Mixed fortunes for manufacturers in CPO, consumer goods sector over forex crisis
While consumer goods companies and most manufacturers on the other hand are battling with forex sourcing issues, soaring importation costs and in extreme cases, marked forex losses on foreign currency loans, latest FBN Capital report has shown that some local producers and banks may be reaping huge rewards from the scheme.
Though companies like Nestlé Nigeria Plc, Nigerian Breweries Plc, Dangote Cement Plc, and Lafarge Africa, may have in the first half of the year, suffered combined profit losses to the tune of N51.86 billion, some companies are recording increased growth from the forex crisis.
The FBN Capital report showed that tier 1 banks are likely to record significant gains as forex gains are likely to dwarf the impact of bad loans being made provisions for in their books.
Indeed, in Q3, the Naira fell further by 11 per cent and analysts noted that if all things work well, many banks are likely to report additional forex-related gains.
For many of the commercial banks, forex-related gains on the average accounted for at least 40 per cent of their first half 2016 pre-tax profits.
For the Crude Palm Oil sector, importation of crude palm oil by competitors has become more expensive, due to the CBN policy which pushed demand for forex by this group out of the interbank into the parallel market, thus making domestic producers like Presco and Okomu Oil record increased growth.
Specifically, Presco recorded a 71.3 per cent year-on-year growth in sales in Q2 2016. The results were ahead of its forecasts as sales and profit before tax rose by 33 per cent and 116 per cent respectively. These positives completely offset a 134 per cent year-on-year increase in operating expenses and forex losses combined.
For Okomu Oil Palm, its Q2 2016 results came in stronger than expected as sales, profit before tax and profit after tax were ahead by 21 per cent, 44 per cent and 34 per cent respectively.
A review of unaudited financial reports of many of the firms for the first half of 2016 revealed a struggle between balancing rising input cost pressures and passing the inflationary pressures on already constrained consumers by raising prices of some products, a trend that got even worse in the third quarter.
Some of the input cost pressures being encountered by many manufacturers border on foreign exchange losses on dollar loans, the inability to access foreign exchange, the high cost of production as well as poor electricity supply and tariff hike.
From complaining about low patronage, Presco Plc had commended the Central Bank of Nigeria (CBN’s) policy to ban foreign exchange sales to certain segments of the economy, noting that the move by the apex bank will help save its hard-earned and scarce foreign exchange as well as boost local production in the country.
The Chairman, Presco Plc, Pierre Vandebeeck, explained that each time Nigeria spends its foreign exchange on products that can be produced locally, it creates wealth and employment for other economies of the world.