• Thursday, February 29, 2024
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Firms’ earnings take hit from naira crunch, elections

Firms’ earnings take hit from naira crunch, elections

From brewers to drugmakers, a number of companies in Nigeria have seen their first-quarter earnings take a tumble on the back of the cash crisis and concerns about elections that dampened economic activity.

The cash shortages occasioned by the naira redesign policy of the central bank combined with petrol scarcity, high inflation and rising interest rates to compound the challenges faced by households and businesses in the first three months of the year.

Private-sector activity in the country shrank in February for the first time since June 2020 as output and new orders plunged amid the steep decline in consumer spending, according to Stanbic IBTC Bank Purchasing Managers’ Index (PMI). The PMI, which measures the performance of the private sector, fell to 44.7 in February from 53.5 in the previous month. It declined further to 42.3 in March.

Several companies across different segments of the economy have reported lower-than-expected sales for Q1, which drove down the profits of some and have others swing to loss.

Dangote Cement Plc and five other listed companies suffered a combined revenue decline of N69.03 billion in the period, according to data compiled by BusinessDay from their unaudited financial results.

Africa’s largest cement producer said its Nigeria operations sold 3.6 million tonnes (Mt) of cement, down 24.6 percent compared to the same period of last year.

It said the cash crunch in the country and negative sentiments around the general elections led to a slowdown in key private and public infrastructure investments.

“The cash unavailability impacted construction workers’ daily wages and retailers’ ability to pay for cement in cash,” the firm said. “Revenues for the Nigerian operations declined by 12.9 percent to N280.3 billion, due to the uncertainties during the period.”

Although its group revenue was down 1.6 percent to N406.7 billion and profit before tax fell 6.1 percent to N146.82 billion, Dangote Cement’s net profit rose 3.4 percent to N109.5 billion.

UAC of Nigeria Plc (UACN), which operates in the food and beverage, real estate, paint and logistics sectors, saw its revenue drop by 11 percent to N24.6 billion in Q1. It posted a loss before tax of N937 million, compared with a profit before tax of N979 million in the same period of last year.

It said sales volumes declined across all segments except quick service restaurants, whose sales growth was supported by the increase in corporate stores across Lagos and Abuja.

Fola Aiyesimoju, group managing director of UACN, said the firm’s performance in the quarter would have been stronger but for challenging macro-economic and sociopolitical challenges.

“Factors that adversely impacted performance were cash shortages and lost trading days on account of elections,” he said.

Nigerian Breweries Plc reported a loss before tax of N17.44 billion for Q1 2023, compared with a profit before tax of N20.76 billion in the same period of last year as revenue fell to N123.31 billion from N137.77 billion.

“The impact of the cash crunch which led to a near collapse of payment channels as well as the security and safety uncertainties associated with the general elections created disruptions in the economy,” Uaboi Agbebaku, its company secretary, said.

He said the total brewed product market suffered a double-digit (mid-twenties) volume decline versus the same period in 2022. “We were able to largely mitigate the volume decline impact on our revenue due to our appropriate pricing strategy.”

Notore Chemical Industries Plc, a producer of fertilisers and other substances for improving the fertility of soil and water, suffered a 75 percent decline in revenue to N4.10 billion. The firm swung to a loss of N7.93 billion from a profit of N1.55 billion in the same period of last year.

GlaxoSmithKline Consumer Nigeria Plc, which manufactures, markets and distributes consumer healthcare and pharmaceutical products, generated N4.02 billion in revenue, down from N7.36 billion in Q1 2022. Its profit before tax declined to N230.19 million from N285.83 million.

ABC Transport Plc, an interstate transport company, reported a 22.46 decline in its revenue to N1.45 billion. Its loss before tax widened to N80.68 million from N6.11 million in Q1 2022.

Karl Toriola, MTN Nigeria Communications Plc, said the cash shortages “impacted our customers’ ability to recharge through physical airtime vouchers (affecting mostly customers who did not have access to digital recharge channels) and over-the-counter transactions within our MoMo agent network”.

Read also: Availability of cash fails to ease inflationary pressures – KPMG

The company said this resulted in migration to digital recharge platforms, which mitigated the impact of cash crunch.

Its earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 17.7 percent to N302.7 billion but its EBITDA margin declined by 1.3 percentage points to 53.3 percent. Profit before tax grew by 8.5 percent to N155.8 billion, compared to a growth of 31.3 percent in Q1 2022.

With the ripple effect of the cash scarcity reverberating across sectors, the country’s economic growth is expected to decline in the first three months of the year.

Yemi Kale, the country’s former statistician-general who is now chief economist at KPMG Nigeria, estimated in mid-March that Q1 nominal GDP would reduce by between N10 and 15 trillion due to challenges sourcing cash.

“This is because about 40 percent of Nigeria’s N198 trillion GDP in 2022 is informal, of which about 90 percent is cash-based. Further 30 percent of formal sector GDP is cash-based. This means N106.9 trillion of total GDP is cash-based,” he tweeted at the time.

Bismarck Rewane, managing director of Financial Derivatives Company Limited, forecast in early March that the GDP growth would slow to 1.25 percent in Q1 2023 from 3.11 percent a year earlier partly due to the naira crunch impact on aggregate demand.