Naira Fall Damages Companies Earnings And Balance Sheets

BREAKING: CBN Officially Unifies All Exchange Rate Windows

The macroeconomic indices are continuing to decline dramatically, which is placing tremendous pressure on the local firms. The depreciation of the naira threatens the profits of companies. and ensuing modifications to the FX pricing mechanism.

The private sector’s performance declined as a result of the repeal of fuel subsidies and the exchange rate adjustment, and an increasing number of businesses are reporting significant losses.

After peaking at approximately 32%, inflation is predicted to continue rising. This is viewed negatively by analysts for volume sales of consumer products in the first half of 2024. Many price adjustments have been made to products to cover increased manufacturing costs that manufacturers and other service providers have to pay.

The exchange rate pass-through effect on consumer prices has also exacerbated the inflation problem. Nigeria is an import-dependent country and hence imported inflation will continue to affect domestic prices through the exchange rate, Deloitte said in a note.

Details obtained from the Nigerian Exchange showed that listed companies are not finding this time funny due to the direct impacts of naira devaluation on their respective FX liabilities.

In 2023, MTN Nigeria Plc recorded a huge post-tax loss of N137 billion as devaluation cost the telecom company more than N740 billion. The large amount lost plunged the company shareholders’ fund to negative, which put the company on a dividend payment holiday.

Also, in the fast-moving consumer goods sector, all operators saw an earnings downturn. Nestle Nigeria reported N93.1 billion annual loss.

The negative performance wiped out the company’s shareholders’ fund, which now stands at a negative balance of N78.0 billion. The food producers rely on foreign-nominated loans. The same pattern was witnessed in other rivals with majority shareholding interests by foreign parents.

Nigerian Breweries Plc recorded a net loss of N106 billion for the year ended 2023 due to economic pressures and devaluation of the naira in last year June. Guinness Nigeria Plc posted N5.23 billion as a loss after tax due to a strong spike in net finance costs, driven by large forex losses.

Cadbury Nigeria recorded a N26.3 billion net loss in 2023. The total equity of the company was more than N15 billion negative from N13.3 billion posted in the comparable period in 2022.

Despite a huge tax credit in 2023, Dangote Sugar Refinery posted heart breaking results. With a tax credit of N35.16 billion, loss after tax came in at N73.76 billion in 2023 against net profit of N54.74 billion in 2022.

International Breweries Plc’s loss widened by 175% in 2023 as the company’s foreign currency liabilities on its balance sheet resulted in huge losses due to a rapid depreciation of Nigerian naira.

According to the company’s unaudited financial statement for 2023, annual loss expanded to about N59.5 billion, a steep increase from N21.63 billion posted in 2022.

In 2024, the economy is forecasted to grow at a subdued rate again. The consensus projections hover around the range of 2.6% to 3.8%, with the Federal Government of Nigeria projecting an optimistic 3.88% in its 2024 Appropriation Act.

The projected sluggish pace of growth can be attributed to a high inflation environment, which has stifled consumer demand and contributed to the ongoing naira weakness and dollar scarcity.

Other factors that will impact the country’s growth trajectory include high-interest rates, limited credit growth, an elevated debt-service burden, and a wide infrastructure gap.

In an update on the consumer sector, CardinalStone Partners said after the currency-induced plunge in the bottom line of Nigerian FMCG companies, the sector may be set for a slight recovery in 2024 despite projected tamer revenue growth and elevated borrowings.

Analysts’ optimism is supported by debt restructuring campaigns, aggressive cost optimisation, and capacity expansion, all of which bode well for earnings.

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