Manufacturers Trim Losses in Q2 2024 as FX Costs Fall and Reforms Take Effect

Nigerian manufacturers have shown signs of financial improvement in the second quarter of 2024 with losses significantly reduced following a drop in finance costs and the effects of recent federal reforms.

This positive shift provides a glimmer of hope for an industry that has grappled with various economic challenges over the past year.

Analysis of the financial statements of 12 leading consumer goods firms, revealed a notable decrease in combined losses.

International Breweries Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc, Nestle Nigeria, and Dangote Sugar Refinery Plc saw their collective losses narrow to ₦222.5 billion in Q2 2024, down from ₦331.4 billion in the previous quarter.

However, compared to the same period last year, losses have widened from ₦212.9 billion.

Champion Breweries Plc, a notable exception, reversed its Q1 loss of ₦44 million into a profit in Q2. Other firms like BUA Foods Plc, Lafarge Africa, and Nascon Allied Industries Plc reported total profits of ₦102.9 billion, an increase from ₦62.2 billion in the preceding quarter.

Despite the overall financial improvement, some companies experienced a decline in earnings. Unilever Nigeria Plc, Dangote Cement Plc, and BUA Cement Plc saw their combined earnings drop to ₦17.5 billion from ₦134.0 billion. This decline underscores the ongoing volatility within the sector.

The total revenue for the 12 manufacturers surged to ₦2.48 trillion in Q2, marking a 13.2 percent increase from ₦2.19 trillion in Q1.

This uptick in revenue highlights a broader recovery trend, driven by improvements in foreign exchange (FX) availability and policy reforms.

Femi Egbesola, the National President of the Association of Small Business Owners of Nigeria (ASBON), attributed the financial respite to increased stability in the FX market.

“We are witnessing some policy reforms yielding results. The stability in the FX rate has improved access to foreign exchange, which helps in controlling prices and boosting profitability,” Egbesola noted.

Government interventions, including tax incentives and the removal of certain levies, have also contributed to the sector’s stability.

ASBON reports that these measures, along with increased liquidity from intervention funds, have helped manufacturers weather the economic storm.

In addition, many manufacturers have taken strategic steps to ensure their survival. This includes shutting down less profitable operations and focusing on viable projects.

Some firms have also renegotiated liabilities and adjusted their product volumes to manage costs better.

Gabriel Idahosa, President of the Lagos Chamber of Commerce and Industry (LCCI), commented on the broader economic context.

“The recent stability in the exchange rate has made scenario planning easier for businesses. While the fundamentals remain challenging, there is hope for further improvement in the third quarter if inflationary pressures ease.”

Despite the progress, the sector continues to face significant challenges, including high inflation rates and volatile FX conditions.

The Central Bank of Nigeria’s efforts to stabilize the naira, along with its monetary policy adjustments, remain crucial for sustaining the recovery.

As Nigeria’s manufacturing sector navigates these turbulent times, the improved financial performance in Q2 2024 offers a cautious optimism.

Continued reforms and strategic adjustments will be key to sustaining this positive trend and ensuring long-term stability and growth in the industry.