Nigeria’s biggest firms’ profits outpace inflation in 2021

Nineteen of the biggest listed firms on the Nigerian Exchange who have posted their full-year financial statements were able to navigate the tough macro-economic space in 2021, as their profits outperformed the inflation rate, according to BusinessDay’s analysis of their financial statements.

These companies faced a myriad of challenges in 2021 – from currency-induced inflationary pressures, which led to an increase in the cost of production, to falling purchasing power, which curbed consumer demand.

The 19 companies analysed recorded average profit growth of 50.02 percent to N30.28 trillion, surpassing the average inflation rate of 16.98 percent recorded in the year 2021.

Analysts say this was made possible through excellent, proactive and innovative solutions and ideas in achieving set goals and objectives, as well as the application of ingenious management practices and prudent management of resources.

“Businesses are innovating around inflationary pressures to break-even,” the immediate past director-general of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf said.

The market capitalisation of these 19 companies makes up 41.93 percent (N10.67trn) of the total market cap of the Nigerian Exchange, which was N25.45 trillion as of February 24.

These companies include: Beta Glass, Cadbury Nigeria, Chemical and Allied Products (CAP), MTN, Conoil, Custodian, Unilever Nigeria, Unity Bank, UPDC, Wema Bank, Sterling Bank, Total Energies, UACN, Okomu Oil, PRESCO, Stanbic IBTC Holdings, Axa Mansard, FCMB, Fidelity Bank.

Gbolahan Ologunro, a senior research analyst at Cordros Securities, believes companies have been able to increase prices just to absorb the impact of cost pressures associated with importing raw materials, given the devaluation in the currency.

“Nigeria’s high inflation has also made it important for these companies to also hike prices to absorb the impact of increased distribution expenses,” Ologunro says.

In 2021, Nigeria’s economy saw a spike in inflation. The inflation rate increased from 16.47 percent to 18.77 percent between January and March, and has since continued to see a decline monthly, although still in double digits. This continues to be a major worry for businesses in the Nigerian economy.

The high inflation rate was a result of the pandemic-induced increase in the cost of production. The high cost of raw materials, transportation and electricity cost can also be attributed to the reason behind the inflation rate and the restriction in the global supply chain.

Nevertheless, these companies saw average revenue growth of 27.37 percent, still surpassing the average inflation rate. However, further analysis shows that they recorded an average profit margin of 15.84 percent, slightly below the average inflation rate for 2021.

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MTN Nigeria, the largest telecoms company in Nigeria, grew its profit after tax (PAT) by 45.5 percent to N298.7 billion in 2021 from N205.21 billion the previous year.

The telco reported a turnover of N1.7 trillion, a 22.9 percent increase from N1.35 trillion, the highest in five years.

Total Energies’ profit grew 710 percent to N16.7 billion in 2021, compared with N2.06 billion recorded in the previous year. The oil and gas company recorded a profit margin of 4.9 percent.

Total’s revenue jumped to N341 billion in the year ended 2021, a 66.58 percent increase compared with N204.7 billion in the previous year, as the sale of refined petroleum products, lubricants, special fluids, and solar products buoyed earnings.

Presco grew its PAT by 258.57 percent to N18.8 billion in 2021 from N5.2 billion in the previous year. The palm oil company recorded a profit margin of 39.95 percent.

Conoil, a top downstream petroleum company, grew its net profit by 111.08 percent to N3.04 billion from N1.44 billion last year. The company had a profit margin of 2.4 percent.

Wema Bank, a tier-two local lender, saw its profit grew by 93.72 percent to N8.87 billion in 2021 from N4.58 billion the previous year. The analysis shows that the company made a profit margin of 9.71 percent.

Okomu Oil, Nigeria’s largest palm oil producer, grew its 2021 profit to N14 billion from N7.8 billion in the comparable period of 2020. The company recorded a profit margin of 37.5 percent.

The noteworthy performance by Okomu was due to a rise in local sales backed by the ban on accessing forex for palm oil importation into the country, thereby encouraging patronage of locally made products.