Anxiety is spreading across the Nigerian economic space as major companies in the country continue to post very disappointing third quarter results.
Though this scenario had been predicted by Business Hallmark and other observers, only a few paid attention to the warnings. Accentuating the issue is the fact that there is widespread concern that the economy is going into non-productive mode, even as its main revenue earner, crude oil, is in deep trouble.
Business Hallmark‘s investigations reveal that third quarter results of top firms in the country which are trickling in, seem generally disappointing as revenues and profit margins remain poor.
For instance, one of the oil and gas giants in Nigeria, Oando Plc, lately disappointed its investors as it posted huge losses in third quarter and 2014 year end results.
The company which is focused on oil and gas exploration and production in Nigeria posted a loss of $13.1 million in the third quarter ended September 30, 2015 compared to a net income of $89.5 million in the corresponding period of 2014. The nine – month result also revealed a net loss of $63.5 million, as compared to a net loss of $88.0million in the same period of 2014. Similarly, the group ended 2014 with a loss of N179 billion.
Giant brewer, Nigerian Breweries Plc, which has remained the toast of the Nigeria Stock Exchange and investors, posted a drop in profit after tax by 12.2 per cent in the third quarter, September 30, 2015 to N26.1 billion from N29.8 billion in the corresponding period of 2014. Whereas it is declaring an interim dividend of 1.20 kobo , its earnings per share also fell by 16.2 per cent to 330 kobo from 394 kobo in 2014.
Guinness Nigeria Plc, profit for the year declined by 19 per cent to N7.79 billion in 2015 from N9.57 billion of 2014, its basic earnings also fell to 518 kobo from 636 kobo in 2014. While it declared a total dividend of N4.82 billion (320k per share), investors fear that cost is rising and is affecting the margins.
The recent performance of Cadbury Nigeria Plc in which its results slipped into a bad shape may have left a sour taste in the mouths of its teeming shareholders. Those who took position in the company’s stock have not stopped gazing at the ceiling since the announcement of its decline by 98 per cent.
Details of the results shows that profit after tax slumped from N1,652 billion in 2014 to a paltry N28.553million on September 30, 2015. According to the results, Cadbury posted a revenue of N21 billion in 2015, down by 10 per cent compared to the N23.3 billion in the corresponding period of 2014.
P Z Cussons pre-tax profits in the first quarter ended August 31, 2015 dropped 37% even higher than the 31% drop it recorded same period last year. Analysts attributed challenges of PZ Cussons to the weakness in purchasing power of a lot of Nigerians.
Another problem it has is the insurgency in the North which has badly hurt growth from that part of the country. This prompted the company’s suggestion that it was looking to the East and Western part of the country to drive growth this year.
Nigeria’s revenue has badly shrunk as the price of crude continues to dwindle, hovering between $40 and $50 per barrel from a giddy height of $114 pbd June last year.
The regulatory tightening has hardly helped matters as interest rates continues to hang out of the reach of borrowers at an average of 27/28 per cent while banks have kept deposit rate at less than 3 per cent.
These macro-economic challenges, compounded by government’s lack of policy direction, have not only kept investors on edge, but also created grave anxiety in the business environment.
Whereas the operating environment is growing tougher and more volatile, the reality is already taking its tolls on top Nigerian companies, which are believed to be the hope of the economy.
Before now, Oando had posted a gross profit of N69.8 billion in 2014 compared to N59.4 billion in 2013, while profit after tax decreased to N183.9 billion compared to N1.4 billion in 2013.
Whereas, the company attributed its poor performance to the result of $121.2 million non-cash impairment of assets and the joint venture receivable impairment, partially offset by profitable operations of OMLs 60 to 63 and crude oil hedging gains, analysts fear that the development signposts deeper crisis in the oil sector .
According to the results of the company, production expenses in the third quarter of 2015 also increased to $56.1 million from $35.9 million.
“Upstream players have been forced to record significant reductions in the fair value of their asset portfolios. Oando is no exception to this global trend, which has led us to recognise about N76.9 billion of impairment charges in our exploration and production business. This impairment is as a result of lower oil prices leading to a reduced valuation of certain exploration and appraisal assets.
“We prudently booked an additional N16.9 billion write down on under-lift receivables and Production Sharing Contract receivables in our exploration and production business, and our energy services business realised impairments of N37.1 billion, as the current oil price environment has brought about reduced drilling activity and in turn reduced day rates accruable to our rig assets, as well as a weaker market outlook,” Tinubu said.
Those who took position in the company’s stock have not stopped gazing at the ceiling since the announcement of its decline by 98 per cent. Details of the results shows that profit after tax slumped from N1,652 billion in 2014 to a paltry N28.553 million on September 30, 2015. According to the results, Cadbury posted a revenue of N21 billion in 2015, down by 10 per cent compared to the N23.3 billion in the corresponding period of 2014.
For Cadbury cost of sales was flat at N14.6 billion, while sales, marketing distribution/administrative and other expenses remained at N6.4 billion. Other income did not fare any different as it also fell by 63 per cent from N254 million to N93.4 million, while finance income dipped same margin from N308.537 million to N114.2 million.
Profit before tax, however, suffered similar fate as it plunged by 98 per cent from N2.4 billion to N40.789 million.
Guinness has launched new products in recent times to ramp up revenue and this is beginning to have some impact. Origin, its new product which was introduced to the market around September 2014, appear to be having positive effect on the company’s bottomline and this is evident in the third quarter earnings with a revenue growth of 9 percent.
Analysts fear that if nothing is done about the economy which is drifting into a recession given the successive slide of the GDP, the challenge may worsen for the companies and the economy at large.
Mr. Emeka Madubuike, President of Association of Stockbroker Houses of Nigeria, believes that the poor results that are tickling in now was not unexpected, adding that anything otherwise would have been more worrisome give the macro-economic condition of the country.
He said that the unimpressive results clearly reflect the nation’s poor economy which does not have any policy direction yet.
” You know that the government is the biggest spender in Nigeria and it has not done any significant project since the year except the non-productive spending that took place during the elections”, he said.
”Nothing happens in a vacuum”, he added.
A lagos based broker, David Adonri reckons that the poor performance of the companies was a cumulative of the events of last year. These, according to him, ranges from the heightened political risk, sharp drop in the price of crude oil which prompted other reactions such as the devaluation of the naira, tightening of interest rates and the hostile commercial operating environment have been bad on firms.
He, however, noted that a ray of hope could be seen if the government wakes up from slumber with positive fiscal policies to change the gloomy outlook.
Investors are rather scared stiff that the economy may grind to a halt should the present harsh economic conditions persist. Confidence is fast eroding not only for investors in the capital market, but also other sectors of the economy. Unfortunately, the capital market is still in the negative by 15.1 per cent, Bloomberg expects that the nation’s GDP will end the year at 3.9 per cent.
BY OKEY ONYENWEAKU