Companies typically suffer cash flow challenges in times of economic recession. Top line revenues take a hit, profits often turn into losses, and expansion plans are scaled back further depressing any dividend expectation of shareholders or potential investors. A cursory analysis of select Nigerian companies highlights this exact situation.
A conscious selection of a group of 33 companies from diverse sectors of the Nigerian Stock Exchange reveals they have posted a cumulative loss of N132.70 billion in the first 9 months of 2016, compared to a profit of N3.98 billion recorded in the previous year.
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It has been a horrendous year for companies in Africa’s most populous nation as a vicious drop in oil price that started since 2014 has undermined economic output and stoked dollar shortages.
The sector most hit by the economic slump appears to be Fast Moving Consumable Goods Firms who have faced challenges accessing dollars required to import raw material and machinery to meet production demands.
Seven Up Bottling Plc, a firm that has never recorded a loss in more than a decade succumbed to the wrath of a dire economy after it reported a loss of N1.55 billion in the period under review.
Beverage producers are grappling with a spike in price of raw sugar, a core component in the manufacture of soft drinks. That more than anything else explains the spiraling input costs in their books.
“Beverage producers will always feel the pains of rising production costs on margins since they buy sugar from firms that import the products. And these firms are struggling with severe dollar shortages,” said an industry expert who doesn’t want his name mentioned.
It is also generally expected that the building materials construction and real estate industry will not be spared from the wrath of a failing economy. Lafarge Africa and Julius Berger Nigeria Plc, two of the major big players in the sector recorded losses of N37.40 billion and N3.32 billion, respectively so far in 2016.
Upstream stream oil and gas firm were not spared the economic hammers, as militant attack on oil facilities, coupled with a sudden drop in oil price have dented sales and dimmed outlook.
Oando Nigeria Plc and Seplat Corporation Development Plc, two major players in the oil and gas industry recorded copious losses of N35.88 billion and N24.07 billion, respectively as lower energy price. Hawkish analysts believe there could still be more losses down the road, in spite of the recent OPEC deal that triggered the current rise in the price of crude.
Only lenders recorded significant growth in profits, thanks to foreign exchange revaluation surpluses (FX gains). Analysts however say the honeymoon will soon be over as such FX gains are one-off events and are not expected to recur in subsequent quarters. Record increases in loan impairments this year is a pointer to that fact.
While the central bank has adopted a flexible exchange rate with a view to enhancing liquidity in the system, manufacturers still bemoan dollar shortages.
“But for Beverage makers in Nigeria, the major determinant still remains the direction of Nigeria’s FX policy. Sustained FX inaccessibility and possibility of further naira depreciation continues to create headwinds. Large companies like Nigeria Breweries (NB) still have an advantage given that they source sizeable portions of raw materials locally. We also note that NB was able to access about $11 million dollars at CBN’s last FX intervention. All in all, cost performance remains tied to the FX situation,’’ said PABINA YINKERE Head, Research Division Vetiva Capital Management Limited.
Further insights from un-quoted companies also suggest this situation is not limited to big firms with access to equity markets. More and more companies are set to report record losses and have put up aggressive cost cutting measures that could trigger more job losses, cut down on inventory and expansion projects.
The government believes the 2017 Budget will lay the marker for economic revival next year. Unfortunately, only very few in the private sector believe any of this.
Economic cycle,may have about 4 phases peak,decline and resurrection,now if your are unbiased as you said you are, you should include those companies in amocon,and those companies that is having difficult in paying their debt from banks due to slowing down of the economy,there are more than 7 million companies registered in company and allied act in Abuja ,have you done enough research on those companies,that are not performing,the economy is worth more than 80 trillion worth of naira, and now you are mentioning 137 billion naira,it is a drop in the ocean,you should talk about what you know