Breaking News
Translate

Companies record weak earnings amidst sluggish economic growth

Banking, agric, consumer goods sectors under-performed
As oil & gas, conglomerates sectors lead profitability

By Nkiruka Nnorom

THERE are indications that businesses are still struggling to stay their head above water given the figures emanating from their operations, which also exposed the fragility in the economy.

Figures extracted from companies financial reports for the year ended December 31, 2018, showed a very weak growth in revenue at 6.4 percent, though profit before tax, PBT, for the period surged 170.7 percent.

Leading companies totalling 88 quoted on the NigerianStock Exchange (NSE) recorded combined revenue of N9.74 trillion, a  6.4 percent  growth compared to N9.16 trillion posted in 2017 financial year principally due to decline in the banking, agriculture and consumer goods sectors.

Though marginally higher, but the numbers are reflective of slowed growth in the economy during the period under review. Over 2018, the Nigerian economy grew by mere 1.93 percent.

FG commences training of stakeholders on oil, gas sector Measurement

However, the pre-tax profit jumped to N4.14 trillion from N1.53 trillion, representing 170.7 percent growth, owing largely to outstanding performance in the oil and gas and conglomerates sectors.

Market operators, who spoke to Financial Vanguard attributed the weak growth in revenue to several factors, including rising insecurity in the country, massive dumping of goods from other countries, challenges at the Apapa corridor, which limits movement of goods, while regulatory headwind among other factors posed challenges to the banking sector.

Best revenue performers

Financial Vanguard’s analysis showed that the construction and real estate sector towered above others in terms of percentage growth in revenue. The sector recorded 33.4 percent increase in revenue to N201.1 billion from N150.8 billion, followed by the oil and gas sector, which rose by 31 percent to N1.90 trillion from N1.45 trillion. The insurance and industrial goods sectors ranked third and fourth with 19 percent and 12 percent revenue growth to N171.1 billion from N142.6 billion and N957.9 billion from N850.8 billion respectively.

Worst revenue performers

The agriculture sector affected revenue growth the most as the sector declined by 6.9 percent to N28.35 billion from N30.45 billion. This was followed by the consumer goods and the banking sectors, which fell 4.9 percent and 0.45 percent to N1.01 trillion from 1.07 trillion and N4.43 trillion from N4.45 trillion respectively.

Best PBT performers

The oil and gas sector and conglomerates sectors led in pre-tax profit in percentage terms, posting 80.9 percent increase each to N1.23 trillion from N67.67 billion and N16.23 billion from N8.97 billion respectively.

Worst PBT performers

The construction and real estate sector, which incidentally posted the best performance in revenue, led the decliners in PBT, dropping by 1,302 percent to N8.98 billion loss against N747 million profit in 2017 on account of worsening fortune of UAC Property Development Company Plc and Arbico Plc. The healthcare/pharmaceutical sector, closed as the second worst performing sector in PBT with 36.3 percent decline to N1.791 billion from N2.81 billion, while the consumer goods and insurance sectors recorded PBT decline of 21.8 percent and 17.5 percent to N132.9 billion from N169.9 billion and N16.3 billion from N19.8 billion respectively.

Banking sector in mixed performance

The banking sector, which hitherto has been one of the best performers since Financial Vanguard commenced this review, recorded a mixed performance during the year. The revenue decreased by 0.45 percent to N4.43 trillion against N4.45 trillion in the previous year as all the banks posted only marginally increase, while four of them – Zenith Bank, FBN Holdings Plc, Union Bank of Nigeria, UBN Plc, and Unity Bank recorded outright decline in revenue.

FCMB Group, Access Bank Plc and Sterling Bank emerged the top performers in terms of percentage growth in revenue, with their revenues rising by 77.7 percent, 15.2 percent and 14 percent to N177.3 billion, N528.7 billion and N152.2 billion respectively.

Unity Bank Plc led profitability in percentage term, as its pre-tax profit rose by 109.9 percent to N1.4 billion from N14.2 billion losses in 2017. FCMB followed with PBT growth of 72 percent to N18.44 billion, while Wema Bank Plc ranked third with 58 percent increase to N4.83 billion. Stanbic IBTC Holdings Plc and UBN posted 44.1 percent and 33 percent PBT increase to N88.2 billion and N18.5 billion respectively.

Consumer goods in negative performance

The consumer goods sector, battling with low consumer wallet, recorded a very abysmal performance as both revenue and profitability went down during the year. The revenue for the year declined by 4.9 percent to N1.01 trillion from N1.07 trillion as almost all the companies recorded revenue decline except Nestle Nigeria Plc, Unilever Nigeria Plc and Cadbury Nigeria Plc which posted marginal increase of nine percent each.

The pre-tax profit for the sector was also down 21.8 percent to N132.9 billion from N169.9 billion as huge losses in Dangote Flour Mills, Champion Breweries and Nigeria Breweries Plc negated the performance. Of the 10 companies reviewed in the sector, Cadbury Nigeria achieved outstanding pre-tax growth of 249 percent, while Nestle and Unilever recorded marginal increase of 28 percent and 19 percent respectively.

Industrial goods

Both revenue and PBT in the sector saw marginal increase of 12.6 percent and 4.8 percent respectively. Of the nine companies reviewed, four of them recorded decline in revenue, while the rest, with the exception of Cement Company of Northern Nigeria, CCNN, that posted 62 percent increase in revenue, posted just minimal increase in revenue.

Meanwhile, Meyer Plc and Portland Paint Plc led in terms of percentage growth in PBT, rising by 168 percent to N182.30 million from negative N264.8 million and 148 percent to N307.53 million from N123.9 million respectively.

Insurance sector in a mixed performance

The insurance sector, which has always been an under-performer, recorded a mixed performance as its revenue rose by 19.98 percent to N171.1 billion from N142.61 billion. The pre-tax profit for the period fell by 17.5 percent to N16.30 billion from N19.76 billion impacted by losses in Prestige Assurance and Sun Insurance which fell by 20.3 percent and 96.1 percent respectively.

Operators’ remarks

David Adonri, Managing Director/CEO, Highcap Securities, in his reaction, said: “The economy is under-performing, the growing security in the country is grossly affecting the businesses of these companies, thereby reducing their turnover. Again, there is increase in the rate of dumping of the products which are produced here in Nigeria with imported substitute. Also, the cost of doing business in Nigeria is one of the highest in the world and that cost too is eating into their profit.

“If you look at Lagos, for instance, some of the companies can no longer collect goods directly from Apapa Port. They have to make arrangement (like PZ Cusson) for the goods to be carried through the Lagoon to Ikorodu and then to where their factories are located. So, these are part of the costs the companies now have to bear. Those are factors that have reduced the turnover of the companies and their profit.”

He said the performance of the banking sector is a direct reflection of happenings in the real sector. “The banking sector services the real sector. So, if the real sector is not performing well, the ability of borrowers to pay back their loans from the banking sector becomes remote.

“A lot of the banks are carrying huge Non-Performing Loans, NPLs. Secondly, the sector is labouring under huge constraints. They are forced under the monetary policy to keep 22 percent of their liquid asset with the Central Bank of Nigeria, CBN, and that reduces the amount of cash available to them to do business coupled with the impact of Treasury Single Account, TSA. A lot of their operations are disrupted in several parts of the country that are in a state of war.”

Doing a sector-by-sector analysis of the performance during the period, analysts at United Capital Plc, a Lagos-based investment banking firm, said: “While the broader economy continued on the path of recovery in 2018 consumer goods players were faced with a different economic reality as consumer wallets remained strained.

“On a year-to-year (y-o-y) basis, Nestle and Unilever were the only two fast moving consumer goods companies to grow revenue and profit (Pre and Post-tax) in 2018, a performance that was largely supported by the inelastic nature of their core food segments and prior efforts at deleveraging their balance sheet.

“For the brewers, graduated increase in excise duties by the federal government impacted revenue negatively, while for flour millers and sugar refiners, Apapa gridlock continued to affect their performance negatively.”

They opined that fixing the current infrastructural deficits in the country would go a long way in alleviating the problem in the sector.

For the oil and gas sector, they said: “In 2018, downstream players struggled with the challenges of a fixed price regime (N145/litre) amid rising crude prices at the global space. A sustained uptick in oil prices drove Nigerian National Petroleum Corporation, NNPC’s under-recovery to N487.9 billion between January 2018 to August 2018. This kept private marketers on the sidelines while the NNPC carried the burden as the sole importer of petrol.”

Shedding light on the performance of companies in the agriculture sectors, they explained that 2018 was particularly a challenging year for oil palm players as local foreign exchange, FX, liquidity, declines in global Crude Palm Oil, CPO, price and a continued porous border, encouraged the smuggling and importation of CPO, thereby negating the ability of the players in the industry to grow their revenue.

2019 outlook

Continuing, the analysts at United Capital said: “Our view on the Fast Moving Consumer Goods, FMCGs, sector remains modestly positive on the back of a gradual recovery in the economy. However, challenges to volume growth may persist due to bottlenecks to distribution. Pressure on volume growth and transport cost is likely to persist as the difficulty associated with the gridlock at the Lagos Port is unlikely to go away in the interim.”

For the oil and gas sector, the analysts stated that a very bright spot for the industry remained the private refinery being built by the Dangote Group – expected to roll out completely by 2020. According to them, “the project would alter the total dynamics of the industry through lower cost burdens and reduced exposures to external shocks.

“Furthermore, the NNPC is also involved in negotiations to improve the existing refining capacity. If these plans materialize, it would support domestic supply and underscore a reduction in imports.”

For the agric sector, they said that players would continue to benefit from favourable government policies and cheaper loans this year, leaving room for further production expansion.

“Overall, we see slightly higher global CPO prices in 2019. We also expect this to translate to local prices, as the expected slight depreciation of the naira in 2019 should make CPO imports a little less attractive,” they stressed.


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.