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…MTN, Nestle, Airtel book biggest charge
…impact to continue into second half, 2023
DOZIE IFEBI
Nigerian stocks which have rallied hard since the implementation of major reforms by the new President Bola Tinubu, may be brought down to earth by foreign exchange (FX) losses due to Nigerian Naira devaluation.
Since the second quarter (Q2), earnings season began two weeks ago, 13 major Nigerian firms have reported a cumulative N716.8 billion in FX losses, according to data compiled by MoneyCentral.
This was a result of the devaluation of the Nigerian Naira from N461.10/$1 in December 2022 to N756.08/$1 in June 2023.
The telecommunications firms booked some of the biggest charges, with Airtel Africa top of the list with N245.67 billion ($317 million) of foreign exchange losses, and MTN Nigeria booking N131.45 billion in FX losses in the 6-month period to June 2023.
Consumer goods firms were also impacted with Nestle Nigeria booking N126.76 billion in FX losses, Nigerian Breweries N85.26 billion, Guinness Nigeria with N45.95 billion, Cadbury N21.31 billion, Unilever Nigeria N17.29 billion and Vitafoam N97 million.
Others include: Seplat N17.2 billion, Notore Chemical N14.04 billion, Eterna Plc N9.8 billion, John Holt N1.29 billion and Okomu Oil N695 million.
A foreign exchange gain/loss occurs when a company buys and/or sells goods and services, or has outstanding loans, cash and other exposure in a foreign currency and that currency fluctuates relative to their home currency.
It can create differences in value in the monetary assets and liabilities, which must be recognized periodically until they are ultimately settled.
Impact of FX losses on specific firms
The surge in foreign exchange (FX) losses led to profit reduction and outright losses on bottom-line for most of the firms.
Eight of the thirteen firms reported a cumulative -N292 billion in loss after tax in the 6-month period to June 2023.
Others like MTN Nigeria reported a drop in quarterly profit.
The largest telecommunication firm in Nigeria saw net foreign exchange loss jump by 865%, pushing MTN Nigeria profit for the period down 29% to N128.5 billion from N181.9 billion in June 2022. Earnings Per Share fell to N6.33 from N8.95.
For investors the stock could be under pressure over the next 6-months as the full impact net foreign exchange loss is expected to kick-in in the second half (H2) of 2023, according to Karl Olutokun Toriola, Chief Executive Officer of MTN Nigeria.
“The exchange rate is adjusted based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the quarter for others,” Toriola said.
Airtel Africa expects the change to the FX market in Nigeria which resulted in a significant naira devaluation, to improve liquidity over time, thereby alleviating the challenges faced by international businesses associated with accessing US dollars and thus hindering accelerated growth.
“However, in the reporting period the devaluation has had a material impact on our results. Over the last few years, we have actively reduced our FX exposure across the Group, and this will continue to be a focus area in the future to limit the impact of any future devaluation,” said Olusegun Ogunsanya, Airtel Chief Executive Officer.
For Cadbury Nigeria Plc the currency devaluation and resultant FX loses pushed its total equity into negative territory, for the June 2023 period.
The total equity of a company, also known as the shareholders’ equity, is the difference between the company’s assets and its liabilities.
The company’s total liabilities of N76.19 billion as at June 2023, exceeded total assets of N74.65 billion as at June 2022, resulting in a negative shareholders’ equity of N1.42 billion.
Guinness Nigeria foreign exchange difference on foreign currency letter of credits surged to N19.6 billion, while exchange difference on foreign currency intercompany loan increased by 3,986% to N8.05 billion from N197.4 million in the earlier period.
Guinness Nigeria’s loss on remeasurement of other foreign currency balances also jumped 1,753% to N21.44 billion in the period, from N1.157 billion in June 2020.
Nigerian Breweries Plc saw its loss widen to N47.5 billion in the second quarter(Q2) of 2003 as the impact of foreign exchange (FX) volatility hit earnings.
“The 2nd Quarter of 2023 was significantly impacted by various factors including the effect of fuel subsidy removal on consumers, naira devaluation and its effect on input cost, and mostly the revaluation of foreign exchange obligations. Together with the cash crunch which materially impacted the 1st quarter, the Company’s net loss was escalated,” Nigerian Breweries said in a statement.