Again, investors rue deepening trouble, losses in real sector

•As Cadbury posts N27 billion loss

Again, investors have called on the government to save the real sector from total collapse and subsequent erosion of shareholders’ funds by finding practical ways to tackle the issue of the foreign exchange (FX) crisis in Nigeria.

This came as Cadbury Nigeria Plc reported a loss of N27.6 billion in its 2023 full-year operations, representing a 2,228 per cent decline from N1.3 billion pre-tax profit recorded in the corresponding period in 2022.

They warned that the banking sector which is currently posting improved performance would soon face a severe crisis with the huge losses posted by firms under the real sector who have pulled a large chunk of funds from banks as loans.

According to them, with the current harsh operating environment, especially the issue of FX shortages, the loan facility would not be properly utilised by these firms and would ultimately affect their ability to pay back.

Head Equity, Planet Capital, Dr Paul Uzum, said: “This is an indication that the real sector in Nigeria is in trouble. It explains why many multinationals are closing shops in Nigeria and indigenous manufacturing firms are shutting down. As it stands today only financial intermediaries like banks are doing well.

“Other multinationals especially those in the consumer goods sector are going through similar problems due to lack of supply of FX to support their businesses, Cadbury’s N27 billion loss for 2023 wiped out the entire shareholders’ capital. The firm will not be able to pay dividends for many years to come.

“The company incurred a N36 billion loss from its exposure to foreign currency loans. Some of the FX exposures were owed to its parent company. The company has indicated plans to convert this FX exposure to equity in 2024, thereby increasing its parent’s company investment in Cadbury Nigeria.”
Head Research, FSL Securities, Victor Chiazor, said the need to stabilise the FX market cannot be over-emphasised as major companies exposed to the volatile market may suffer the same fate and erode shareholders’ capital in the process.

Chiazor pointed out that the 2023 unaudited full-year results for Cadbury Nigeria showed a clear case of a company that has suffered significantly from the impact of the liberalisation of the foreign exchange market.

According to him, the company’s operations indicated that it made an operating profit of N8.39 billion up from N194 million reported for in 2022. “However, its operating profit was wiped out on the back of realised and unrealised foreign exchange loss of N36.93 billion reported for the period.

“This loss was significant enough to also wipe off the company’s shareholders funds from N13.3 billion reported in FY’22 to a negative N15.08 billion for FY’23.

President of the Ibadanzone Shareholders Association, Eric Akinduro, warned that more crisis looms for the entire system if the government fails to find a lasting solution to the problem.

He said the company’s financial crisis reflects what is happening in the economy. The manufacturing and other sectors aside from banking are recording losses which majorly translated from the FX crisis.

“My appeal to the government is to look for a better and practicable approach to FX the country is experiencing otherwise more crises loom for the entire system,” Akinduro said.

Recall that about seven firms listed on the exchange – Airtel, MTN, Nigeria Breweries, Guinness Nigeria, Nestle Nigeria, Dangote Cement and Cadbury Nigeria incurred N623.6 billion losses in its half-year 2023 operations due to naira depreciation. The issue had extended into the full year 2023, an indication that the worst may be ahead for the real sector of the economy.