Honeywell Flour Mills Plc, a prominent flour milling company in Nigeria, has faced substantial foreign exchange losses amounting to ₦8.64 billion, primarily attributed to Nigeria’s persistent exchange rate fluctuations. This revelation comes from Nairametrics’ analysis of the company’s unaudited financial reports for the first nine months of the year.
Despite achieving a 3.86% increase in revenue, with earnings of ₦79.44 billion compared to ₦76.50 billion in the previous year, Honeywell Flour Mills reported a loss of ₦4.37 billion, contrasting with the ₦7.35 billion loss in 2022. This paradox can be attributed to mounting cost of sales driven by increasing inflation and the volatile exchange rate.
The Central Bank of Nigeria recently introduced adjustments to the country’s foreign exchange operations, leading to the consolidation of all market segments into the Investor & Exporter (I&E) forex window, along with the reinstatement of the ‘willing buyer, willing seller’ model. Consequently, the Naira weakened, transitioning from N465 against the US dollar at the end of May 2023 to N786.02/$1 on November 1st.
This substantial exchange rate depreciation poses a significant threat to Nigerian companies with foreign loans. Many businesses, exposed to foreign exchange risks, are grappling with the adverse impacts on their profitability. Rising exchange rates result in higher foreign currency liabilities and lower foreign currency assets, subsequently leading to diminished profits. Furthermore, the rising exchange rate hinders the ability of Nigerian companies to raise new foreign debt, reducing their capacity for expansion and growth.
Shareholders have expressed their concerns regarding the effects of the elevated exchange rates on Nigerian companies’ profitability and their ability to distribute dividends to shareholders, particularly pensioners who rely on these dividends for their livelihood.