Following the implementation of the floated exchange rate, the majority of companies listed on the Nigerian Stock Exchange (NGX) have recorded notable losses in foreign exchange earnings, as evident in their financial reports for Q2 2023. As a consequence of these losses, these companies have been compelled to report pre-tax losses or lower pre-tax profits.
The abrupt change in the Naira exchange rate significantly impacted companies spanning various sectors in the Nigerian economy, including finance, communications, consumer goods, and others. Let’s examine a selection of financial results released for Q2 2023.
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Forex Earnings Gains and Losses
Forex earnings gains and losses refer to the money that companies make or lose when they do business with other countries using foreign currencies and there is a fluctuation in the exchange rate of that currency to their home currency. For context, if a Nigerian company makes an import of goods worth $2 million at an exchange rate of N450/$ in March 2023 and they receive an invoice of $2 million in June 2023, now at the rate of N750/$, the company is incurring forex earning losses of N600 million.
In early June, following the suspension of Godwin Emefiele as CBN Governor, the Central Bank of Nigeria (CBN) made a significant decision to implement a floating exchange rate system, effectively putting an end to the multiple exchange rate regime. This action caused the Naira to fall as low as N825/$, even hitting N900/$ at the black market. The event caused a major hit for many companies including Stocks Worth Over One Trillion (SWOOTs) as they were not hedged against such occurrences.
Nestle Nigeria
Nestle Nigeria was significantly affected as the company posted a pre-tax loss of N86.5 billion in Q2 2023. During Q2 2023 and the first half of 2023 (H1 2023), the company experienced forex earnings losses amounting to N118.7 billion and N129.9 billion, respectively. As a result, it reported pre-tax losses of N69.1 billion in the first six months of 2023. With an equity of N48.6 billion wiped out within H1 2023 by the losses.
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It is noted at the current rate, Nestle might need to consider raising capital to address the negative equity, converting some of its loans to equity, or relying on forex appreciation to improve its financial situation.
MTN Nigeria Plc
MTN recorded revenue of N1.16 trillion in H1 2023, up by 22% year-on-year from the N950.6 billion recorded in H1 2022. However, the company recorded a 25.4% drop in pre-tax profit to N200.4 billion from the N268.6 billion recorded in H1 2022. This drop is attributable to the forex earnings losses the company recorded within the period, as the company recorded forex losses of N123.8 billion in H1 2023.
In the financial performance results released by the company, the business was significantly affected by a major deterioration in foreign exchange (FX) rates. While MTN’s situation is not as dire as other companies, it was a setback for the company.
Dangote Cement
Dangote Cement is also one of the casualties as the company’s pre-tax profit dropped to N239.9 billion in H1 2023, down by 9% from the N264.9 billion recorded in H1 2022. The company recorded forex losses of N103.8 billion and N113.6 billion in Q2 2023 and H1 2023 respectively. The company’s pre-tax profit in Q2 2023 was N93 billion, a drop of 14.2% YoY from the N108.5 billion recorded in Q2 2022.
While some companies recorded losses over the course of the last quarter, some others recorded gains.
BUA Foods Plc recorded a pre-tax profit of N109.4 billion in H1 2023, up by 156% YoY from the N42.7 billion recorded in H1 2023. The company’s profit before-tax margin increased to 34.1% in H1 2023, up from 27.7% in H1 2022.
The company explained that its financial performance was not significantly affected by foreign exchange losses, thanks to its supply chain hedging strategy. However, it noted that it foresees a more substantial impact from foreign exchange losses in the second half of the year (H2).
UAC Foods is another surprise element, as the company posted pre-tax profits of N4.1 billion in Q2 2023, a significant improvement from the N966 million pre-tax loss recorded in Q2 2022. Within the quarter, the company achieved a forex earnings gain of N3.6 billion, primarily attributed to its treasury investment portfolio of its holding company, where approximately 30% is denominated in foreign currency.
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Lafarge Africa Plc also recorded a positive financial output in Q2 2023 and H1 2023 as the company made forex earning gains. In Q2 2023, the company recorded a pre-tax profit of N32.8 billion, a 29% increase from the N25.4 billion recorded in Q2 2022. For H1 2023, the company recorded a pre-tax profit of N55.3 billion, an 18% increase from the N46.9 billion recorded in H1 2022. The company recorded a foreign exchange gain of N1.9 billion and N2.2 billion in Q2 2023 and H1 2023 respectively.
