The devaluation of the naira by the Central Bank of Nigeria (CBN) was a boon for firms that had dollar reserves while for those that did not but had denominated loans, it was a disaster.
Here are a few comments on what this might mean for corporate profits;
“Corporate made profit from unrealized gains. This issue may come up for lenders if there is a significant movement in exchange rate by December,’’ said John Chukwu, managing director/founder, Cowery Asset Management.“Some consumer goods firms incurred huge FX losses because they got their goods supplied on credit and now that they need to pay suppliers, dollars has gone up and the losses are irreversible,” said Chukwu.
The banking industry tops the list of those that benefited from devaluations having made money from foreign exchange revaluation gains. Zenith Nigeria Bank, First Nigeria Bank, and GTBank Nigeria Plc recorded revaluation gains of N31.01 billion, N68.40 billion and N93.64 billion respectively.
However, some analysts say such items are exceptional and one-off in nature, banks may not enjoy such windfall in the subsequent quarter; hence profit may thin and the effects of rising impairment on loans will be felt more.
Insurers
Some insurers are not left out in the devaluation boon as bottom lines were bolstered by fair value of revaluation gains. For instance, Continental Reinsurance Nigeria Plc, one of the largest insurers in the country made N4.03 billion from foreign exchange gains in the period under review.
The significant growth was partially attributed to unrealised gains on hard currency assets as a result of foreign exchange movements following the sharp devaluation of the naira, according to Femi Oyetunji, CEO of the company.
Wapic Nigeria Insurance Plc and AxA Mansard Nigeria Insurance Plc respectively earned N2.42 billion and N2.55 billion in foreign exchange gains as they recorded double digit growth in profit.
Disaster for Consumer Goods Companies
Some companies especially the consumer goods firms have however been axed as a result of a weak currency.
Pz Cussons Nigeria Plc, the maker of soaps, detergents, toiletries, and feminine hygiene products, recorded a loss of N1.58 billion due to an exchange rate loss of N4.70 billion in the current period as the company grapples with dollar shortages, unrest in the northern part of the country, and rising inflation.
The devaluation of the currency dealt big blow on Nestle Nigeria as the consumer goods giant suffered an exchange loss of N19.17 billion which resulted in a 97.1 percent drop in net income.
‘‘Although the gross profit increased by 8.2% for the same period, net profit has been adversely impacted by the revaluation of the foreign loans due to devaluation of the naira,’’ said the company in a comment posted on the website of the Nigeria Stock Exchange (NSE).
Despite recording growth in sales, Flour Mills Nigeria Plc, the largest miller by market value, incurred exchange loss of N9.11 billion, which undermined bottom line as net income dipped 73.01 percent.
The naira lost 40 percent of its value against the US currency in June when the central bank adopted the flexible exchange rate.
The naira weakened 0.16 percent to N305 per dollar by 10:19 a.m. in the commercial capital, Lagos. The currency trades at N470 the parallel markets.
Some cement makers were not spared the pains of a weak naira. Lafarge, the second largest producer of the building material, recorded an unrealised exchange loss of N28 billion incurred in connection with the dollar loans used to acquire United Capital Cement Company of Nigeria Limited (UNICEM).
Transnational Corporation of Nigeria Plc , a conglomerate recorded FX loss on financing activities to a tune of N18.45 billion that saw the company recorded a loss of N14.08 billion.
“The loss in the loss recorded in the quarter was from unrealized foreign exchange loss due to impact of material devaluation naira against the US dollars in our dollar acquisition facilities,” said Emmanuel Nnorom President and Chief executive officer of the company.
