Some financial analysts say a more stable foreign exchange market will propel big corporations to return to profitability in the 2024 fiscal year.
Several firms, including Nigerian Breweries, MTN and Nestle, were hard hit by FX crunch in 2023, with their margins severely hurt.
Speaking on the impact of the naira exchange on corporate performance, Managing Director and Chief Executive Officer of Lyceum Alliance Limited, a financial advisory and management consulting firm, Dr. Jekwu Ozoemena, said he expects a positive economic outlook as the country’s currency continues to stabilize against the dollar and other major international currencies.
Jekwu, who is a former Managing Director of Access Bank Zambia, in a chat with Nairametrics, blamed the poor performance of a company like Nigerian Breweries on the steep devaluation of the Naira in the foreign exchange market.
- “If you look at the 2023 annual result of Nigerian Breweries, for instance, the company performed well on most critical indicators but was shaken off the profits path by the external factor of naira devaluation.
- For example, this company recorded a significant growth of more than N1 billion in assets, from N621 billion in 2022 to N797 billion in 2023.
- It also made significant savings in the marketing side of the business, spending N51 billion in 2023 as against N57 billion in 2022.
- This means that the company, given all other factors, would have made more profits in 2023 than in 2022, but these were undone by the rapid decline in the value of the naira between August and December 2023,” he stated.
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Recent gains of Naira against the dollar
He noted that with the recent gains of the Naira against the dollar and the expected stability of the currency over the remaining months of the year, the expectations are that most companies operating in Nigeria that were adversely affected by the unstable periods of the naira will recover and return to profitability.
On the business recovery plans recently announced by the brewing giants, Ozoemene commended the initiatives, arguing that it is indicative of a management committed to retaining and rewarding the trust of its shareholders.
- “I think you could see the strong commitment to recovering by the company. I might be wrong but the response by Nigerian Breweries represents the quickest and perhaps the boldest of all the companies affected by the foreign exchange challenges of the 2023 business year.
- While others are still unsure of the way to move forward, Nigerian Breweries have made their plans clear and if they follow them through, I can tell you that they’ll get past the challenges of the past year quicker than anyone could imagine,” Ozoemene said.
Ike Ibeabuchi, Chief Executive Officer, MD Services, said FX instability could steer firms’ rebound and boost their capacity to create value.
He cited MTN and Nestle as firms that have the capacity to make a strong comeback next year as Naira continues to strengthen in the FX market.
“This could help to reduce MTN’s tower lease costs which make up half of its FX exposure. It could also lower costs for Nestle and other large enterprises. The main issue is that we need them back to create jobs and boost our economy,” he noted.
Abdulmumin Ali, Managing Partner of QL Resources, emphasized Nigeria’s currency rebound, attributing it to the resilience, energy, and creativity of its people.
He predicted that the FX instability, stemming from the 2023 depreciation of the naira, will likely subside in 2024, paving the way for favorable returns for many companies.
Ali voiced his confidence in the forthcoming resurgence in corporate performance. Reflecting on Nigerian Breweries’ business recovery plans, he noted the company’s strategies as indicative of broader economic reflation on the horizon.
- “I am aware that Nigerian Breweries, for instance, is approaching the capital market to raise N600 billion through Rights Issue. This sum, if successfully raised, will not just reflate the company but also set it on the part of a new trajectory by offsetting the debts associated with the bleak balance sheet records of last year.
- I have also read that most of its dollar-denominated credit lines might be converted to naira thereby staving off exposure to the vicissitudes of foreign exchange fluctuations. These are positive steps that would engender quick recovery,” he stated.
Majority shareholder
He commended Heineken, the majority shareholder of the company, for restating their commitment to the Nigerian market by opting to raise 50% of the N600 billion being sought through the Rights Issue, insisting it was a good sign that the fundamentals of the Nigerian economy remain positive.
- “Heineken made a strong statement of its faith in this economy by opting to take up such a significant volume of the offer.
- What they did is a sign of confidence in the Nigerian economy and the message will be heard across the investment capitals of the world that Nigeria remains a fertile market for investments despite temporary setbacks,” the analyst said.
What you should know
Nigerian Breweries reported a net loss of N153.3 billion on foreign currency transactions which resulted in a pre-tax loss of N145.2 billion in FY 2023.
In its financial statement for FY 2023, MTN Nigeria reported a N2.47 trillion revenue, representing a 22.7% growth in revenue. However, with an accrued net foreign exchange loss of N740.4 billion, the group recorded a pre-tax loss of N177.9 billion.
On the other hand, Nestle recorded a loss before tax of N104 billion for the year ended 2023 compared to a profit before tax of N71 billion same period in 2022.
The drop was largely due to a foreign exchange loss of N195 billion, which was the major reason for the overall loss reported by the company.
The 2023 results were impacted by the significant shifts in the business landscape with substantial impact on businesses and livelihoods nationwide.
These included the redesign of the naira notes which resulted in cash shortages that severely hampered social and economic activities nationwide and set the tone for a turbulent year.
High double-digit inflation rates (with food inflation at more than 30%), removal of subsidy on premium motor spirit (fuel), devaluation of the naira, and foreign exchange scarcity have further exacerbated the already difficult environment for the populace and businesses.
