The devaluation of the Naira in June 2023 has had profound and far-reaching consequences on foreign-owned subsidiaries trading on the Nigerian Exchange, leading to over N900 billion in foreign exchange losses as of the nine-month period ending September 2023. The business environment in Nigeria has been rocked by the financial implications faced by major companies with significant foreign exchange exposures.
Foreign-owned subsidiaries, including industry giants such as Airtel Africa, MTN Nigeria, Unilever Nigeria, International Breweries, Nigerian Breweries, Cadbury Nigeria, Lafarge Africa, AXA Mansard, Stanbic IBTC Holdings, Guinness Nigeria, TotalEnergies Marketing, Nestle Nigeria, PZ Cussons Nigeria, Beta Glass, and others, have been grappling with the fallout from the Naira devaluation.
Airtel Africa and MTN Nigeria:
Airtel Africa reportedly suffered the highest loss among these companies, accruing a foreign exchange loss of $471 million (N404 billion) during the half-year ending September 2023. This substantial loss contributed to Airtel Africa recording a loss after tax of $13 million during H1 2024. Similarly, MTN Nigeria, a subsidiary of MTN Group, accumulated N232.8 billion in FX losses during the nine months ending 2023, marking a staggering 735% year-on-year growth from the same period in 2022.
AXA Mansard, Nestle Nigeria, and Nigerian Breweries:
While many foreign-managed companies faced unrealized FX losses due to the currency devaluation, some experienced gains. AXA Mansard recorded a foreign exchange gain of N3.63 billion during the nine months. In contrast, Nestle Nigeria and Nigerian Breweries accrued net foreign exchange losses of N122.9 billion and N86.8 billion, respectively, significantly impacting their financial standings.
Other Notable Losses
Several other companies faced substantial FX losses, including Cadbury Nigeria Plc (N1.03 billion), International Breweries Plc (N38.83 billion), TotalEnergies Marketing Nigeria Plc (N6.31 billion), Unilever Nigeria Plc (N2.92 billion), Guinness Nigeria Plc (N1.40 billion), GSK Consumer Nigeria Plc (N11.29 billion), and Lafarge Africa Plc (N9.42 billion).
Causes and Concerns
The devaluation of the Naira, particularly on June 14, 2023, triggered unrealized FX losses for companies with foreign parent groups. Contributing factors include trade payables denominated in foreign currencies, foreign currency borrowings, and revaluation of foreign-denominated trade loans. The recent volatility and consistent decline of the Naira raise concerns, with the exchange rate swinging between N750/$ and N900/$ at the official market and hovering around N1100/$ in the parallel market.
Hedging Strategies:
Some companies, like Stanbic IBTC Holdings, have implemented hedging strategies with FX futures assets increasing to N309.2 billion as of September 2023, representing a 1247% year-to-date increase.
As these companies navigate the financial impact of the Naira devaluation, the forthcoming Q4 2023 results may shed light on the extent of recovery. However, the persistent volatility in the Naira’s value remains a potential source of additional FX losses, adding another layer of concern for businesses operating in Nigeria.
