Some of Nigeria’s biggest companies suffered losses in the third quarter as the naira continued to depreciate against major world currencies and with inflation spiking to 18.3% as of October, amid a drop in consumer spending and foreign currency scarcity.
Beverage heavyweights such as Nestle Nigeria Plc, Guinness Nigeria Plc, Cadbury Nigeria Plc, International Breweries Plc, and GlaxoSmithKline Consumer Nigeria Plc, all recorded losses in the three months through 30th September.
Nigerian Breweries Plc’s profits declined by 23% for the nine-months to 30th September and 78% in the third quarter despite a modest increase in revenue (3.7%).
Making the problem worse is the foreign exchange scarcity which businesses need to import required raw material and equipment. As a result, many foreign investors are taking a wait and see attitude until the foreign currency situation improves. Some say the Central Bank is still manipulating the exchange rate.
“Most companies, particularly consumer ones have found it very challenging,” Robert Omotunde, an analyst at Afrinvest West Africa Ltd., said in an interview with Bloomberg.
“We don’t think there’ll be much improvement this quarter. As long as the foreign exchange market is inflexible, we won’t see a major earnings surprise on the upside,” he added.
Some companies had to write-down losses on dollar-denominated loans which they obtained from their foreign parent companies after the devaluation of the naira, said Ayodele Salami, Chief Investment Officer at Duet Asset Management in London. And companies without such funding had to go on the black market to source foreign exchange, where the rates are higher, hovering around N470 per dollar as against the official inter-bank rate of N316.
In the last week, the Federal Government has resorted to sending security forces to arrest Bureau de Change (Black market money changers) operators who are found selling foreign exchange above the government’s stipulated price, a form of price control. This has had the opposite effect of forcing the Bureau de Change operators to hoard their dollars, thereby creating more scarcity.
But last week, the CBN announced that it had made available $660m in foreign exchange to 1,342 businesses as part of its earlier promise to ease FX pressure on manufacturing and agricultural businesses through forward sales under the flexible FX regime.
Some of the beneficiaries of the allocation in the beverage industry include – Nestle Nigeria Plc, $323,434; Nigerian Breweries Plc, $6,240,000; GlaxoSmithKline Consumer Nigeria Plc, $1,202,391; FrieslandCampina WAMCO Nigeria Plc, $3,097,973.
Others are – Seven-Up Bottling Company Plc, $5,882,293.67 and Promasidor Nigeria Limited, $2,100,000.