Forex crisis pushes up profits for local firms
The inclusion of oil palm products among the 41 items not eligible for official foreign exchange (forex) at the interbank market may have boosted the fortunes of local producers of the items even as manufacturers have continued to explore local sourcing option to bridge the raw materials gap.
According to the half-year (H1) results of firms operating within the sector, the importation of crude palm oil by competitors has become more expensive.
This is due to the Central Bank of Nigeria (CBN) policy which pushed the demand for forex by this group out of the interbank into the parallel market, thus making domestic producers like Presco Plc and Okomu Oil Palm Plc to record growth.
While many manufacturers are battling with forex sourcing issues, soaring importation costs and, in extreme cases, marked forex losses on foreign currency loans, the latest FBN Capital report has shown that some local producers and banks may be reaping huge rewards from the foreign exchange policy.
The Manufacturers Association of Nigeria (MAN) says lingering forex crisis has made many of its members to explore the option of sourcing their raw materials locally, while it has created an inroad for investors to raise their stake in restricted items.
MAN President, Dr. Frank Jacobs, noted that the oil palm sector may not be the only one enjoying a positive outlook in their books, as other players that commenced their backward integration plan have been able to mitigate the shocks of the foreign exchange crisis.
Jacobs explained that new investors were already investing in flat glass sheets hitherto imported into the country for building windows and doors, while other manufacturers are investing heavily in backward integration plans that will check their dependence on imports.
“The forex crisis has created opportunities for new investments in the manufacturing sector, especially for the excluded items. It may take time before many firms bounce to profitability due to exposure to the forex market,” he added.
With plans to invest N3 billion in its Dairy Development Programme (DDP) already at its pilot stage, FrieslandCampina WAMCO for instance, has commenced sourcing milk from local dairy farmers, while exploring measures to upscale the production capacity of the farmers as part of strategies to address the challenges of importation.
Indeed, Presco and Okomu Oil Palm recorded high increase in profitability and revenue ahead of forecasts in the comparable period of 2015.
In the unaudited third quarter result of 2016, Presco’s revenue grew year-on-year to N11.94 billion from N8.04 billion; profit before tax and after tax also grew to N9.71billion from N4.73 billion and N6.80 billion from N3.43 billion.
The results were ahead of Presco’s forecasts as sales and profit before tax rose reflecting impact of strong CPO sales. These positives completely offset its year-on-year increase in operating expenses and forex losses combined.