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Nine major firms record N2trn Forex losses

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Nine major firms record N2trn Forex losses

Foreign exchange losses arising from the devaluation of the naira is taking heavy tolls, with no end in sight, on the profitability of leading business concerns across the key sectors of the Nigerian economy, a review of financials of some affected firms have revealed.

This has triggered a wave of strategic adjustments that have resulted in aggressive operational cost cuts, including a trend of job disengagement that is not likely to abate anytime soon.

Businesses in Nigeria, especially, those with significant foreign exchange exposure, have grappled with the volatility of the exchange rate. The situation was exacerbated by the floating of the naira in June 2023, which triggered an unprecedented devaluation that saw the currency depreciate from N460/$1 to N1,900/$ before recovering to trade around to N1475 /$1 on Friday, Business Hallmarks’s checks showed.

In the telecommunications sector, Nigeria’s second-largest telecom operator, Airtel Africa Plc, about a week ago, disclosed a loss after tax of $89m for its full year ending March 2024, attributing the downturn to a substantial foreign exchange loss of $549m.

The telco said in its report that the loss was triggered by the devaluation of the Nigerian naira in June 2023 and the Malawian kwacha in November 2023.

“Loss after tax was $89m, primarily impacted by significant foreign exchange headwinds, resulting in a $549m exceptional loss net of tax following the Nigerian naira devaluation in June 2023 and the Malawian kwacha devaluation in November 2023,” the report stated.

Industry leader, MTN Nigeria, had earlier reported a staggering forex loss amounting to N740.4bn. This represented an 804 percent increase compared to the N81.8bn recorded in 2022.

Similarly, Nigeria’s largest conglomerate, Dangote Industries, in its 2023 financial statement, said it incurred N164bn FX loss in 2023, stressing that the loss was primarily due to its operations in other countries.

While speaking at the Dangote Sugar Annual General Meeting recently, the President of Dangote Group, Aliko Dangote, said the depreciation of the local currency was the company’s biggest challenge in 2023.

Dangote noted that many manufacturing companies were affected and reported operational losses arising from fluctuations in the value of the naira against the dollar.

Another manufacturing giant, BUA, also reported a forex loss of N69.9bn, representing a significant increase from the N5.5bn it recorded in 2022.

The firm said, “The Company is exposed to foreign exchange risk arising from future commercial transactions and some recognized assets and liabilities to the dollar and euro.

“Management minimizes the effect of the currency exposure by buying foreign currencies when rates are relatively low and using them to settle bills when due. The company is primarily exposed to the US dollar and Euro.”

FMCG giant, Nestle Nigeria, was also not spared. The company, in its 2023 financials, said that due to the depreciation of the naira, it incurred forex-related losses to the tune of N195.bn. The firm said its profit-after-tax was negatively impacted by the depreciation of the naira as its operating cost jumped by 41.2 percent to N122.7bn.

Another big player in the FMCG sector, Cadbury Nigeria, in its 2023 financial statement said it incurred a loss of N36.93bn due to exchange rate differences in 2023.

Similarly, Guinness Nigeria’s foreign exchange expenses eroded the operating profit of the company for the year ended December 2023, resulting in N5.233billion loss.

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Former Managing Director of the firm, John Musunga, in a reaction, blamed the forex harmonisation policy.
“In this situation, our retained earnings declined quite a bit because we had to service that change in FX and our profit and loss position also became adverse as we recorded N18 billion in losses. Good practice says that if you don’t have retained earnings or declare a loss, you don’t pay dividends,” Musungu said.

For Nigeria Breweries, a net loss on foreign exchange transactions amounting to N153.3 billion left the company in its biggest loss after tax last year since it began operations 77 years ago in the country.

The net loss of N106.3 billion posted in 2023 resulted from “a combination of challenging economic factors ranging from heightened operational costs, continued pressure on consumer disposable income, escalating inflation rates, FX volatility, amongst others,” the company said.

In the banking industry, FBN Holdings suffered a significant forex loss valued at more than N350bn in the 2023 financial year. The HoldCo, in its unaudited financial report, said N253.7bn net forex losses were recorded in the final quarter alone.

Operational adjustments

Analysis of firms’ annual reports detailing the change in workforce statistics after every financial year, showed that seven firms, including Dangote Sugar Refinery, Unilever Nig Plc and Nigerian Breweries had their combined workforce reduce by 1,281 between 2022 and 2023,

According to the data, Dangote Sugar Refinery led the line, cutting its workforce by 675 (workers). A breakdown of the company’s employee data showed that in 2022, the company had 8,993 employees, including 6,015 contract employees and 2,978 permanent employees. By 2023, the number shrunk to 8,318, comprising 5,408 contractors and 2,910 permanent staff.

In the same vein, Nigerian Breweries cut its workforce by 14 percent, from 2,685 employees in 2022 to 2,305 in 2023. Last month, the company said it would undertake a company-wide rejig of its operations in response to a host of financial and operational difficulties, in a note to the Nigerian Exchange Limited.

The adjustment, according to the firm, will involve a shutdown of two plants as the company continues to find ways to recover from the huge loss incurred in the 2023 financial year. With the shutdown, more workers are expected to be laid off.

“We recognize and regret the impact that the suspension of brewery operations in the two affected locations may have on our employees,” said Hans Essaadi, the Managing Director of the company.

“We are committed to limiting the impact on people as far as possible and providing strong support and severance packages to all affected.”

Similarly, multinational manufacturer, Unilever Nigeria Plc reduced its workforce by 176 in 2023. In March 2023, the company announced it would be exiting the home care and skin cleansing markets to reposition its business for sustained profitability. Production and Sales for Home care and Skin cleansing business categories ceased in December 2023.

Another multinational manufacturer, Cadbury Nigeria, also cut its workforce from 480 in 2022 to 459 in 2023. The company has been mired in a foreign exchange crisis that has left a devastating mark on its financials last year.

Reacting as well, Dr. Muda Yusuf, Economist and CEO, Centre for the Promotion of Private Enterprise, CPPE ,said :

“The flurry of forex losses are some of the negative outcomes of currency depreciation. The magnitude of the losses is proportional to the degree of foreign exchange exposure of the businesses’’, said Dr. Muda Yusuf, Economist and CEO, Centre for the Promotion of Private Enterprise.

“For most multinationals, this exposure is very high. The exchange rate risk is correspondingly elevated. These companies have huge credit exposure to their parent companies offshore. They also have significant foreign currency exposure about ownership.”

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