This earnings season has been dominated by the impact of the devaluation of the naira on companies in Nigeria.
As businesses are adjusting to the reality of a 40 percent devaluation of the naira as a result of the Central Bank adopting a flexible exchange rate regime in June, a snapshot has emerged as to the corporate losers and winners.
The biggest impact of a weak naira was most felt by companies that have dollar-denominated loans in their capital structure, while those that have more dollar reserves became victors.
The banking industry tops the list of those that benefited from devaluations having made money from foreign exchange revaluation gains that supported third quarter profit.
Zenith Bank, First Bank, and GTBank recorded revaluation gains of N31.01 billion, N68.40 billion and N93.64 billion respectively. Experts say the surge in exceptional items arose because these lenders held more naira reserve at the time of the devaluation.
However, because such items are exceptional and one-off in nature, banks may not enjoy such windfall in the subsequent quarter; hence profit may thin and the effects of rising impairment on loans will be felt more.
Some insurers are not left out in the devaluation boon as bottom lines were bolstered by fair value of revaluation gains.
For instance, Continental Reinsurance Plc, one of the largest insurers in the country made N4.03 billion from foreign exchange gains in the period under review.
The significant growth was partially attributed to unrealised gains on hard currency assets as a result of foreign exchange movements following the sharp devaluation of the naira, according to Femi Oyetunji, CEO of the company.
Wapic Insurance and AxA Mansard Insurance respectively earned N2.42 billion and N2.55 billion in foreign exchange gains as they recorded double digit growth in profit.
Some companies especially the consumer goods firms have however been axed as a result of a weak currency.
Pz Cussons, the maker of soaps, detergents, toiletries, and feminine hygiene products, recorded a loss of N1.58 billion due to an exchange rate loss of N4.70 billion in the current period as the company grapples with dollar shortages, unrest in the northern part of the country, and rising inflation.
The devaluation of the currency dealt big blow on Nestle Nigeria as the consumer goods giant suffered an exchange loss of N19.17 billion which resulted in a 97.1 percent drop in net income.
‘‘Although the gross profit increased by 8.2% for the same period, net profit has been adversely impacted by the revaluation of the foreign loans due to devaluation of the naira,’’ said the company in a comment posted on the website of the Nigeria Stock Exchange (NSE).
Despite recording growth in sales, Flour Mills Nigeria Plc, the largest miller by market value, incurred exchange loss of N9.11 billion, which undermined bottom line as net income dipped 73.01 percent.
Some cement makers were not spared the pains of a weak naira. Lafarge, the second largest producer of the building material, recorded an unrealised exchange loss of N28 billion incurred in connection with the dollar loans used to acquire United Capital Cement Company of Nigeria Limited (UNICEM).
Nigeria’s economy shrank 2.1 percent in the second quarter of the year, according to the National Bureau of Statistics (NBS). The IMF forecast that the GDP would contract by 1.80 percent, the worst recession in 25 years.
While banks are grappling with rising NPLs and poor asset quality due to a sharp drop in price of oil, consumer goods firms are ensnarled in dollar scarcity, rising inflation, bad roads and unstable power supply.
BALA AUGIE
