Naira Devaluation: Dangote, 8 others take N113.63bn hit

Dangote Cement led eight other companies on the NGX in foreign exchange losses recording a significant foreign exchange loss of N113.63 billion, representing a 179.47 per cent year-on-year increase, the highest in the past five years as a result of the devaluation of the Naira. The Naira went from N465/$ at the end of May 2023 to N756/$ in June 2023, resulting in a net exchange loss of N116.1 billion on third-party loans and payables within the Nigerian entities. While some companies experienced significant declines in some performance indicators, others performed relatively better. A review of the financial performance of Berger Paints, Beta Glass, BUA Cement, CAP, Dangote Cement, MEYER, Notore, and WAPC, reveals that among these companies, Dangote Cement, Notore, and BUA Cement, reported a combined foreign exchange losses of -N129.811 billion, while Beta Glass, CAP, and WAPCO reported an aggregate foreign exchange gain of N3.49 billion. However, when considering the cumulative impact of foreign exchange fluctuations, it led to an overall reduction of 8.19 per cent in their total pre-tax profit, which amounted to N372.573 billion in the first half of 2023 Dangote Cement led in foreign exchange losses recording a significant foreign exchange loss of N113.63 billion, representing a 179.47 per cent year-on-year increase, the highest in the past five years. According to the first half of 2023 financial notes, the net exchange loss on foreign-denominated transactions was primarily attributed to the sharp devaluation of the Nigerian Naira in June 2023. These losses had a direct effect on the decline in pre-tax profit, which decreased from N264.89 billion to N239.86 billion during the reviewed period. Notore also reported a substantial foreign exchange loss of N14.05 billion in the first half of 2023. Coupled with low revenue and a significant increase in finance costs, this contributed to a pre-tax loss of N38 billion, representing a 1,558 per cent decline. The company managed to generate revenue of N7.92 billion, a substantial decline of 68.97 per cent for the first half of 2023. BUA Cement reported a foreign exchange loss of N2.137 billion in the first half 2023, marking a significant year-on-year increase of about 103 per cent. Coupled with elevated interest expenses, this dampened pre-tax profit, resulting in only a marginal increase of 2.75 per cent to N76.425 billion when compared to the first half of 2022. WAPCO – Lafarge led the foreign exchange gainers, recording a N2.237 billion gain in foreign exchange. This contributed to a growth of 18 per cent in pre-tax profit. However, despite this positive performance, the company experienced a year-on-year decline of 5.16 per cent in profit after tax, primarily due to high-income tax expenses.

Subsidy Removal/FX Reforms: Harder times await Nigerians, PwC predicts

A new report by Pricewaterhouse Coopers Nigeria (PwC) says there are likely to be more difficulties for Nigerians due to the removal of fuel subsidy and floating of the foreign exchange market by the federal government. In its Nigeria Economic Outlook report for August 2023, the professional services conglomerate stated that Nigeria’s business environment would be tough as a result of higher costs of operation and lower revenue as the impact of fuel subsidy removal and floating of the forex market takes a toll on consumer spending. “Consumer spending may be adversely impacted by the elevated inflation rate (food 25.3% and core inflation 20.3% rates) and fuel price (140% increase after subsidy removal), the report said. “Business revenues may decline in the short-term mainly due to direct impact input costs and reduction in disposable incomes. “Rise in energy, food, transportation, and import costs may dampen consumer spending on non-discretionary items.” The report further stated that it impacts other sectors of the economy as transportation costs are expected to rise just as the floating of the naira will drive up the costs of imported raw materials. “Finance costs [are] to increase due to exchange rate losses from higher interest payments incurred on exposure to foreign currency denominated loans,” the report said. “These losses are on account of the currency devaluation.” PwC noted that although the increases may have a negative impact, they could provide incentives to corporates to explore local sourcing or backward integration in the medium term. The report said that economic reforms, including FX market liberalization, have the potential to attract foreign investments and drive capital inflows in the long term. “However, in the short run, investors may take a cautious “wait-and-see” stance, possibly due to the lack of additional reforms aimed at bolstering business and economic fundamentals” adding that “an increase in inflation could lead to a reduction in real yields or returns on investments.”