Dangote Sugar, Nestle, NB Losses N136.364bn
Shareholders of Nigerian manufacturing giants indeed have reasons to worry, unless something drastic happens soon, as the industrial giants have suffered huge half year losses.
This is judging by the half-year unaudited financials released so far, revealing huge losses after tax, driven by huge foreign exchange losses suffered following the reforms by the Central Bank of Nigeria (CBN).
Three companies reported net losses totaling N136.364bn, led by Nestle Nigeria’s N58.691bn, followed by Dangote Sugar’s N40.79bn, just as Nigerian Breweries (NB) lost N36.883bn in the quarter between April and June.
According to results submitted and posted on the Nigerian Exchange platform, Dangote Sugar Plc, on Monday presented its half-year result, confirming the impact of the foreign exchange hiccup as earlier presented last week by the 77-year-old Nigerian Breweries Plc and Nestle Nigeria.
Dangote Sugar reported a marginal 9.32% growth in revenue from N185.457bn to N202.783bn; cost of sales reduced slightly to N144.595bn from N146.639bn, with raw material cost accounting for a significant N116.895bn, down from N121.29bn, resulting in gross profit of N58.188bn, from N38.818bn.
The table, however, turned as finance cost soared to N90.658bn from N7.306bn in the corresponding period of last year, the bulk of which was the N82.599bn recorded in the April to June quarter, from just N3.8bn.
Finance costs, according to the notes to the account, was mainly the N83.096bn FX loss recorded in the ordinary course of business, up from N4.924bn.
The group explained that in line with the CBN circular of June 14, 2023 (operational changes to the foreign exchange markets), which introduced the “willing buyer willing seller” on the Investors’ and Exporters’ (I & E) window based on the prevailing market rates, it “changed its USD/ Naira closing rate of N461 as at December 31, 2022 to N756 as at June 30, 2023. Monetary assets and liabilities for the Nigeria operations were revalued at this rate resulting in a revaluation loss of N68.7 billion for the group.”
This, it continued, “was driven by letters of credit and foreign vendor balances. The revaluation loss is included as part of N83bn for group (N82.7bn for the company). The loss has been fully recognised in the month of June 2023.”
Loss after tax for the period stood at N27.987 billion, down from a profit of N20.241 billion, translating to a loss per share of N2.30 from a previous N1.67 per share earnings. The net loss could have been more, but for the N9.108 billion tax credit enjoyed in the second quarter, bringing rebate for the half-year to N3.377 billion.
Specifically, Dangote Sugar suffered a loss of N40.79bn in the second quarter alone, from N11.372bn in the same period of last year.
A further breakdown of the figure showed that revenue from sale of sugar (50kg) rose to N194.191bn from N179.227bn, while retail sales contributed N5.864bn from N3.432bn.
In the case of NB Plc, half-year revenue rose to N277.419 billion, a marginal increase over the previous N274.084 billion, with cost of sales growing faster, from N155.349bn to N165.094bn, resulting in gross profit of N112.324bn, down from N118.735bn.
Net loss on transaction in the second quarter (April to June) soared from N5.403 billion to N70.619bn, bringing total for both quarters to N85.26bn from just N7.28bn. This, among others, left a loss before tax of N67.844 billion, with the second quarter alone responsible for N50.407bn compared to the previous N25.697bn half-year profit.
The company’s N20.245bn tax rebate reduced its net loss to N47.599bn, compared to the previous N18.742bn half-year net profit.
A statement signed by the Company Secretary/Legal Director, Uaboi Agbebaku, also said the half-year scorecard was impacted by the devaluation of the naira which led to revaluation of foreign exchange obligations and higher input costs.
Other factors, he said, were the effect of petroleum subsidy removal on consumers, a one-off redundancy exercise cost and the impact of the cash crunch that hit the country in the first quarter of the year.
For Nestlé Nigeria, it was a loss after tax of N49.981bn for the half-year, compared to the previous N27.751bn, following a 1,877.98% spike in finance cost in the period under review in the aftermath of the recent naira devaluation.
According to the result submitted to the NGX, revenue for the first half of 2023 stood at N261.8bn, a 17.7% rise over the N222.45bn reported in the prior half-year, while cost of sales soared to N154.434bn from N142.245bn, resulting in gross profit of N107.3bn, from the N80.205bn earned in H1 2022, a 34% growth.
Finance income grew to N7.815bn, against the N4.521bn of 2022, while finance cost spiked by N130.762bn from the previous N6.962 billion to N137.725bn, resulting in net finance costs of N129.91bn, against the previous N2.441bn.
Loss before income tax, therefore, stood at N69.117bn, compared to the previous half-year’s N43.739bn; and after tax loss of N49.981bn, representing a 280% decline over the net profit of N27.7521bn, representing a 280% decline due to the N19.136bn tax expense, which rose from N15.988bn in the prior half-year.
A statement by the company quoted Wassim El-Husseini, its Managing Director and CEO as lamenting the negative impact of the challenging business environment, which he said blurred “the unwavering commitment and dedication (of the staff) as recorded in the significant increase in revenue and gross profit over H1 2022.”
Profit after tax, he said was “negatively impacted by the recent devaluation of the naira, which necessitated the revaluation of our foreign currency obligations.”
Commenting on the scorecards, Ambrose Omordion, Chief Research Officer, Investdata Consulting Limited, explained that the losses by the manufacturing companies, especially those with foreign affiliations resulted from the unification of exchange rates by the CBN.
The unification, he argued, is not bad, except for the way the apex bank went about it, which is also reflected in the recurrent drop in the nation’s external reserves. Given the volatility in exchange rate and inflation, he advised the CBN to prepare to intervene rather than continually leaving the field to demand and supply alone.
He urged government to promote made-in-Nigeria goods to reduce the forex demand to import raw material needs. Also, he said most of the companies posting losses have international loans.
“I believe that Nigeria should learn from the naira devaluation that was done in 1985 by the then President Ibrahim Babangida which led to the death of many manufacturing companies like Western Batteries, Nigerian Textile Mills, Enpee in Ilupeju Industrial Estate in Lagos and Otta in Ogun State that host carcasses of these companies that once employed millions of Nigerians, many of which are still struggling until now,” he added, stressing that a uniform exchange rate is okay, stability is key to attracting more foreign investors.
Omordion lamented that the losses suffered by many of these manufacturing giants has eroded their shareholders’ funds, meaning that all that investors gained over time have been wiped off within these few weeks, especially in Nestle Nigeria.
He called for caution so that the situation will not escalate beyond this, even as the government’s intention may be noble and welcome, adding that what is happening may be unintended consequences of government’s actions that need to be addressed since it is contrary to the plan to put the economy in the right direction.
Continuing, he said, “Since the current president is a listening leader, it is necessary for the fiscal and monetary authorities to collaborate to reduce the sufferings among Nigerians. This is one sector that creates a lot of employment, in addition to enhancing the purchasing power of Nigerians. There is need for government to address this issues to ensure that the FX hiccup does not sink our manufacturing sector.”
–Culled from Independent.ng