by the specter of foreign exchange losses born from the FX reforms. 


The Fast-Moving Consumer Goods companies, under the strain of macroeconomic headwinds and a flagging purchasing power, bore the brunt of the currency’s downturn.


Nestle Nigeria’s Managing Director/CEO, Mr. Wassim Elhusseini, spared no words in expressing the impact of the naira’s depreciation on their bottom line. 


H1 witnessed their profit after tax donning a somber countenance, a reflection of the somber revaluation of foreign currency obligations prompted by the naira’s fall. 


Nonetheless, Elhusseini retained focus on the path ahead, harboring a determination to ensure the unwavering supply of nutritious victuals to their devoted patrons.


Oyeyimika Adeboye, Managing Director of Cadbury Nigeria, echoed the chorus of challenges ringing through the Nigerian business landscape. 


Spiraling inflation and the harrowing echoes of devaluation conspired to inflate manufacturing and operational costs, casting a long shadow over profitability.


 Despite a bright spot in the form of N6.072 billion operating profit, the recent devaluation cast a long shadow, leaving Adeboye and her team poised for continued resilience and innovation in their navigation of these turbulent waters.


Cardinalstone, in their report titled ‘Consumer Goods: A Tale of Currency Woes and Inflationary Fears,’ offered a narrative tinged with both triumph and turmoil. 


The travails of currency volatility and inflation cast their inescapable spell, compelling FMCG companies to transfer input cost burdens onto the shoulders of Nigerian consumers. 


Yet, despite a backdrop of volume pullback, some coverage companies retained robust EBIT margins, showcasing their indomitable spirit.


The shadow of this currency chaos, however, fell more heavily on the shoulders of retail customers, whose financial dealings veered towards cash-based transactions. 


In contrast, large institutional off-takers of FMCG products stood shielded, a strategic positioning that acted as an armor against the worst of the cash disruption’s onslaught.


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