Several companies have reported foreign exchange gains in their Q2 earnings due to the devaluation of the naira. According to data compiled by BusinessDay, Lafarge Cement, AXA Mansard, Fidelity Bank, and UAC of Nigeria all recorded FX gains in the first six months of 2023.
Lafarge Cement reported an FX gain of N2.2 billion in H1 2023, while its profit after tax decreased to N35.4 billion from N37.4 billion in the same period of 2022. Additionally, its finance income increased to N4.4 billion from N191 million.
AXA Mansard, an insurance company, recorded an FX gain of N11.1 billion in H1 2023, related to its investments in FX. This marked a significant improvement compared to a loss of N0.578 billion in the same period of 2022. The firm's profit after tax also rose to N13.1 billion, up from N1.9 billion in the previous year.
In the banking sector, Fidelity Bank reported an FX gain of N33.19 billion in H1 2023, a notable increase from N2.5 billion in the same period of 2022. The bank clarified that the net foreign exchange gain represents unrealized gains from the revaluation of foreign currency-denominated assets and liabilities held in the non-trading book. Its profit after tax grew to N53.2 billion from N22.8 billion.
UAC of Nigeria plc, the country's oldest conglomerate, reported an FX gain of N3.6 billion in H1 2023, compared to a loss of N337 million in the same period of last year.
Experts explained that the level of exposure to foreign currency determines whether a company will gain or lose from currency fluctuations. The greater the amount of exposure to foreign currency, the higher the risk of exchange rate fluctuations, which could have a serious impact on any company with that exposure. Companies with naira-denominated assets will benefit from the recent currency devaluation, as the value of their assets will increase in dollar terms. On the other hand, companies with naira-denominated liabilities will be penalized, as the value of their liabilities will increase in dollar terms.
Ngozi Odum, a financial services analyst at CardinalStone, highlighted that banks can book FX income through investments in FX instruments, FX trading, and FX revaluation, among other means.
