Forex shortage tips FrieslandCampina Nigerian unit into record quarterly loss

The local subsidiary of Netherlands-based dairy maker Royal FrieslandCampina NV incurred a record net loss of N10.3 billion for the first quarter of the year.

The loss was recorded after the company partially settled accrued foreign currency-denominated obligations to trade partners, which Nigeria’s foreign exchange scarcity has blown out of proportion in recent years.

That compares with a net profit of N2.9 billion reported for the same period last year.

A stack of past dues reaching back to 2020, unable to be repaid as the company couldn’t source enough forex, triggered “an exceptional foreign currency expense of N14.1b,” it said in its earnings report.

That added to higher interest costs at N4 billion which had the most squeeze on its bottom line for the period.

FrieslandCampina WAMCO Nigeria, the manufacturer of noble milk brands like Peak and Three Crowns and the infant formula Friso, heftily relies on imports and foreign exchange for its operations.

It expects the development to have sweeping implications for its financials this year, saying a full recovery of the huge exceptional expense will likely happen beyond December.

A foreign exchange crunch, erupting in the heat of the coronavirus pandemic in 2020, is tightening the noose on FMCG firms in Africa’s largest economy, many of whom depend on imported raw materials to run.

Last month, Nigerian Breweries said a drought of dollars and euros similarly ramped up its outstanding payable to trade partners abroad to €110 million, a debt that must be quickly redeemed to prevent the country’s biggest brewer from a partial or total shutdown.

Unilever Nigeria declared in a statement in March it would be prioritising “business continuity measures that reduce exposure to devaluation and currency liquidity” after announcing a planned end to the production of its popular brands, including Omo, Sunlight and Lux.

For the three months under review, FrieslandCampina WAMCO Nigeria posted a slight drop in revenue to N81.9 billion. Cost of sales contracted by 6 per cent, but selling and distribution costs accelerated by one-fifth to almost N7 billion.

The company trades its shares over the counter at Lagos NASD OTC Securities Exchange, where they are quoted at N71.50 per unit and a market capitalisation of N139.6 billion at market close on Tuesday.

Royal FrieslandCampina NV, the parent company, highlighted an exchange rate loss of €63 million (N30.9 billion at N490.4/€1) in its Nigerian operation in its 2022 financial statement.