The weakening of the naira resulted in a combined foreign exchange loss of N8.31bn for four pharmaceutical firms listed on the Nigerian Stock Exchange in 2023.
The 2023 financial statements of GlaxoSmithKline Consumer Nigeria, Neimeth International Pharmaceuticals, Fidson Healthcare and May and Baker Nigeria filed on The Nigerian Exchange were analysed by Sunday PUNCH.
GlaxoSmithKline Consumer Nigeria, which has decided to end manufacturing operations in the country, had the worst forex loss among the pharmaceutical companies in 2023, losing N4.52bn instead of the N935,000 loss it recorded in 2022.
GSK announced in August last year that it would stop its 51-year operations in the country and transition to a third-party direct distribution model for its pharmaceutical products.
It reported a 35.22 per cent drop in revenue to N16.44bn in 2023, underpinned by the sales of its pharmaceutical products, which dipped 81.77 per cent during this period.
The firm, which is renowned for products such as Augmentin, Neosporin, Panadol, Sensodyne, Advair, Ventolin, and Theraflu, stated in its half-year 2023 result that the forex scarcity in the country was making it difficult for it to settle foreign currency-denominated trade payables with product suppliers.
Although it succeeded in reducing the cost of sales by 43.93 per cent to N10.35bn in 2023 from N18.45bn in the corresponding period of the previous year, post-tax profit declined by 33.76 per cent to N510.02m.
Neimeth suffered a N1.51bn forex loss in 2023, compared to the N2.43m forex gain it enjoyed in the previous year.
Consequently, its revenue plunged by almost 40 per cent to N2.21bn, due to a 41.87 per cent drop in income from pharmaceuticals to N2.07bn during this period.
The 36.50 per cent dip in its cost of sales to N1.48bn from N2.32bn in 2022 could not stop the firm from recording N2.87bn loss in 2023.
It posted a N406.3m loss in the prior year.
An economic and capital market analyst, Rotimi Fakayode, informed Sunday PUNCH that pharmaceutical companies suffered heavily due to currency depreciation as they relied on imports for their raw materials.
“Most of what they need is imported, even the industrial starch that they use to make tablets is imported. As long as their raw materials are import-dependent, there is very little they can do.
“But good enough, the exchange rate is coming down. If it stabilises, they will have an improvement in their financial performance,” he stated.
The Chief Executive Officer of High Cap Securities, David Adorin, told Sunday PUNCH that the sudden transition from a semi-fixed-exchange rate to the floating of the naira caused the forex loss the pharmaceutical firms suffered in 2023.
Many of the companies, he observed, were unprepared to hedge against exposure to foreign exchange risk.
“This year, the market will continue to determine the value of the naira. That kind of massive depreciation is not likely to occur this year.
“The companies will rationally by hedging their forex exposures. There derivatives in the Nigerian capital market their forex exposures, to enable them to mitigate against their losses whenever the currency moves against them,” he expounded.
The naira suffered significant depreciation last year, following the decision of the Central Bank of Nigeria to harmonise the different segments of the forex market on June 14.
The local currency lost 92.6 per cent of its value between June 14 and December 31, 2023, closing the year at N907.11/$.
The naira weakened to a record low of 1,534/$1 at the Nigerian Autonomous Foreign Exchange Market on February 21 and a low of 1,830/$1 at the autonomous market on February 21.
However, the local currency has strengthened against the dollar to 1142.38/$ at the official forex market on Friday, according to data obtained from FMDQ Securities, following sweeping reforms by the apex bank.
The CBN, on October 12, 2023, unbanned the 41 items that were restricted from accessing forex in the official window on June 23, 2015.
In February, it instructed banks to use naira to settle dollar remittances sent via international money transfer operators.
More so, Fidson’s exchange loss was worsened by 66.26 per cent to N1.26bn in 2023 from N758.6m in the previous year.
Despite the huge forex loss it suffered and the 36.36 per cent rise in its cost of sales to almost N32bn in 2023, Fidson grew revenue by 30.56 per cent to N53.05bn.
However, post-tax profit tanked by 13.84 per cent to N3.61bn, compared to N4.19bn in 2022.
May & Baker, on the other hand, lost N1,08bn to forex differential in 2023.
However, it defied the forex loss odds and improved revenue by 37.46 per cent to N19.7bn, buoyed by income from pharmaceuticals that was up by 37.44 per cent during this period.
The firm, meanwhile, saw post-tax profit dip by 27.34 per cent to N1.08bn from N1.49bn in 2022, dragged down by the cost of sales that rose by over a quarter and administrative expenses that ballooned by 119.15 per cent to N2.71bn during the period under review.
