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There will be no respite just yet for many Nigerian firms who booked major foreign exchange (FX) related losses last year as the FX losses are expected to continue into 2024 as the Naira has depreciated further from the December 2023 levels.
The naira’s depreciation has sent the cost of key imports surging and ballooned loans and other FX liabilities on the books of the largely manufacturing, Telco and consumer good firms.
MTN Nigeria
Take MTN Nigeria (MTNN) for example. MTNN is mainly exposed to fluctuations in foreign exchange rates in respect of the US Dollar, being the significant foreign denominated currency.
The Group generated a loss before tax of N177.9 billion during the year ended 31 December 2023, compared to a profit before tax of N518.8 billion for the year ended 31 December 2022.
This was significantly due to operational changes to the Nigerian Foreign exchange market, including the abolishment of the segmented/parallel structure announced by CBN in June 2023.
Prior to the abolishment, the Nigerian Autonomous Foreign Exchange Market (NAFEM) rate as at 30 May 2023 was N464.67/$1, however, subsequent to the devaluation, the NAFEM rate as at 30 June 2023 fell to N769.25/$1.
After this the Naira further depreciated to N907.11/$1 as at 31 December 2023.
MTNN has done a sensitivity analysis that measures the estimated change to the income statement of a 20% weakening in the Nigerian Naira against the US Dollar, from the rate applicable at 31 December, for each class of financial instrument with all other variables, in particular interest rates, remaining constant.
The results show that: “A change in the foreign exchange rates to which the Group is exposed at the reporting date would have increased/(decreased) profit before tax…a 20% weakening in Naira, will result in a N299.46 billion decrease in profit before tax for MTN Nigeria.”
The naira has however lost 45% of its value since December 2023, meaning MTNN may be booking double the projected losses as it continues to unwind its FX positions in 2024.
Nestle Nigeria
Nestle Nigeria which posted its first loss in 12 years, reported Net exchange loss on translation of foreign currency loans of N195 billion as at December 2023.
Nestle had outstanding foreign currency loans of $450.68 million and Euros 23.35 million at the end of 2023. The significant exchange rates Nestle Nigeria applied during the year was N907/$ and N1,003/Euro.
According to Nestle a 10% weakening of the Naira against the US Dollar and Euro as at 31 December would have decreased profit by N40.88 billion and N2.34 billion. The Naira has lost 45% since then meaning Nestle profit could slide by four times as much.
Dangote Sugar
Dangote Sugar reported loss of N73.77 billion in 2023 largely as a result of major surge in Foreign Exchange loss on Finance cost to the tune of N172.19 billion in the period.
The Naira carrying amounts of Dangote Sugar’s foreign currency denominated monetary liabilities was N347.6 billion as at December 2023, with the dollar exchange rate applied during the year being N706.45/$.
“A Thirty-Nine percent (39%) weakening of the Naira against the Dollar at 31 December 2023 would have decreased the profit before tax by N180.8 billion,” Dangote Sugar said.
Nigerian Breweries
Nigerian Breweries the largest brewing Company in the country reported a loss of N106.3 billion in 2023 as the devaluation of the naira resulted in a foreign exchange loss of N153 billion.
The firm’s largest foreign currency exposure stood at Euro (EUR) 205 million, with N705.84/EUR as exchange rate applied at year-end 2023.
“A 5 percent weakening of the Naira vs the EUR at 31st December will result in a decrease in profit by N10.8 billion,” according to Nigerian Breweries.
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