Currency woes, weak consumer spending plunge AG Leventis into loss position

A.G Leventis plc, a conglomerate giant, has capitulated to the macroeconomic debacle as the combination of a weak naira, crimping consumer spending, and foreign exchange loss tipped the company into a loss position.

The company, leading manufacturing and distribution corporation in Nigeria and West Africa with interest in such areas as sale and servicing of motor vehicles, real estate, and consultancy services, said the poor performance was due the worsening rates of unemployment and underemployment that strained household income and undermined the demand for goods and services.

The devaluation of the Naira in June last year, which made the currency to lose 40 per cent of its value relative to the U.S currency, ballooned the dollar denominated debt in A.G Leventis’ balance sheet.

Owing to the aforementioned currency risk, the company recorded a net foreign exchange loss of N1.13 billion, which contributed to a loss after tax of close to N3 billion in December 2016 from a profit after tax of N177 million earned the previous year.

Group sales dipped 2 per cent to N12.77 billion.

A breakdown of the sales per division shows that sales from the Motor division increased by 12 per cent; revenue from real estate business was flat in 2016.

Revenue from Chrisstahi Nigeria Limited grew 65 per cent to N170 million as the business unit recorded a loss of N92 million. Revenue from Duckfarben Limited increased by 25 per cent to N1 billion.

Leventis Foods Limited’s sales were up N2.79 billion in December 2016. Gross profit declined 79 per cent.

The loss after tax for the company was largely due to the challenging operating environment in 2016, according to Ahmed Kazalma Mantey, Non-executive chairman, A.G. Leventis Group.

“This was exacerbated by the impact of devaluation of the country’s currency by the Central Bank of Nigeria (CBN), which resulted in Foreign exchange losses arising from dollars- denominated liabilities and bank loans and the investment” said Mantey.

Last year was horrendous for companies in Africa’s most populous country as its economy that slipped into a recession, creating a sever dollar shortage that hindered firms from importing plant and machinery to meet production demands.

A.G Leventis incurred huge production. This is because the company switched to diesel oil- a more expensive source of energy- to gas for 6 months on the back of the gas shortages

There were incessant attacks on oil facilities by the Niger Delta region.

Huge energy costs led to spiralling cost of raw and packaging materials throughout the last year.

AG Leventis cost of sales or production costs increased by 26.64 percent to N10.60 billion in December 2016 from N8.37 billion as at December 2015.

Cost of sales ratio spiked to 83 per cent in December 2016 from 67 per cent the previous year; the cost of sales is higher than the March inflation rate which the country’s statisticians, the National Bureau of Statistics (NBS), estimated at 17.28 per cent.

This means the conglomerate giant is deploying more resources to generate each unit of naira revenue.

Margins also took a beating. Gross margins were down to 17 per cent in December 2016 from 33 per cent of December 2015.

Mantey said the company is optimistic of an economic recovery in 2017 on the back of higher oil price, policy actions of the government, and relative calm in the Niger Delta.

Companies lost a lot of money they could have made if the 2016 and 2015 budget were not delayed. Economic activities slowed in these periods.

“With the expected improved business environment in 2017 and current restructuring efforts within the group, especially with Leventis Foods Limited, and the continued support of shareholders, the fortunes of the company will be transformed,” Mantey said.

A.G Leventis’ share price closed at 72 kobo as at the end of trading on Monday, putting the company’s value at N1.90 billion.

 

BALA AUGIE