Despite recording a huge loss to the tune of N186.7 million, from the naira devaluation, Nigeria’s drug maker, Neimeth International, grew profit by 66.3 percent, in nine months ending September.
The company posted a profit of N366.6 million in the nine months of 2020, up from a profit of N220.1 million in the same period the previous year, thanks to gains from other income sources
But for the loss in foreign exchange which soared 475.2 percent from N32.5 million in 2019 to N186.7 million, whipping off 6.2 percent from its revenue, profit for the drug maker could have been higher than reported, a pointer to how companies are affected by the incessant naira devaluation in the form of shrinking margin.
It could also have translated into a higher dividend for its shareholders, pointing further to how a currency devaluation erodes wealth of shareholders
When manufacturers buy raw materials, they may not make payment immediately, appearing in their books as payables. When the naira gets devalued, those payables will increase, and these will weigh down on their margins, according to Akinloye Ayorinde, an equity research analyst at CSL Stockbrokers Limited.
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“Many manufacturers still have significant USD expenses in terms of raw materials and operating cost and the devaluation of the naira forced them to revalue some of their obligations,” Ayorinde said
Nigeria’s naira has lost about 6 percent this year after a fall in crude oil prices, the country’s biggest earner, accompanied by the brutal impact of the pandemic, forced the Central Bank to adjust the naira on two several occasions. The naira trades at N475/$ at the black market, according to data from abokifx, a website which collates street data on data prices.
Like Neimeth, many manufacturers who depend on dollars for the importation of key inputs have been affected, forcing them to transfer the loss to final consumers in the form of higher prices.
Irrespective of the loss in FX, the company succeeded in growing profit for the period by 66.3 percent from N220.1 million to N366.6 million in the nine months of 2020, helped by gains from other income.
Other income which captured income received from leased property soared by 858.2 percent to N24.4 million from N2.5 million.
Helped by increased demand for drugs as an essential commodity exempted from the coronavirus-induced lockdown, the firm posted revenue of N3.007 billion, up by 26.8 percent from N2.4 billion the same period last year.
Increased revenues were seen in both the pharmaceutical and animal health arm of its business, as well as across Nigeria and Ghana, two locations where its business operates from.
Revenue from its pharmaceutical business rose N2.64 billion from N2.28 while that of its animal health rose to N369 million from N90.1 million in 2019. Its Nigerian business raked in N2.98 billion, up from N2.25 billion, and revenue from Ghana stood at N32.3 million from N16.5 million in 2019.
Cost of sale also increased marginally to N1.43 billion from N1.18 billion reported last year. Marketing and distribution expenses, as well as administrative expenses, was also from N377.2 million to N513.4 million and N375.2 million to N409.9 million respectively.
Finance cost moved to N127.2 billion from N108.9 billion in nine months period last year. Profit before tax, however, settled at N366.3 million from N304.4 million.
