The depreciation of the naira last year has cost three companies within the Fast-Moving Consumer Goods (FMCG) category—BUA Foods, Flourmills, and Cadbury Nigeria—more than N140 billion.
BUA Foods lost N73.56 billion in foreign exchange (FX), while Cadbury Plc lost N36.93 billion. During that time, Flourmills’ foreign exchange loss increased by 208% to N31.48 billion.
Despite its impressive sales of N80.38 billion in 2023, a 46% rise from the N55.21 billion achieved in 2022, Cadbury Nigeria reported a loss of N27.63 billion, a huge fall of 2,228 percent from the N1.3 billion pre-tax profit recorded in 2022.
The company had an operating profit of N8.41 billion in 2023, but their net finance cost was N36.03 billion, resulting in a N27.63 billion loss before taxes.
Even though its interest expense on borrowings increased by 170 percent from N503 million in 2022 to N1.36 billion in 2023, the N36.93 billion in costs incurred in 2023 as a result of foreign exchange discrepancies had an impact.
Recall that due to a N20.9 billion write-down on debt the firm incurred as a result of the unification of FX rates, Cadbury reported a significant loss before tax of N17.9 billion in the second quarter of 2023, as opposed to a profit of N800 million during the same period in 2022.
Operators are afraid of how quickly the industry they thought would be immune to the whims of the massive difficulties is being affected by the hard reality of the economy. They issued a warning that if the trend is not reversed quickly, it may soon cause businesses that have debts denominated in dollars to lose all of their assets, particularly non-liquid businesses.
Therefore, to minimize the impact of the FX crisis on their operations, listed firms were urged by Moses Igbrude, President of the Independent Shareholders Association of Nigeria, to fully embrace backward integration and source their raw materials locally.Â
“I will support balance sheet restructuring in the near future through appropriate measures that convert loans to equity. They should also take advantage of backward integration by sourcing their raw materials locally and creating a strong export plan to generate foreign exchange,” he declared.
Paul Uzum, Head Equity at Planet Capital, stated that the ongoing devaluation of the naira has made these companies’ problems worse. “The problems facing the companies have gotten worse now that the value of the dollar to naira has dropped to N1,430. They will lose nearly twice as much in 2024 as they did in 2023. This had an impact on several businesses, including a few illiquid banks like Unity Bank and Nestle, Flourmill, Dangsugar, Cadbury, International Breweries, Guinness, and Nigerian Breweries,” he said.
David Adonri, vice president of Highcap Securities, stated: “Any importer with long-term foreign currency obligations may suffer further exchange rate loss, as the naira continues to depreciate.”
