Naira depreciation squeezes manufacturers’ profits despite revenue growth

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An analysis of financial statements from major Nigerian manufacturers by NRTC on the Nigerian Exchange Limited (NGX) paints a concerning picture. The depreciation of the naira against foreign currencies has inflicted heavy losses, significantly impacting profitability despite a rise in revenue for some companies.

The analysis, which covers companies like Dangote, BUA, Lafarge, and Nestle, reveals a collective foreign exchange loss of N627.7 billion for the first quarter of 2024. This dramatic shift comes after the naira’s floatation in 2023, a move that has left many businesses exposed to currency fluctuations.

The cement industry provides a stark example. Lafarge Africa, a leading producer, saw its forex losses balloon to N21.8 billion, reversing a gain of N320 million from the same period last year. This forex hit, coupled with rising operating expenses, resulted in a significant decline in profits – pre-tax profits fell by 61.25% and post-tax profits by 65.34%.

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Dangote Cement, an industry giant, also experienced a surge in forex losses, rising to N63.77 billion from N9.79 billion in Q1 2023. However, the company managed to buck the trend on the revenue side, doubling its sales to N817.35 billion compared to the previous year.

BUA Cement followed a similar pattern. While forex losses jumped, revenue grew by 51.51% due to increased cement sales fueled by newly commissioned plants. Despite this growth, rising costs caused by inflation and currency volatility ultimately squeezed profit margins.

The story continues in the consumer goods sector. Dangote Sugar, another major player, recorded a staggering N102.9 billion forex loss, contributing heavily to a net loss of N68.9 billion for the quarter. International Breweries mirrored this hardship, with forex losses skyrocketing to N162.2 billion in Q1 2024.

These cases highlight the precarious position many Nigerian manufacturers find themselves in. While some companies are managing to maintain or even increase sales, the burden of a depreciating naira is eroding profitability. The coming quarters will be crucial in determining how effectively these businesses can adapt and navigate this challenging economic environment.