Anxiety grips corporate Nigeria as economy weakens

Broad Street, Lagos

As the Nigerian economy continues to show signs of weakness, Corporate Nigeria is having a hard time keeping its books strong and impressive, indeed corporations have had mixed richly performances in the 9 months to September 2018. The economy which crawled at 1.9 per cent in the first quarter of the year, continued to limp 1.5 per cent by the second quarter giving an indication of its underlying fragile state.

Corporations, however, have shown stoic resistance to the economy’s downward drag. Most of the larger companies have, contrary to expectations, strengthened their fundamentals.

For example, Nestle Nigeria’s results for nine months of 2018 recorded a 10 per cent jump in revenues from N185.2billion in 2017 to N201.1billion in 2018. profit before tax (PBT) also trended upwards by a stiff 39 per cent from N34.4 billion in 2017 to N48.08billion in 2018 while the beverage makers profit after tax grew 44 per cent from N22.9 billion to N33.1 billion in 2018. Expectedly the banking sector equally showed ability to withstand blustery headwinds.

GT Bank Plc, arguably one of the most successful financial institutions on the continent by return on equity and assets, posted a 13 per cent rise in profit on the back of lower impairment charges. The lenders result in the third quarter ended September 2018 also saw a double digit rise in fee and commission incomes.

The bank’s profit after tax (PAT) rose 13 per cent to N142.22 billion, buoyed by a 19.47 per cent increase in fee and commission income to N40.35 billion, driven by 75.49 per cent rise in commission on foreign exchange deals and transfer related charges, which was up 64.85 per cent.

Of equal Significance was the 80 per cent cut in its impairment charges to N1.74 billion in Q3 2018 from N8.36 billion in the contemporary period last year. The improvement in loan quality was instrumental to the improved showing of the bank despite interest income dipping -4.32 per cent to N237.55 billion, dragged down by lower revenues from loans and advances which dropped -7 per cent.

The bank’s other operating expenses increased 11.16 per cent to N58.94 billion, while personnel cost climbed 14.18 per cent to N28.12 billion.

Higher cash and bank balances, which rose 28.86 per cent, propelled the bank’s total assets up 2.45 per cent to N3.43 trillion, in spite of a drop in its loans and advances and financial assets held for trading.

However, Nigerian Breweries Plcrecorded a Profit After Tax of N14.7billion for the nine months ended September 30, 2018, a decline of 38.4 per cent from the N23.9 billion achieved in the corresponding period of 2017.

The Brewers Operating Activities dropped by 34.4percent from the N42.3 billion recorded in the same period last year.

Profit before Tax also dipped by 34.7 percent from N34.4billion recorded in 2017 to N22.4billion in the period under review.

The company attributed the decline to the new excise duty regime and higher rate of beer introduced by the Federal Government in June 2018, adding that affordability in weak economy was also traumatic for the firm. The Giant Brewer explained that the Company undertook a right-sizing exercise which resulted in a substantial one-off cost write-off during the quarter. Nigerian Breweries Plc declared an interim dividend of N4,798, 141, 231 (four billion, seven hundred and ninety eight million, one hundred and forty one thousand, two hundred and thirty one Naira), that is, 60 (sixty) kobo per ordinary share of 50 kobo in the share capital of the Company, for the period ended September 30, 2018

Also, Zenith Bank Plc recorded a Profit Before Tax (PBT) of N167 billion in nine months ended September 30, 2018, an increase of 9.7 per cent over N152.55 billion reported in nine months ended September 30, 2017.

The group unaudited result and accounts disclosed that profit after tax also rose by 11.6per cent to N144.2 billion in nine months ended September 30, 2018 from N129.24 billion reported in nine months ended September 30,2017.

Notably, the group gross earnings dropped by 10.7 per cent to N474.6 billion in nine months 2018 from N531.3 billion reported in prior nine months unaudited results.

Amidst a challenging operating environment, the Group optimised its bottom line through efficient treasury and liquidity management which resulted in a 31 per cent decline in interest expense to N110.5 billion in nine months of 2018 over the N160.3billion prior period.

Also, interest income dropped by 6.3 per cent to N339.06 billion from N361.8 billion reported in nine months of ended September 30, 2018.

Consequently, the group Net interest income rose by 13.4 per cent to N228.5 billion from N201.49 billion reported in nine months ended September 30, 2018.

Guinness Nigeria Plc was able to ramp up its revenue by 14 percent from N125.92 billion in June 2017 to N142.98 billion in 2018. The company was able to reduce finance cost by 54 percent following the rights issue, while the profit after tax was up 249 percent in the period under review. Prior to this period the company had suffered a protracted set back emanating from high finance cost and high inventories caused by insecurity in the Northern Nigeria.

11(Formerly Mobil Nigeria) Plc results for the nine months for 2018 showed its profit before tax increased by 58 per cent from N6,826billion in 2017 to N11.646billion. While its revenue rose 42 per cent from N88.246billion to N125.042billion, profit for the period also grew 71 per cent from N4.593billion to N7.871billion.

However, the company ramped up its cost of sales by 44.4 per cent from 77.7billion to N112.2billion in 2018.

Oando Plc, one of Africa’s largest integrated energy solutions provider has beat analysts’ expectations, having posted impressive results for the nine months period ended September 2018. The company posted a profit of N10.4 billion, representing a 46 per cent increase, compared with N7.1 billion it recorded in same period of 2017.

The firm attributed to the continued increase in oil prices and sales volumes, Nigeria’s exemption from the production cut by the Organisation of Petroleum Exporting Countries (OPEC), capital discipline and reduced disruptions on production activities in the Niger Delta.

This is the third consecutive quarter the company is performing impressively in the year 2018.

Surprisingly, the firm has performed well in the midst of shareholder crisis which is still being investigated by the Securities and Exchange Commission (SEC).

Some of these companies defied the threat of weak and unproductive economy.

Experts have always held the view that the performance of any nations economy reflects and influences the results of its companies, firms and other business activities. Even if this is not the case at all times, strong economy significantly infects with strong growth while a weak economy tends to weaken or drag down the operating fundamentals and affects performances negatively.

Third quarter score cards of corporate Nigeria has been mixed, but it tilted more on the positive given the verdict of those who have poured through the books.

Most of the companies especially the big ones have infact, defied the sagging economy.The economy has suffered exploding unemployment, high inflation which has scaled down from 18 per cent in January 2017 to 11.2 per cent, huge bills of fuel subsidy payment, lending rate at between 25 and 30 per cent.

There is unprecedented insecurity in the country perpetrated by Fulani Herdsmen and Boko Haram Sect that are competing for which group would out compete the other with killings in Northern Nigeria and Middle Belt.

Many industry stake holders have accused the government of lack of focus in managing the economy, where debt is ballooning at $22bn and its servicing gulps over 60 per cent of revenue. All these have conspired to constitute a drag in the way the economy is managed, prompting international rating agencies to add their voices.

Recently,the Economist Intelligence Unit (EIU), the research unit of The Economist Magazine  warnedin a reports that the Nigerian economy was deteriorating and sinking  and would worsen if President Buhari is re-elected for a second term in 2019.

EIU went on to predict that the opposition Peoples Democratic Party (PDP) would defeat Buhari of the ruling All Progressives Congress (APC) in the upcoming 2019 presidential election.

In the same vein, the HSBC had noted that President Buhari’s approval rating was crumbling, indicating that the country is not being managed and steered in the right direction, reflecting in the excruciating hardship in the country.

Recent report revealed that Nigeria’s Gross Domestic Product (GDP) per capita, for Nigeria in 2017 was $2,412.41, while that for South Africa was $7,524.51 in the same period.

The World Bank recently reduced its growth projection for Nigeria in 2018 to 1.9 per cent, down from the 2.1 per cent it had estimated for the country in April.The International Bank based its decision on the contraction in the agricultural sector given the farmers and herders’ crisis recorded by the country thisyear.

“In Nigeria, declining oil production and contraction in the agriculture sector partially offset a rebound in the services sector and dampened non-oil growth, all of which affected economic recovery.” The world Bank explained.

A Lagos based analyst, Dr. Afolabi Olowokere of Financial Derivatives Company limited (FDC), told Business Hallmark in a telephone interview that the results being strong might indicate that the economy is not as weak.

”That may be the reason the third quarter results are better than that of the second quarter”, he said

Okezie Boniface, activist shareholder told Business Hallmark that the performances of the firms area mixed package. According him, some strong ones have worked creatively and hard to deliver strong numbers, while others have performed woefully.

”On the average we can say they have done well. Imagine if the nation’s economy were strong what impressive results we would have had. If company’s like Nigerian Brewery is poor, then something is not right. The manufacturing sector has also not done well. The economy is shrinking and that is affecting disposable income and purchasing power of consumers.”, said Okezie

These did not deter the companies that creatively achieved better results than that of the corresponding period and the second quarter performance.

As mixed as the results may be, many industry analysts think that end of year results are also likely to be colourfully varied. They believe the economy might experience stronger growth in the fourth quarter of 2018. However, most human development indices (HDIs) in Nigeria are discomforting. Business Hallmark research reveals that over 11 million Nigerians no longer have jobs, 13 million Nigerian children are out of school; 17 million Nigerians now live below the poverty line as Nigeria becomes home for the highest number of poor people.