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Forex Crises: Conglomerates, Multinationals Lose N200bn In 6 Months

kemi adeosunLosses incurred by investors in conglomerates, multinational corporations and other big capitalized companies quoted on the Nigerian Stock Exchange, NSE, as a result of the delay in the roll out of the new flexible foreign exchange policy has hit N320 billion as at yesterday.

The stock market had recorded a massive rally following the announcement by the Central Bank of Nigeria, CBN, of its plan to introduce a flexible foreign exchange regime.

But the bullish trend gave way to a massive bear run which brought down total market capitalization to N9.3 trillion, yesterday, from N9.7 trillion as at May 25, 2016, a day after the CBN announcement, with the blue chips accounting for about 80 per cent of the total losses.

It was  learnt that most companies in the real sector, especially the big brands have taken similar steps since 2015 to retain their market share and brand equity at huge cost.

For Unilever Nigeria Plc, the major drag to performance in its full year 2015 results released earlier this year was the massive jump in finance cost, up 66 per cent year-on-year despite 37.5 per cent drop in borrowings in the year. According to financial analysts at Afrinvest West Africa, a Lagos based investment house, “Unilever remains highly levered as 62.9 per cent of its full year 2015 operational profit went into finance cost.

We still remain somehow bearish on the valuation of the company as the current macroeconomic challenges, most especially foreign exchange related operations are expected to take toll on overall performance”.

Berger Paints Nigeria Plc has attributed the drop in their financial performance for the first quarter ended March 31, 2016 to foreign exchange scarcity. The Managing Director, Mr Peter Folikwe, stated at the Nigerian Stock Exchange that”margin drop largely as a result of increase in raw material prices and scarcity of foreign exchange as we have to largely resort to local sourcing of raw materials at exorbitant price”.

Guinness Nigeria Plc had complained that the currency restrictions imposed by the Central Bank of Nigeria, CBN, were hindering it from procuring the foreign exchange needed to bring in raw materials. “Foreign currency capacity has been a major issue for us and that has put a strain on our business, in particular, liquidity has been a major challenge”, Managing Director, Peter Ndegwa, stated. Analysts attribute the decline in bottom line in the brewery sector to a weak Naira that significantly impacted on cost of sales since most of raw materials are imported to meet production.

Brewers are spending more to produce each unit of products as cost of sales ratio increased to 51.13 percent in 2015 from 45 percent the previous year, leading to total cost industry-wide of over N250 billion with Nigerian Breweries accounting for about N151 billion in 2015 and N40.2 billion in the first quarter of 2016. The 11.85 per cent rise in cost recorded by Nigerian Breweries in the first quarter of 2016, according to analysts at FSDH Merchant Bank,  could be attributed to the rise in input costs.

The cost of raw materials and consumables alone rose by 30.44 per cent to N24.56 billion from N18.83 billion in 2015.  Guinness Nigeria’s cost in 2015 was N62 billion. The survey conducted by PricewaterhouseCoopers, PwC, showed that over 60 per cent of companies in Nigeria recorded huge declining sales/revenue as a result of the foreign exchange rationing policy. The report, commissioned by the Lagos Chamber of Commerce and Industry, and unveiled in Lagos  by the President, LCCI, Dr. Nike Akande, and the Regional Managing Partner, West Africa, PwC, Mr. Uyi Akpata, revealed that 42 per cent of the companies had been implementing aggressive cost-cutting measures, while 18 per cent were already sacking staff.

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