Nairametrics|Crown Nature Plc, an indigenous textile company has announced that its revenues increased by 60% between 2015 and 2016. The bottom-line, however, does not reflect this increase. Net profits deceased from 8.9% in 2014 to 6.54% in 2016. Shareholders of the company most be reeling at the thought of seeing their earnings per share (EPS) drop from N1.45 in 2014 to N.0.15 in 2016.
Crown Nature’s tales of gloom is peak into earnings that most textile firms will report for the year hat was 2016. The textile industry has been hard hit by the depreciation of the Naira against the dollar in 2016. International transactions are mostly priced in dollars. Industries in Nigeria, particularly textile rely on imported inputs and equipment. Costs of raw materials and energy also increased massively.
Strangely, most of these companies did not hedge their currency transactions, a strategy that should have been adopted in an import dependent economy, which relies on a volatile commodity like crude oil.
An economy in recession and a galloping inflation left consumers with reduced spending power. Manufacturers thus had to absorb the costs, leading to mega losses even in blue chips like Cadbury.
While the FX situation has eased up a bit, a permanent situation is yet to be seen. The central bank has adopted a crawling peg system, which entails further depreciation of the Naira but at a slower and more predictable pace. Manufacturers are in for another tough year.
The textile industry in Nigeria has proven to be a futile venture on many accounts. However, Crown Nature believes it can turn things around and stop the hemorrhaging. It revealed plans to raise capital for a new production line. The company would do better if it focuses on stable energy and raw materials.