John Doe
Tue, Aug 1, 2023 3:31 PM

Losses Mount for Nigerian Manufacturing Giants

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Losses Mount for Nigerian Manufacturing Giants
Nigerian manufacturing giants, including Dangote Sugar, Nestle Nigeria, and Nigerian Breweries, have reported significant half-year losses due to foreign exchange losses following the reforms by the Central Bank of Nigeria. The losses, totaling N136.364 billion, have raised concerns among shareholders and highlight the challenges faced by the industrial sector in the country.

Lagos - Shareholders of Nigerian manufacturing giants indeed have reasons to worry, unless something drastic happens soon, as the industrial giants have suffered huge half-year losses.

This is judging by the half-year un­audited financials released so far, re­vealing huge losses after tax, driven by huge foreign exchange losses suffered following the reforms by the Central Bank of Nigeria (CBN).

Three companies reported net loss­es totaling N136.364 billion, led by Nestle Nigeria's N58.691 billion, followed by Dangote Sugar's N40.79 billion, just as Nigerian Breweries (NB) lost N36.883 billion in the quarter between April and June.

According to results submit­ted and posted on the Nigerian Exchange platform, Dangote Sugar Plc, on Monday pre­sented its half-year result, confirming the impact of the foreign exchange hiccup as ear­lier presented last week by the 77-year-old Nigerian Breweries Plc and Nestle Nigeria.

Dangote Sugar reported a marginal 9.32% growth in revenue from N185.457 billion to N202.783 billion; cost of sales reduced slightly to N144.595 bil­lion from N146.639 billion, with raw material cost accounting for a significant N116.895 bil­lion, down from N121.29 bil­lion, resulting in gross profit of N58.188 billion, from N38.818 billion.

The table, however, turned as finance cost soared to N90.658 billion from N7.306 billion in the corresponding period of last year, the bulk of which was the N82.599 billion recorded in the April to June quarter, from just N3.8 billion.

Finance costs, according to the notes to the account, was mainly the N83.096 billion FX loss recorded in the ordinary course of business, up from N4.924 billion.

The group explained that in line with the CBN circular of June 14, 2023 (operational changes to the foreign ex­change markets), which in­troduced the "willing buyer willing seller" on the Investors' and Exporters' (I & E) window based on the prevailing mar­ket rates, it "changed its USD/ Naira closing rate of N461 as at December 31, 2022 to N756 as at June 30, 2023. Monetary assets and liabilities for the Nigeria operations were revalued at this rate resulting in a revalu­ation loss of N68.7 billion for the group."

This, it continued, "was driven by letters of credit and foreign vendor balances. The revaluation loss is included as part of N83 billion for group (N82.7 billion for the compa­ny)... The loss has been fully recognised in the month of June 2023." Loss after tax for the period stood at N27.987 billion, down from a profit of N20.241 billion, translating to a loss per share of N2.30 from a previous N1.67 per share earnings. The net loss could have been more, but for the N9.108 billion tax credit enjoyed in the second quarter, bringing rebate for the half-year to N3.377 billion.

Specifically, Dangote Sugar suffered a loss of N40.79 billion in the second quarter alone, from N11.372 billion in the same period of last year.

A further breakdown of the figure showed that reve­nue from sale of sugar (50kg) rose to N194.191 billion from N179.227 billion, while retail sales contributed N5.864 billion from N3.432 billion.

In the case of NB Plc, half-year revenue rose to N277.419 billion, a marginal increase over the previous N274.084 bil­lion, with cost of sales growing faster, from N155.349 billion to N165.094 billion, resulting in gross profit of N112.324 billion, down from N118.735 billion.

Net loss on transaction in the second quarter (April to June) soared from N5.403 bil­lion to N70.619 billion, bringing total for both quarters to N85.26 billion from just N7.28 billion. This, among others, left a loss before tax of N67.844 billion, with the second quarter alone responsible for N50.407 billion compared to the previous N25.697 billion half-year profit.

The company's N20.245 billion tax rebate reduced its net loss to N47.599 billion, com­pared to the previous N18.742 billion half-year net profit.

A statement signed by the Company Secretary/Legal Di­rector, Uaboi Agbebaku, also said the half-year scorecard was impacted by the devalua­tion of the naira which led to re­valuation of foreign exchange obligations and higher input costs.

Other factors, he said, were the effect of petroleum subsidy removal on consumers, a one-off redundancy exercise cost and the impact of the cash crunch that hit the country in the first quarter of the year.

For Nestlé Nigeria, it was a loss after tax of N49.981 billion for the half-year, compared to the previous N27.751 billion, following a 1,877.98% spike in finance cost in the period under review in the aftermath of the recent naira devaluation.

According to the result sub­mitted to the NGX, revenue for the first half of 2023 stood at N261.8 billion, a 17.7% rise over the N222/45 billion reported in the prior half-year, while cost of sales soared to N154.434 billion from N142.245 billion, resulting in gross profit of N107.3 billion, from the N80.205 billion earned in H1 2022, a 34% growth.

Finance income grew to N7.815 billion, against the N4.521 billion of 2022, while fi­nance cost spiked by N130.762 billion from the previous N6.962 billion to N137.725 bil­lion, resulting in net finance costs of N129.91 billion, against the previous N2.441 billion.

Loss before income tax, there­fore, stood at N69.117 billion, com­pared to the previous half-year's N43.739 billion; and after tax loss of N49.981 billion, representing a 280% decline over the net profit of N27.7521 billion, representing a 280% decline due to the N19.136 billion tax expense, which rose from N15.988 billion in the prior half-year.

A statement by the company quoted Wassim El-Husseini, its Managing Director and CEO as lamenting the negative impact of the challenging business environment, which he said blurred "the unwavering com­mitment and dedication (of the staff) as recorded in the signif­icant increase in revenue and gross profit over H1 2022."

Profit after tax, he said was "negatively impacted by the re­cent devaluation of the naira, which necessitated the revalu­ation of our foreign currency obligations."

Commenting on the score­cards, Ambrose Omordion, Chief Research Officer, Invest­data Consulting Limited, ex­plained that the losses by the manufacturing companies, especially those with foreign affiliations resulted from the unification of exchange rates by the CBN.

The unification, he argued, is not bad, except for the way the apex bank went about it, which is also reflected in the recurrent drop in the nation's external reserves. Given the volatility in exchange rates and inflation, he advised the CBN to prepare to intervene rather than continually leaving the field to demand and supply alone.

He urged the government to promote made-in-Nigeria goods to reduce the forex de­mand to import raw material needs. Also, he said most of the companies posting losses have international loans.

"I believe that Nigeria should learn from the naira devaluation that was done in 1985 by the then President Ibra­him Babangida which led to the death of many manufacturing companies like Western Batter­ies, Nigerian Textile Mills, En­pee in Ilupeju Industrial Estate in Lagos and Otta in Ogun State that host carcasses of these companies that once employed millions of Nigerians, many of which are still struggling until now," he added, stressing that a uniform exchange rate is okay, stability is key to attracting more foreign investors.

Omordion lamented that the losses suffered by many of these manufacturing giants have eroded their shareholders' funds, meaning that all that in­vestors gained over time have been wiped off within these few weeks, especially in Nestle Nigeria.

He called for caution so that the situation will not escalate beyond this, even as the gov­ernment's intention may be noble and welcome, adding that what is happening may be unintended consequences of government's actions that need to be addressed since it is contrary to the plan to put the economy in the right direction.

Continuing, he said, "Since the current president is a listen­ing leader, it is necessary for the fiscal and monetary authorities to collaborate to reduce the suf­ferings among Nigerians. This is one sector that creates a lot of employment, in addition to enhancing the purchasing pow­er of Nigerians. There is a need for the government to address these issues to ensure that the FX hiccup does not sink our man­ufacturing sector."

Source of content: OOO News 2023-08-01 News

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