Firms see marginal rise in shareholder funds amid FX losses

Seventeen firms in Nigeria recorded a marginal rise in shareholder’s funds as foreign exchange losses caused by naira devaluation dampened their bottom line, BusinessDay findings have shown.

The combined net asset position of firms across different sectors showed a 2.5 percent rise from N3.54 trillion in 2022 to N3.4 trillion in 2023.

The companies surveyed are BUA Foods, Nestle Nigeria Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc, PZ Cusson Plc, Dangote Sugar Refinery Plc, International Breweries, NASCON Allied Industries Plc, Unilever Nigeria Plc, Guinness Nigeria Plc, Fidson Healthcare Plc, May & Baker Plc, Morison Industries Plc, BUA Cement Plc, Dangote Cement Plc, MTN Nigeria Plc and Lafarge Africa Plc.

Read also: Here are consumer firms that posted highest FX losses in 2023

Last June, the liberalisation of the foreign exchange regime naira devaluation affected many companies in Africa’s biggest economy whose liabilities are dominated by foreign currency-denominated borrowings from parent companies and related parties.

Shareholders’ equity or net asset position represents a company’s net worth, which is the naira amount that would be returned to shareholders if a company’s total assets were liquidated and all of its debts were repaid.

“The marginal increase in shareholder funds arises from diminished profits of Nigerian firms, primarily attributed to losses from FX devaluation amidst the ongoing depreciation of the naira. In some cases, this has resulted in companies facing a loss position,” Musphata Umaru, equity research analyst at CSL Stockbrokers Limited said.

Read also: FX Losses: Unmasking the vulnerable sectors

The fast-moving consumer goods sector recorded the highest decline among the sectors analysed, declining by 16.5 percent in its net asset position to N1.01 trillion in 2023 from N1.21 trillion recorded in 2022.

PZ Cussons Nigeria and Guinness Nigeria have their numbers reported as of November and December 2023.

Umaru added that for firms with robust revenue streams plus a stable FX environment, reclaiming shareholder funds may not be overly challenging. However, continued FX instability poses a significant risk to companies’ bottom lines.

The telecommunication sector, of which MTN Nigeria was analysed, recorded a negative net asset position of N40.84 billion from N262.54 billion.

The pharmaceutical sector also recorded a marginal increase of 9.3 percent to N28.55 billion from N26.12 billion, while the cement makers recorded a marginal decrease to N28.55 million from N26.12 billion.

The naira has continued to depreciate against the dollar and other major foreign currencies since then, with it losing over 70 percent of its value against the US dollar since a more liberalised foreign exchange market last June, making it one of the worst-performing currencies globally, negatively impacting the financial performance of companies in 2023.

These financial setbacks reflect the challenges faced by consumers and Nigerian businesses in 2023, compounded by cash scarcity, removal of petrol subsidies, and naira devaluation.

Inflation, reaching 31.7 percent in February, further weakened purchasing power and strained disposable incomes, particularly impacting the food, beverage, and tobacco subsector of the manufacturing industry.

“Sustained losses drawing from shareholders’ funds could prompt disinvestment from the economy, triggering a more difficult macroeconomic state through a slowdown in output, unemployment, and even more elevated consumer prices,” Ayodeji Ajilore, an investment research analyst with ARM said.

Firms analysis

FMCGs

The fast-moving consumer goods sector recorded the highest decline among the sectors analysed, declining by 16.5 percent in its net asset position to N1.01 trillion in 2023 from N1.21 trillion recorded in 2022.

This is a result of foreign exchange losses recorded in the period that impacted their books for its fiscal year 2023.

Nestle Nigeria

Nestle Nigeria recorded a sharp decline in its shareholder funds which stood at a negative of N78 billion compared to a positive of N30.2 billion.

It recorded an after-tax loss of N79.47 billion last year compared to a profit of N48.97 billion in 2022, stemming from a N195 billion, foreign exchange loss.

Cadbury Nigeria

Cadbury Nigeria also reported negative equity of N15.1 billion, marking a 213 percent decline from a positive N13.3 billion.

The chocolate maker’s latest unaudited financial statement shows that it reported an after-tax loss of N27.6 billion last year as against a profit of N583.1 million in 2022.

PZ Cusson Nigeria

PZ Cusson recorded negative shareholder funds of N23.17 billion from a positive of N28.36 billion

The firm also reported an after-tax loss of N74.1 billion compared to a profit of N7.67 billion as a result of a £88.2 million foreign exchange loss arising from the devaluation of the naira.

Unilever Nigeria

Unilever Nigeria however recorded an increase in its shareholder’s equity totalling N74.45 billion from N67.56 billion in 2022.

The company’s after-tax profit also surged to N8.54 billion from N4.47 billion.

Guinness Nigeria

Guinness Nigeria recorded a decline in its shareholders’ equity to N51.7 billion from N56.42 billion.

The brewer maker also recorded an after-tax loss of N5.23 billion from an after-tax profit of N4.02 billion according to its fiscal year.

Nigeria Breweries

Nigeria Breweries recorded a decline in shareholder’s equity to N63.28 billion from N179.91 billion in 2022.

The…