Growth muted in major sectors
Banking, consumer goods sectors under-perform inflation
Manufacturing entities still struggling

By Nkiruka Nnorom

THE much trumpeted expansion in the economy which has continued in the last three quarters as represented by improvement in macro-economic indices has failed to lift the fortune of companies operating in the country.

A review of financial results of leading companies on the Nigerian Stock Exchange, NSE, for the first quarter ended March 31, 2018 (Q1’18) showed  a poor start to the year as they struggled to break even during the three month period.

Financial Vanguard’s findings in the reports of the companies for the period showed that growth  in revenue and Profit Before Tax, PBT, was muted in almost all the major sectors, including the bellwethers comprising of banking, consumer goods and industrial goods sectors.

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A breakdown showed that revenue for the companies numbering 89 stood at N2.572 trillion, a mere 9.4 percent increase over N2.352 trillion recorded by the companies in the corresponding in 2017.

The combined pre-tax profit came in weaker at a paltry 2.5 percent increase to N800.93 billion in Q1’18 from N787.285 billion in the corresponding period in 2017, thereby lagging behind the inflation figure which, though declining over the period, stood at 13.34 percent as at the end of March 2018.

The numbers also contrasted the recent Gross Domestic product, GDP, number which showed that the economy expanded by 1.9 percent in Q4’17 and the Central Bank of Nigeria, CBN, data on Purchasing Managers’ Index, PMI, for April which indicated expansion in manufacturing and non- manufacturing sectors at 56.9 and 57.5 basis points respectively.

Further breakdown showed that the banking sector, which hitherto has been recording outstanding performance since Financial Vanguard commenced this review a year ago, managed to stay afloat as both revenue and pre-tax profit came in very weak. The pre-tax profit for the period closed flat, while the revenue saw marginal increase of 11.8 percent which under-performed inflation. The results also showed that the manufacturing entities represented majorly by consumer goods and industrial goods companies are neck deep in trouble as majority of the companies ended the quarter with a negative financial position.

For instance, Nigerian Breweries Plc, the second most capitalised stock on the NSE, closed the quarter with 12.5 percent decline in pre-tax profit; Cadbury Nigeria, GlaxoSmithKline Plc, Nestle Nigeria, and Dangote Flour Mills Plc ended the period in 67.2 percent, 67.3 percent, 4.0 percent and 43.3 percent PBT decline respectively. As a result, the consumer goods sector suffered 7.0 percent decline in pre-tax profit.

Market pundits, who spoke to Financial Vanguard, blamed the poor performance on slow pace of recovery in the economy, delay in passage of 2018 budget, insecurity in some parts of the country, which has constrained business operation in those areas and contraction in yield from federal government debt instruments, which affected income from banks.

Nonetheless, the banking sector topped the other sectors in terms of revenue, recording N1.074 trillion, which represents 41.8 percent of the total revenue of the 89 companies    for the period, followed by the oil and gas sector, which posted N461.597 billion, representing 18 percent of the companies’ total revenue. The industrial goods sector ranked third with N384.11 billion, which stood for 15 percent of the total revenue.

The consumer goods sector placed fourth with N264.027 billion revenue. This represents 10.2 percent of the 89 companies’ total revenue, while the insurance sector ranked fifth with N71.97 billion, which accounted for three percent of the total revenue for the period.

Again, the banking sector led in terms of profitability with N585.42 billion out of N800.93 billion PBT posted by the 89 companies, thereby accounting for 73 percent of the total PBT. This was followed by the industrial goods sector, which posted N107.70 billion profit before tax, which represents 13.4 percent of the total PBT for the period. The consumer goods sector placed third with N45.75 billion, representing six percent of the total pre-tax profit. The oil and gas sector was the next as it recorded N36.21 billion PBT. This accounted for five percent of the total profit, while the insurance sector posted N7.90 billion profit, representing less than one percent of the total pre-tax profit for the period.

Sectoral Analysis

The banking sector ended the quarter with mixed performance as some of the banks posted marginal growth in both revenue and profitability. Specifically, the 13 banks that have released their Q1’18 results recorded combined revenue of N1.074 trillion, 11.8 percent increase compared to N961.045 billion recorded in Q1’17. The banks’ pre-tax profit, however, closed flat at N585.42 billion as against N585.43 billion in the corresponding period in 2017.

“A lot of the profit the banks made in first quarter of last year was from investment in government securities when they were enjoying yield of close to 22 percent. If you compare that to this year, you will observe that rates have dropped drastically; we are looking at Treasury bill (364 days TB) at nine to 11 percent when at the same time last year it was about 18 percent.

“So, for the banks, they have lost a lot of revenue from investment income in federal government debt instruments and they have not been able to successfully switch their investment to loans and it will take some time to adjust their books to quality credits,” explained Mr. Johnson Chukwu, Managing Director/CEO, Cowry Asset Management Limited.

The inquest showed that Ecobank Transnational Incorporated, ETI Plc, led in revenue with N198 billion, representing 11 percent increase compared to N178.4 billion recorded in the same period in 2017. Zenith Bank Plc followed with N169 billion, representing 14.5 percent growth compared to N147.74 billion in Q1’17; FBN Holdings Plc ranked third with N138.9 billion revenue, representing 1.6 percent decline from N141 billion posted in the same period in 2017. Access Bank Plc was the next with N137.5 billion revenue, which represents 19 percent increase over N116 billion posted in 2017, while United Bank for Africa, UBA Plc, ranked fifth, recording N119.37 billion revenue against N101.25 billion in 2017, thus showing 17.9 percent increase.

Zenith Bank Plc led in terms of profitability, posting N54 billion PBT compared to N44.2 billion in Q1’17. This represents 14.5 percent increase. GTBank followed with N52.62 billion pre-tax profit, representing 4.4 percent increase over N50.39 billion recorded in the corresponding period in 2017, while ETI Plc placed third with N33.9 billion PBT, a 48 percent increase compared to N22.89 billion in Q1’17. Access Bank came fourth, posting N27.56 billion from N27.59 billion, which represents 0.6 percent decline, while Stanbic IBTC Holdings Plc came fifth with N26.7 billion PBT, which represents 43 percent increase compared to N18.6 billion in corresponding period in Q1’17.

Oil & Gas sector lifted by recovery in Seplat, Oando

The oil and gas sector, represented by eight companies reviewed by  FINANCIAL VANGUARD, is still    struggling as majority of the companies ended the quarter with decline in both PBT and revenue. However, the profit was lifted by Seplat Petroleum Development Plc and Oando Plc which recovered from a loss position in the preceding quarter. Analysis of the sector’s performance showed that the companies achieved N461.597 billion in revenue from N390.468 billion in Q1’17. This represents 18.2 percent increase within the period.The PBT grew by huge 1,513 percent to N36.208 billion from N2.24 billion in Q1’17 lifted by recovery in Seplat and Oando Plc.

Oando Plc led in terms of revenue with N150.55 billion, representing 8.2 percent increase over N138.27 billion in the corresponding period of    2017. Eterna Plc placed second with N54.33 billion revenue, 4.6 percent increase compared to N51.96 billion in    Q1’17, while Total Nigeria Plc came third with N75.65 billion, representing 6.4 percent decline over N80.46 billion recorded    in Q1’17.

Oando, again led    in profitability, rising by 1,106 percent from loss before tax of N647.03 million to N6.51 billion. 11 Plc (former Mobil Oil Nigeria) ranked second, recording 848 percent growth to N4.08 billion from 43.34 million PBT in Q1’17, while Seplat rose by 421 percent to N17.99 billion PBT from loss before tax of N5.61 billion.

Industrial goods sector also mixed

Though the performance of companies in the industrial goods sector was also largely mixed the sector closed the period in positive in both revenue and PBT impacted by Dangote Cement Plc’s performance. The nine companies that have so far released their results in the sector recorded N384.11 billion revenue, which represents 14.3 percent increase, compared to N336.03 billion in Q1’17. The Pre-tax profit at N107.70 billion was 22.2 percent increase compared to N88.14 billion in Q1’17.

Dangote Cement Plc towered above others, recording N242.12 billion in revenue, a 16.3 percent increase over N208.17 billion in Q1’17. Lafarge Africa followed in revenue, posting N80.63 billion, which represents    one percent decline from N81.31 billion recorded in Q1’17, while Premier Paints Plc ranked third with N50.40 billion    revenue, which represents 34.8 percent increase from N37.38 billion in 2017.

Portland Paints and Products Nigeria Plc led in percentage growth in profitability with 160 percent increase to N34.78 million from N13.38 million. Cement Company of Northern Nigeria, CCNN Plc, came second with 120 percent profit growth to N1.51 billion from N684.98 million in Q1’17. Paints and Coatings Manufactures Nigeria Plc recorded 44.3 percent profit growth to N23.95 million from N16.60 million, while Dangote Cement Plc placed fifth with 40.2 percent increase to N108.40 billion from N77.32 billion in Q1’17.

Consumer goods sector in lackluster performance

The consumer goods sectors had quite an uninspiring quarter as both revenue and the pre-tax profit ended in the negative region. Five out of the 10 companies analysed recorded profit decline. Revenue was muted with three of the companies recording decline in turnover, while the rest posted    marginal increase.

The companies posted combined revenue of N264.03 billion, representing seven percent decline from N282.67 billion in Q1’17. The pre-tax profit also declined by the same margin to N45.75 billion from N49.18 billion in Q1’17.

Nigerian Breweries Plc led in terms of revenue with N82.97 billion revenue, representing    9.1 percent decrease from N91.29 billion recorded in the corresponding period in Q1’17. This was followed by Nestle Nigeria Plc with N67.46 billion revenue, which represents 10 percent increase compared to N61.15 billion posted in Q1’17. Dangote Sugar Refinery Plc achieved N41.14 billion revenue,    down by 31 percent from    N59.53 billion in Q1’17. Dangote Flour Mills Plc came fourth with N26.3 billion revenue, representing nine percent decline from N29.05 billion in Q1’17, Unilever Nigeria Plc posted N25.82 billion turnover from N22.17 billion, representing 16.4 percent increase.

Unilever Nigeria Plc led in terms of percentage growth in profitability. The company    recorded    78 percent increase in profitability which rose to N3.92 billion in Q1’18 from N2.18 billion Q1’17, followed by Champion Breweries Plc with 71.2 percent growth to N96.51 million from N56.38 million. Nascon Allied Industries Plc recorded 33.2 percent growth to N1.56 billion from N1.72 billion, while Dangote Sugar Refinery posted 19.2 percent PBT growth to N8.39    billion from N7.04 billion in Q1’17.

Operators’ take

According to Mr. David Adonri, Managing Director/Executive Officer, Highcap Securities Limited, though the country has exited recession, growth in the economy is still at snail pace. “That is the reason the performance has not drastically changed. You know, the financial performance of companies changed drastically last year because of the movement from negative to positive, so the change was quite dramatic. Now, we are in positive but the rate of change in the positive is slow because the economy is normalising. It has not gathered momentum again for it to start ‘firing’ ahead.

“An important factor that is also affecting the economy is the insecurity in several parts of the country that has stifled consumption in most parts of the country. So, that has adversely affected the fortunes of most of the companies,” he said.

On the performance of the consumer goods companies, Johnson Chukwu of Cowry Asset Management, said: “Obviously there is a problem with consumer demand in the first quarter; the consumer demand is still very weak and if you look at the last report of consumer confidence, you will see that there is a decline in consumer confidence. So, what we are witnessing is as a result of low consumer demand partly due to low purchasing power and low disposable income.

“Over time, consumer purchasing power has been eroded by inflation and that will only be corrected when the proposed review of minimum wage comes into play.”

“For the industrial goods sector, the budget has not been passed and therefore, demand for cement and other inputs may have slowed down because it was expected that the budget would be passed in January, but up till now, the budget has not been passed,” he added.