•But profit remains subdued
•Analysts point to gloomy H1’19 scorecard
By Peter Egwuatu
AGAINST inflationary pressures and other operational challenges, corporate organisations in Nigeria appear to be focused on cost containment with the first quarter 2019, Q1’19, financial results indicating that growth in overhead has been significantly below inflation rate. But the strategy may have failed to support the bottom-line.
Administrative and operating expenses of 102 leading companies in the Nigerian Stock Exchange, NSE, in Q1’19 rose marginally by eight percent to N700.6 billion from N648.7 billion in the corresponding period of 2018.
At headline inflation rate of 11.25 per cent in Q1’19, the corporate entities showed greater resilience in inflation containment, staying ahead the pressure by 3.25 percentage points.
However, the reduced cost did not impact significantly on the bottom- line of the corporates as Profit Before Tax, PBT, at N469.3 billion, declined by 2.5 percent against the N481.3 billion they recorded in the corresponding period of 2018.
Meanwhile, analysts and stakeholders have attributed the poor bottom-line to the weak economy, stressing that half year performance will go the same way as the Q1’19.
They called on President Muhammadu Buhari to urgently appoint drivers of the economy in order to reverse the sluggish growth in Gross Domestic Products, GDP.
Financial Vanguard’s review of the performances of these companies in the various sectors showed that the banking sector recorded the highest expenses in absolute term with N484.2 billion in Q1’19 as against N454.1 billion in Q1’18 while the services sector led the high expenses chart in relative term, rising by 71.6 per cent to N7.13billion in Q1’19 from N 4.2 billion in Q1’18.
Industrial goods sector occupied the second position in sectoral expenses chart in absolute term recording N59.6 billion total expenses as against N46.6 billion Q1’18, while ICT/Computer sector occupied second position in relative term rising by 28.7 percent to N1.005 billion from N0.781 billion in Q1’18.
The Consumer goods sector took third position in absolute term recording total expenses amounting N53.5 billion in Q1’19, up from N50.6 billion in Q1’18 while Industrial goods sector occupied third position in relative term with 27.7 percent increase over the corresponding period of Q1’18.
Banking sector performance
Within the banking sector, Ecobank Group led the high expenses chart in absolute term recording N93 billion in Q1’19 as against N87.4 billion in Q1’18, while First Bank Holdings led in relative term surging by 26.9 per cent to N69.1 billion in Q1’19 from N54.5 billion in Q1’18.
First Bank also occupied the second position in absolute term. Trailing First Bank in absolute term was Zenith Bank recording N53.905 billion Q1’19 as against N57.286 billion Q1’18. Access Bank occupied the fourth position recording N50.210 billion as against N48.159 billion in Q1’18 while Stanbic IBTC took fifth position recording N50.142 billion Q1’19 as against N50.014 billion Q1’18.
Access Bank occupied the fourth position recording N50.2 billion as against N48.2 billion in Q1’18 while Stanbic IBTC took fifth position recording N50.1 billion in Q1’19 as against N50 billion in Q1’18.
Industrial goods sector
Dangote Cement Plc led the sector’s high expenses chart in absolute term recording N52.8billion in Q1’19, up from N41.4 billion while Cement Company of Northern Nigeria, CCNN Plc, led in relative term recording 169.5 percent growth in expenses to N2.299 billion from N0.853 billion Q1’18.
CCNN occupied second position in absolute term recording N2.3 billion in Q1’19 as against N0.853 billion in Q1’18. Trailing behind CCNN in absolute term was Notore Chemical recording N1.6 billion as against N1.6 billion in Q1’18. Vitafoam Nigeria occupied the third position posting N1.2 billion as against N1.04billion in Q1’18 followed by CAP Plc recording N0.438 billion as against N0.361billion in Q1’18 and BOC Gases came fifth recording N0.319 billion as against N0.253 billion in Q’18.
Consumer goods sector
Nigerian Breweries Plc led the sector in absolute term recording N21.2billion as against N20.6 billion in Q1’18 while Champion Breweries led in relative term with 87.7 percent increase to N0.441 billion from N0.235 billion in Q1’18. Nestle Nigeria came second position in absolute term recording N12.4 billion as against N11.2billion in Q1’18. Guinness Nigeria came third recording N8.5 billion as against N7.7 billion in Q1’18 followed by Dangote Sugar posting N3.4 billion as against N2.5 billion in Q1’18, and Unilever Nigeria came fifth recording N2.4 billion from N3.4 billion in Q1’18.
The banking sector also maintained leading position in Profit Before Tax, PBT, in absolute term recording N263.72billion in Q1’19, up from N233.99 billion in Q1’18, indicating a 12.7 percent growth while in relative term, the Services sector led the chart rising by 149.1 percent to N1.3 billion in Q1’19 from N0.122 billion in Q1’18.
Industrial goods sector came second in absolute term recording N85.65 billion PBT in Q1’19 as against N108.31billion in Q1’18, thus showing a decline of 20.9 percent. Conversely, in percentage term, Courier/Freight Forwarding sector occupied the second position as it went up by 97.2 per cent to N0.42 billion in Q1’19 from N0.212 billion Q1’18.
Consumer goods sector occupied third position in absolute term recording N49.7 billion PBT in Q1’19 as against N50.5billion in Q1’18, indicating 11.5 percent drop. Conversely, in related term, Airline sector came third rising by 38.9 percent to N0.32 billion in Q1’19 from N0.23 billion in Q1’18.
Commenting on the outlook, Managing Director, APT Securities & Funds Limited, Mallam Garba Kurfi said: “Nothing has changed from the Q1’19 to date and ,therefore, we expect no change in the companies’ performance by end of first half, HI’19, and that is why the NSE All Share Index, ASI, is going down despite the introduction of MTN. It portends same; we need drivers of the economy especially in the upcoming cabinets that can drive us better especially in the fiscal policy so as to compliment monetary policy.”
Mr. Ambrose Omoriodon, Chief Operating Officer, Invest Data said: “Q1’19 corporate scorecards had already revealed that all is not well with the economy which was finally confirmed by Q1’19 Gross Domestic Product, GDP, report that showed a slow down to 2. 01 percent from Q4 2018 position of 2.34 percent.
“The sluggish expansion of the Purchasing Managers Index, PMI, in the last two months in Q2’19 signals another weak earnings season ahead. First half of the year performance will be worse but few companies with strong numbers in 2018 full year and Q1’19 will likely maintain that trend.
“The gloomy state of the market reflects the weak economy and dwindling confidence in the whole system following from the fact that the government has consistently failed to champion a new course expected to stimulate the economy with policies and leadership style. This has over the last four years manifested in low productivity, which reflected in the latest decline in GDP.”
Commenting, Mustafa Chike-Obi, former Managing Director of the Asset Management Corporation of Nigeria, AMCON, and Goldman Sachs executive said: “The Q1’19 performance is a reflection of the sluggish growth of the economy. If we don’t have double digit growth by 2025, then Nigeria cannot compete effectively.
Double digit growth
The Nigerian economy has the capacity to grow at double digits with the right policies and government attitude. At a time one will expect that government will hit the ground running in this second four-year term, the Muhammadu Buhari administration continues to delay formation of a cabinet. One would have expected a formidable team of technocrats, not political jobbers, so as to effectively map out strategies and draw a roadmap that will drive productivity for economic growth in conjunction with the monetary policy to pull the economy out of its sluggish momentum to the path of sustainable growth.”
In his remark, Patrick Ajudua, National Chairman, New Dimension Shareholders Association of Nigeria said: “The performance of the companies in Q1 is a reflection of the Nigerian economy. A situation that budgets were not approved, cost of doing business still high as a result of poor infrastructure, national election just been concluded, so it’s difficult for cost minimization to be achieved. Well we hope that after successful election, budget now approved, implementation will commence soon. In order to improve and stimulate the economy for better half year, government must quickly put in place new economic team to give policy direction.
Mr. Sola Oni, Chartered Stockbroker and Managing Director, Sofunix Investment & Communications Limited, said: “Q1 was characterized by uncertainty prior to the last general election. There was massive share dumpling by foreign portfolio investors and their Nigeria counterparts on the back of unguarded comments by some politicians, signaling likely breakdown of law and order during the election. Macroeconomic variables were also unstable amidst continuous weak purchasing power of consumers. This operational atmosphere moderated corporate earnings as economic activities slowed down. However, some companies were able to weather the storm by posting higher than expected earnings despite the inclement operating environment.
“We expect Q2 to be upbeat for quoted companies as the election has come and gone and the federal government is sending messages of stability. The CBN’s governor has been retained to consolidate monetary policy; there are assurances that infrastructure deficits will be addressed. There is relative stability in the forex market with multiplier effects of access to raw materials for manufacturers. Insecurity is being tackled with renewed vigours. But issues such as taxation, faithful implementation of the budget gross unemployment and apparent disconnect between the capital and money market among others still remain the elephant in the house. However, we anticipate better Q2 corporate earnings in 2019.”