- Blue chip firms record huge losses over harsh business environment
Blue chip companies operating in Nigeria’s manufacturing sector are not smiling with the various economic policies of the government impacting negatively on their financial outputs. The telecommunications outfits are not spared as they continue to declare financial losses. The high input cost environment and further devaluation of the Naira against the US Dollar weighed heavily on prices of raw materials, resulting in higher costs of operations. BAMIDELE FAMOOFO reports.
A review of the half-year financial performance of blue-chip companies and conglomerates as well as some telcos whose shares are traded on the Nigerian Stock Exchange Limited, showed that all is not well with them, with huge losses being declared and at best, profit shrinking.
Big names like Nigerian Breweries Plc, Guinness Nigeria Plc, Nestle Nigeria Plc, and Dangote Sugar Refinery Plc, declared financial losses, while telecom giant, MTN Nigeria Plc continues to reel in the pains of foreign exchange loss.
Flour Mills of Nigeria Plc recorded a profit shrink which might likely result in a loss after tax before the end of its ongoing financial year if nothing significant is done to reverse the trend.
In recent times, some companies whose shares are listed in the Nigerian stock market announced that they are no longer willing to have their shares traded by investors on the Exchange.
Pharmaceutical giant, GSK Plc and household goods conglomerate, PZ Cussons Plc are among the big names that exited the NGX.
“Removing subsidies was to improve government revenue. And revenues have increased, but they have not been efficiently spent”
Inclement business environment
Nigerians are experiencing the worst economic crisis in more than two decades. Fuel prices have since tripled in Nigeria, leading to increased costs of food and transport. The naira currency has sunk to record lows almost weekly and has lost about 70 per cent of its value to the dollar since the currency peg ended last year.
Economic performance indices in the country are not conducive to investment and foreign investors are wary of investing. National productivity is increasing at a marginal rate as the National Bureau of Statistics disclosed that gross domestic product grew by 2.98 percent in the first quarter of 2024.
The growth rate, the NBS said, is higher than the 2.31 percent recorded in the same quarter in 2023 but lower than the 3.46 percent recorded in the fourth quarter of 2023.
The base interest rate which rose to 26.75 percent in July has further escalated the cost of borrowing and cost of production for manufacturers and as a result, worsens the ease of doing business in Africa’s most populous nation.
At its bi-monthly meeting in July, the MPC adjusted the asymmetric corridor around the MPR from +100 to -300 to +500 to -100 basis points.
The MPC also retained the Cash Reserve Ratio of deposit money banks at 45 percent and merchant banks at 14 percent and retained the Liquidity Ratio at 30 percent.
In June 2024, the headline inflation rate increased to 34.19 percent relative to the May 2024 headline inflation rate which was 33.95 percent.
Looking at the movement, the June 2024 headline inflation rate showed an increase of 0.24 percentage points when compared to the May 2024 headline inflation rate.
On a year-on-year basis, the headline inflation rate was 11.40 percentage points higher compared to the rate recorded in June 2023, which was 22.79 percent.
Economic analysts have noted that the rising inflation figure has worsened the purchasing power of the people, many of which are dropping into poverty.
Analysts react
Bemoaning the lack of measures to cushion the effect of shock therapy on the policy of removal of fuel subsidy by President Bola Tinubu on May 29, 2023, Adedayo Ademuwagun, a consultant at Songhai Advisory, said, “Anyone can remove subsidies or ban something but it takes real skill to plan for the big picture. How do you minimise the adversity for ordinary people?”
“When the IMF urged Nigeria to cut subsidies, it also advocated for “adequate compensatory measures for the poor and efficient and transparent use of the saved resources.” Inflation is running at above 30 percent, with the cost of food, a big share of many people’s budget, rising even faster at 40.87 percent. The cost of imported goods has also risen as the Nigerian currency plummets. In a country where half of the population is younger than 18, spiraling prices are causing the worst economic hardship in living memory.
Bismarck Rewane, chief executive of Lagos-based consultancy Financial Derivatives, said removing the subsidies was the “right decision” but questioned how the policy was implemented.
“Removing subsidies was to improve government revenue. And revenues have increased, but they have not been efficiently spent,” he said.
“What have they done with it?” Rewane said the “real challenge” had been stimulating growth in an economy with limited manufacturing capacity.
“The level of investment into Nigeria has reduced; therefore the country’s growth is stunted. The economy grew at 2.7 per cent last year, barely ahead of population growth.”
MAN kicks
Since the removal of electricity subsidies by the Federal Government in areas categorised as Band A, the tariff payable by customers in these areas has risen above N200 per kilowatt-hour from N68/kWh.
This has put the Manufacturers Association of Nigeria at loggerheads with the electricity distribution companies nationwide. Members of MAN have repeatedly claimed that they would not be able to pay the new tariff, which they described as unaffordable and outrageous.
In May, the manufacturers insisted they would not pay the new tariff. MAN instructed its members across the country to persist in paying the previous rate of N68/kWh to the distribution companies pending the resolution of the petition filed by the association to the National Electricity Regulatory Commission.
In a letter dated May 9, 2024, MAN instructed all its members to adhere to the previous tariff rates and urged them not to be deterred by NERC’s actions, emphasising the association’s commitment to escalating discussions with the DisCos and the Federal Government.
Half-year financial snapshots
Dangote Sugar Refinery
Dangote Sugar Refinery recorded a pre-tax loss of N104.56 billion in Q2 ‘24 compared to N49.90 billion in Q2 ‘23.
Following a tax credit of N29.55 billion, loss after tax printed N75.01 billion in Q2 ‘24 as against N40.79 billion in Q2 ‘23.
DSR Plc recorded a standalone loss per share of N6.17 (vs loss per share of N3.35 in Q2 ‘23), resulting in a higher loss per share of N11.85 for H1-24 (H1-23: N2.30).
The elevated costs of sales (+140.0% y/y) and higher net finance cost (+36.1% y/y) in the period underpinned the loss.
Revenue increased by 71.9 percent y/y in Q2 ‘24 (H1-24: +45.8% y/y), supported by increases across its 50kg Sugar (+197.5% y/y | 96.1% of revenue), Retail sugar (+140.0% y/y | 2.9% of revenue), Molasses (+190.7% y/y | 0.9% of revenue) business segments.
Revenue expansion in the period was primarily due to price increases in response to rising cost pressures. On a q/q basis, revenue grew remarkably by 40.9 percent y/y, driven by higher 50kg Sugar (+143.0% y/y) sales in the quarter.
“Gross margin declined by 268bps y/y to 5.4 percent, reflecting the sharp increase in the cost of sales (+140.0% y/y) relative to revenue (+71.9% y/y). A detailed analysis of the cost line shows significant increases in raw materials (+146.1% y/y | 86.3% of cost of sales) and direct overheads (+121.3% y/y | 7.6% of cost of sales), due to the high inflationary environment and naira devaluation. Consequently, EBITDA (-322bps y/y) and EBIT (-262bps y/y) margins contracted to 4.8% and 2.9% in the quarter, respectively, amid a 37.3% increase in operating expenses,” DSR explained.
Net finance costs grew by 36.1 percent y/y to N109.31 billion in the quarter (Q2 ‘23: N80.33 billion), due to a 35.2 percent y/y increase in finance cost. The higher finance cost was primarily due to a 15.2 percent y/y rise in FX losses and a 256.3 percent y/y surge in interest expenses on letters of credit.
Nigerian Breweries Plc
Overall, Nigerian Breweries Plc recorded a lower pre-tax loss of N50.76 billion in Q2 ‘24 compared with N50.41 billion in Q2 ‘23. Following an N17.65 billion tax credit in the period (+30.5% y/y), the loss after tax settled at N33.11 billion (Q2-23: N36.88 billion).
The results showed a lower loss per share of N3.21 (Q2 ‘23: N4.44). However, for H1 ‘24, the loss per share increased to N8.21 (H1 ‘23: N5.70), impacted by ongoing cost pressures and foreign exchange losses.
NB reported a 63.4 percent y/y increase in revenue for Q2 ‘24 (H1 ‘24: +72.0% y/y), driven by significant price increases (c. 35.0%) to counter inflationary pressures and currency weakness, along with innovation and volume growth.
Management reported strong expansion in its premium portfolio, with Desperados and Tiger leading the way, showing over 10.0 percent growth.
In the non-alcoholic segment, Hi-Malt, Fayrouz and Maltina also saw single-digit growth. Quarterly revenue increased by 10.8 percent, reflecting the impact of higher pricing.
Gross margin contracted by 135bps y/y to 30.9 percent in Q2 ‘24 (Q2 ‘23: 44.4%), due to an elevated increase in the cost of sales (+103.1% y/y) following the 118.0% y/y increase in raw materials and consumables. As a result, EBITDA (-145bps y/y) and EBIT (-121bps y/y) margins declined to 10.4 percent and 5.1 percent, respectively, amid a 51.9 percent y/y increase in operating expenses.
Net finance cost declined by 17.3 percent y/y to N63.63 billion (Q2 ‘23: N76.90 billion) driven by a 45.1 percent y/y decline in FX loss amid a 279.5 percent y/y increase in finance cost.
Guinness Nigeria Plc
Guinness Nigeria Plc announced +31 percent revenue growth for the fiscal that ended on June 30, 2024. The revenue growth showcased a good market outing amid a tense macroeconomic environment.
This strong performance was even more pronounced in the second half of the year with revenue growth accelerating to 41%, up from 20% in the first half.
The revenue growth was driven by an optimized category mix, innovative offerings, and targeted price increases to offset rising costs.
Non-Alcoholic Malt, Ready-to-Serve beverages, and International Premium categories demonstrated resilience, recording notable growth compared to the previous year.
The company also intensified its trade and consumer engagement efforts through digital platforms, activations, and captivating brand visibility.
Despite these accomplishments, the company faced increased cost of sales, which rose by 37% due to inflation-driven hikes in raw material prices, unprecedented utility cost increases, and currency devaluation.
The continued currency devaluation posed significant challenges, with the spot rate moving from N759.03/$1 at the start of the year to N1,540/$1 at the end of the financial year.
This resulted in a substantial unrealized forex loss and a loss before tax of N73.68 billion.
“When the IMF urged Nigeria to cut subsidies, it also advocated for adequate compensatory measures for the poor and efficient and transparent use of the saved resources”
Nestle Plc
Nestle Nigeria has released its second quarter 2024 (Q2 ‘24) unaudited results with a lower pre-tax loss of N56.44 billion from N94.02 billion loss in Q2 ‘23 while loss after tax dropped to N34.23 billion from N66.19 billion loss in Q2 ‘23.
Revenue advanced by 67.0 percent y/y in Q2 ‘24 (H2 ‘24: +55.5% y/y), driven by strong performance in Nestle’s Food (+68.8% y/y | 64.3% of revenue) and Beverages (+64.0% y/y | 35.7% of revenue) segments, reflecting consumer’s resilient demand for Nestle’s products.
Average prices in the food and beverage segments increased by 12.6 percent y/y and 15.3 percent y/y, respectively, during the period as Nestle’s export revenue also saw a significant increase, growing by 14.7x y/y to N1.89 billion from N120.44 million in Q2-23, although domestic revenue continued to dominate, comprising 99.2 percent of the total revenue.
Sequentially, on a quarter-on-quarter basis, revenue grew by 21.8 percent reflecting increases across the Food (+22.7% y/y) and Beverages (+20.2% y/y) segments.
Moreover, gross profit margin contracted by 661bps y/y to 35.0 percent in Q2 ‘24 (H2 ‘24: -972bps y/y to 31.3%), due to the heightened cost of sales (+85.9% y/y) driven by inflationary pressures on domestic food prices. Notably raw material costs increased by 90.5 percent y/y in the period.
Nestle also reported a 21.8 percent y/y decrease in net finance cost to N98.60 billion in Q2 ‘24 from N126.16 billion in Q2 ‘23, owing to a 21.8 percent y/y decrease in its finance cost. This reduction was primarily driven by a 39.5 percent y/y decline in exchange loss, despite a 238.4 percent y/y increase in interest expenses on interest-bearing loans and borrowings (+62.5% YTD to N653.92 billion) in the period.
Flour Mills of Nigeria Plc
Flour Mills Nigeria Plc, Nigeria’s largest flour milling group recorded a drop of 25.3 percent from N9.34 billion in the first quarter of 2024 to N6.98 billion in the first quarter of 2025 ended June 30.
A pre-tax profit of N7.36 billion was posted as against a pre-tax loss of N9.34 billion in Q1 ‘24. The Group announced a tax expense of N385.91 million.
Earnings per Share of N1.94 compared to a loss per share of N2.49 in Q1 ‘24 was underpinned by robust revenue performance (+ 67.2% y/y) in the period.
Revenue grew by 67.2 percent y/y in Q1 ‘2025, driven by substantial growth across the Food (+61.2% y/y | 64.15 of revenue), Agro-Allied (+68.0% y/y), Sugar (+92.2% y/y | 16.7% of revenue), and Support Services (+85.4% y/y | 1.5 percent of revenue) business segments.
Net finance costs increased slightly by 9.2 percent y/y, following a 24.6 percent y/y increase in FX loss amid an 841.7 percent y/y increase in finance income.
MTN Nigeria Plc
Leading Nigerian telco, MTN Nigeria Communications Plc, reported a loss after tax of N126.36 billion in the second quarter of the financial year ending December 31, 2024.
According to the telco, the impact of currency devaluation has continued to inhibit margin growth and drive losses.
Year-on-year, net loss declined from N194.02 billion recorded in the second quarter of 2023, following a tax credit of N49.24 billion (Q2 ‘23: N88.32 billion). Pre-tax loss amounted to N175.60 billion (vs pre-tax loss of N282.35 billion in Q2 ‘23), while loss after tax printed N126.36 billion (vs loss after tax of N194.02 billion in Q2 ‘23).
Meanwhile, Service revenue grew by 33.1 percent y/y in Q2 ‘24 (H1 ‘24: +32.6% y/y) following a broad-based increase across MTNN’s value channels – Voice (+10.0% y/y), Data (+56.0 y/y), Digital (+107.9% y/y), Fintech (+22.2% y/y) and others (+55.6% y/y).
Total expenses in the quarter grew by 92.0 percent y/y (H1 ‘24: +82.2% y/y) owing to (i) naira depreciation, (ii) higher energy costs, and (iii) VAT payment on tower leases. Consequently, EBITDA margin declined by 20.90 ppts y/y to 31.9 percent.
Accordingly, H1 ‘24 EBITDA margin fell by 17.44 ppts y/y to 35.6 percent. Stripping out the effects of currency weakness on operating performance, management noted that EBITDA margin in H1 ‘24 would have printed 50.9 percent.
Net finance costs (+60.4% y/y) rose markedly during the quarter owing to a 48.6 percent y/y increase in finance costs.
The higher finance cost balance was a result of higher interest expense on leases (+28.6% y/y) and a jump in prepaid transaction costs (Q2 ‘24: N26.07 billion Q2 ‘23: NGN927.00 million). Meanwhile, net FX loss declined by 48.6 percent y/y in Q2 ‘24 but increased by 95.2 percent y/y in H1 ‘24 highlighting the substantial exchange loss incurred in Q1.
