Following the recent Central Bank of Nigeria’s (CBN) foreign exchange market reforms, MTN Nigeria Communication Plc, and Nestle Nigeria Plc, among others suffered N486.82 billion foreign exchange losses in half year ended June 30 2023, about 651 per cent from N64.82 billion reported in the corresponding period of 2022.
Other companies investigated with significant foreign exchange losses in H1 2023 include -Dangote Cement Plc, BUA Cement Plc, Nigerian Breweries Plc, Cadbury Nigeria Plc, and Eterna Plc.
These firms declared the worst performance in recent years, despite reporting significant increase in revenue.
The companies declared N111.19 billion profit before tax in H1 2023, a 65 per cent decline from N317.3 billion reported in H1 2022.
Foreign exchange loss on foreign-denominated transactions is due to the material devaluation of the Nigerian Naira in June 2023.
What you should know
The central bank had announced changes in the Nigerian foreign exchange operations which required the immediate collapse of all segments of the market into the Investor & Exporter (I&E) foreign exchange window and reintroduced the ‘willing buyer, willing seller’ model.
The Naira moved from N465 against the dollar at the end of May 2023 to close at N756 against the dollar in June 2023, giving rise to a net exchange loss of these companies from third-party loans and payables in the Nigerian entities.
The CBN under the new administration of President Bola Tinubu has aggressively introduced new foreign exchange policies in a move to liberalise the market and attract more inflow.
In the period under review, MTN Nigeria declared N131.45 billion net foreign exchange losses, a growth of 864.5per cent from N13.63 billion reported in H1 2022.
Amid significant foreign exchange losses, MTN Nigeria declared N200.4billion profit before tax in H1 2023, a drop of 25.4 per cent from N268.64 billion reported in H1 2022.
The Chief Executive Officer, MTN Nigeria, Karl Toriola in a statement stated that the impact led to the company’s approximately 60 per cent movement in the exchange rate, since the announcement, to N756.24 against the dollar at the end of June 2023 as the market seeks an equilibrium level.
According to him, “The liberalisation of the forex regime and removal of the fuel subsidy provide a clear pathway to the return of international capital into our capital markets, and foreign direct investment which will drive economic activity in the medium term, improve the operating environment, and are net positive for our longer-term outlook.
“The immediate impact on our results for H1 was the unrealised foreign exchange losses included in our net finance charges. There was no material impact on the EBITDA margin due to the nature of our tower contracts, which require us to make quarterly payments at the beginning of each quarter. The exchange rate is adjusted based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the quarter for others. As a result, the full impact is expected to kick-in in H2 2023.”
He explained further that the dollar component of operating costs is in the lower 40 per cent.
“Our sensitivity analysis shows that a 10per cent movement in the exchange rate would have a direct negative impact of approximately 1.3pp on the EBITDA margin, pre any mitigation actions. The impact on finance costs in H2 2023 will depend on variations in the exchange rate during the period,” he said.
Another multinational company, Nestle Nigeria reported N123.8billion net foreign exchange loss in H1 2023 from N2.13 billion in H1 2022.
The Fast-Moving Consumer Goods (FMCG) firm closed the period with N69.12 billion loss before tax from N43.74 billion profit before tax reported in corresponding period of 2022.
As Dangote Cement declared N113.63 billion net exchange loss on foreign denominated transactions in H1 2023 from N40.66 billion in H1 2022, its profit before tax stood at N239.86 billion, a decline of 9.4 per cent from N264.89 billion in H1 2022.
The foreign exchange component of Dangote Cement’s loans is N217.4 billion made up of letters of credit as of June 30, 2023 from N158.43 billion reported in full year ended December 31, 2022.
The cement manufacturing company reported N801.26billion total borrowings as of June 30, 2023 from N706.73 billion in 2022 FY.
From the loans breakdown, it explained that, “Bank loans include Letters of credit (LCs) obtained to finance inventories, property, plant and equipment, etc. The average interest rate is SOFR plus 10 per cent.”
Among the top companies affected with the policy is Nigerian Breweries Plc that reported N85.26 billion Net loss on foreign exchange transactions in H1 2023 from N7.28 billion in H1 2022.
The multinational breweries company also declared a loss of N47.6 billion in H1 2023 from N18.74 billion in H1 2022.