Foreign firms seen slowing down investments as capital returns drop

Foreign-owned companies listed on the Nigerian Exchange are on track to slow down their capital investments in Nigeria, as data tracked by BusinessDay indicates a decline in capital returns.

Return on Capital Employed (ROCE) showed a mixed performance across these companies, with both gains and declines recorded. However, on a cumulative basis, capital returns dropped from 25 percent as of 9M 2023 to 18 percent in 9M 2024. ROCE is a metric that measures how effectively a company generates returns from its capital investments.

The metric helps to assess how well a company utilizes its capital to produce earnings, and it is used to track resource allocation.

Despite reporting net losses for the nine months ending September 30, 2024, most companies covered in this report achieved operating profits, with the losses primarily attributed to foreign exchange-exposed loans.

For example, MTN Nigeria posted an operating profit of N475.3 billion for 9M 2024, however, this represented a 22 percent decline from the N607.5 billion operating profit posted in the corresponding period in 2023.

The report was limited to foreign-held companies operating in the real sector, and it was limited to companies where foreign corporations owned the majority stake. These companies are MTN Nigeria, Lafarge Africa, International Breweries, Nigerian Breweries, Cadbury Nigeria, Nestle Nigeria, Unilever Nigeria, Beta Glass, and TotalEnergies Marketing Nigeria.

Among these companies, four of them recorded a year-on-year increase in return on capital expenditure, however, the other six posted a decline in their ROCE.

MTN Nigeria posted a return on capital expenditure of 25 percent in 9M 2024, in contrast with 32 percent recorded in 9M 2023. The drop in capital returns for MTN is a serious red flag for MTN and the economy in general considering the telecoms giant place in the Nigerian economy. The decline in capital returns for MTN is a plausible cause to adopt cost-cutting measures and slow down investments.

In 9M 2024, MTN Nigeria recorded a 20 percent operating margin, a significant drawdown from the 34 percent operating margin posted in 9M 2023. During the period under review, the company spent N161.6 billion as capital expenditure, a decline from the N242.9 billion spent in 9M 2023.

Lafarge Africa posted a YoY surge in its capital returns, as the company recorded a 25 percent ROCE in 9M 2024, a 10 percent-point rise from 15 percent as of 9M 2023.

The company’s operating profit appreciated by 88 percent year-on-year to N130 billion as of 9M 2024. In 9M 2024, Lafarge posted an operating margin that showed the company was operating at a higher level of operational efficiency. From Lafarge, more capital investments should be expected, however, the story is different for International Breweries.

International Breweries posted a negative return on capital employed. In 9M 2023, it recorded a negative 12 percent capital return, which worsened to -28 percent in 9M 2024.

Essentially, International Breweries’ financials are scary and despite the debt-to-equity conversion from ABInBev that eased the company’s liabilities, International Breweries needs a financial turnaround to survive into the future.

Fellow brewer, Nigerian Breweries is troubled, however, the company is in a much better place compared to International Breweries. Nigerian Breweries posted a ROCE of 14 percent for 9M 2024, however, a slight 100 basis point decline from 15 percent posted in 9M 2023.

Cadbury Nigeria posted the highest return on capital expenditure during the period because it cleared its long-term debt. For Cadbury, financing comes from only intercompany loans from its parent entity, Cadbury Schweppes Overseas Limited. The company recorded a capital return of 566 percent in 9M 2024, in contrast with 39 percent recorded in 9M 2023.

Nestlé Nigeria, a leading player in the country’s consumer goods sector, has encountered significant challenges in the Nigerian market, with its capital returns reflecting these difficulties. The company’s return on capital employed (ROCE) dropped to 17 percent in the first nine months of 2024, down from 37 percent during the same period in 2023.

Unilever Nigeria has outperformed many of its peers, maintaining steady capital returns at 11 percent between the first nine months of 2023 and 2024. Meanwhile, BetaGlass Plc and TotalEnergies saw significant improvements in their capital returns, rising to 25 percent and 61 percent, respectively, from 12 percent and 32 percent in the same period last year.