Investors have once more urged the government to find workable solutions to the foreign exchange (FX) crisis in Nigeria in order to prevent the real sector from completely collapsing and eroding shareholders’ capital.
This was revealed along with the announcement that Cadbury Nigeria Plc had lost N27.6 billion during its 2023 full-year operations, a 2,228 percent decrease from the N1.3 billion pre-tax profit declared during the same time in 2022.
They issued a warning, stating that despite the banking industry’s present improvement in performance, a serious crisis would soon arise due to the massive losses reported by real estate companies that had taken out loans totaling vast sums of money from banks.
They said that the loan facility would not be fully employed by these enterprises due to the current difficult operating climate, particularly the problem of FX shortages, which would ultimately damage their ability to repay.
Dr. Paul Uzum, Head of Equity at Planet Capital, stated:Â “This suggests that there are issues facing Nigeria’s real estate industry. It explains why local manufacturing companies are closing their doors and numerous multinational corporations are closing their stores in Nigeria. Right now, the only successful financial intermediaries are banks.”
“Cadbury’s N27 billion loss for 2023 wiped out the whole shareholders’ capital. Other multinationals, especially those in the consumer goods sector, are going through similar issues due to lack of supply of FX to sustain their businesses. The company won’t be able to distribute dividends for a very long time.”
“The company’s exposure to foreign currency borrowing resulted in a N36 billion loss. Its parent business was responsible for a portion of the FX risks. The company has said that it intends to increase its parent company’s interest in Cadbury Nigeria by converting this foreign exchange exposure to equity in 2024.”
Victor Chiazor, Head of Research at FSL Securities, stated that it is imperative to stabilize the foreign exchange market since large corporations exposed to this unstable market run the risk of experiencing similar losses and depleting shareholder cash.
Chiazor noted that Cadbury Nigeria’s unaudited full-year results for 2023 demonstrated a glaring example of a business that has been severely impacted by the foreign exchange market’s liberalization.
He said that the business’s performance showed that it had increased its operational profit from N194 million in 2022 to N8.39 billion. However, the realized and unrealized foreign exchange loss of N36.93 billion recorded for the period eliminated its operating profit.
“The company’s shareholders’ funds were completely erased by this loss, which caused them to go from N13.3 billion in FY’22 to a negative N15.08 billion for FY’23.”
Eric Akinduro, president of the Ibadan Zone Shareholders Association, issued a warning: if the government is unable to resolve the issue permanently, more crises could affect the entire system.
According to him, the company’s financial crisis is a reflection of the state of the economy. Aside from banking, the manufacturing sector is also experiencing losses, which are primarily attributable to the FX crisis.
“I implore the government to find a more sensible and effective solution to the foreign exchange problems the nation is facing, or else more crises could befall the entire system,” Akinduro stated.
Recall that N623.6 billion in losses were sustained in the first half of 2023 by about seven companies listed on the exchange: Airtel, MTN, Nigeria Breweries, Guinness Nigeria, Nestle Nigeria, Dangote Cement, and Cadbury Nigeria. These losses were attributed to the naira devaluation. The fact that the problem had continued until 2023 suggests that the worst may to come for the economy’s real sector.
