FrieslandCampina Nigeria expects no early recovery after weakening naira shot forex expense to N18.6bn

FrieslandCampina Nigeria, the country’s foremost dairy producer, sees no quick fix at least this year to the complications an unusually vast foreign exchange expense has caused in its operations.

According to details of its recently issued first-half earnings report, the company’s financials took a pounding after continuous depreciation of the naira increased the exchange rate of the naira to the dollar and sent its long arrears of payables to foreign trade partners soaring in local currency.

At N18.6 billion, foreign currency costs ate up what was posted in gross profit, throwing its bottom line into a loss of N11.6 billion, the first time in five years or more.

“The company foresees that the results for the year will be impacted, as we do not expect a full recovery of this significant exceptional expense in this financial year,” it said.

The local subsidiary of Amersfoort-based Royal FrieslandCampina N.V., itself the world’s biggest dairy cooperative, FrieslandCampina generated N157.2 billion in revenue for the period compared to N170.7 billion a year ago, with exports contributing less than one per cent of that.

Supply of the dollar to the Nigerian Foreign Exchange Market (so lately named) has been in dribs and drabs as the government earnings from abroad shrink, forcing it to conserve its grossly limited reserves and leaving manufacturers, who depend on imported raw materials, at the receiving end.

Now, the ramifications are taking a more harrowing turn for multinationals in the country exemplified by an April disclosure by Heineken-backed Nigerian Breweries of a potential shutdown of operations if its parent company does not agree to convert a dollar-denominated debt into an intercompany loan.

This month, British drugmaker GlaxoSmithKline (GSK), makers of Panadol, Andrews Liver Salt, Ribena, Lucozade and other popular consumer brands also announced its planned exit from the country.

GSK refrained from divulging its reason from exiting Africa’s largest economy but its half-year earnings report issued on the same day of the announcement showed unrealised exchange loss was the single biggest drain on its financials as revealed in its cashflow statement.

FrieslandCampina’s current liabilities for the review period stood at N339.4 billion compared to current assets of N300.6 billion, showing its working capital could be strained for the rest of the year.