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Blurb

Debt servicing gulps N7.04 trillion under President Buhari’s administration

Nigeria’s rising debt profile is fast becoming a worrisome trend. Successive governments have, over the years, spent a large chunk of the country’s revenue to service debts.

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Nigeria’s rising debt profile is fast becoming a worrisome trend. Successive governments have, over the years, spent a large chunk of the country’s revenue to service debts.

Analysis of data obtained from the Debt Management Office shows that Nigeria has spent a total of N7.04 trillion to service both domestic and external debts under President Muhammadu Buhari’s administration alone.

The Breakdown: Nigeria’s rising debt and the cost of servicing them has elicited wide-spread criticisms in recent times, with many people calling on the Government to do something.

Note that since President Buhari assumed office in 2015, the country’s debt profile has increased by almost 107% in naira value. In the first quarter of 2015, Nigeria’s total public debt stood at N12.4 trillion or $64.2 billion, while it rose to N24.9 trillion or $81.27 billion in March 2019.

[READ: Evidence that Sanusi is right about Nigeria ‘going bankrupt’]

What this means is that Nigeria’s total debt has more than doubled since the President assumed office. Below are more details:

  • External debt service gulped a total of N931 billion or US$2.1 billion in the last 5 years
  • Commercial loans take the biggest share of Nigeria’s total external debt servicing amounting to US$1.58 billion
  • In just one year (2017-2018), total external debt service increased by over 200%.
  • Nigeria paid the sum of $464 million or 142 billion to service external debt in 2017, while the figure rose significantly to $1.47 billion or 451.8 billion in 2018.
  • Just like external debt, domestic debt servicing has also been gulping over N6.1 trillion in the last 5 years.
  • The total amount spent on servicing Nigeria’s domestic debt in 2015 was N1 trillion. Fast forward, the figure on an annual basis rose to 1.79 trillion in 2018 representing a 76% increase.
Minimum Wage

Nigeria’s President, Muhammadu Buhari

[READ: Nigeria’s total debt profile now N24.3tn – DMO]

The high cost of debt: Loans are not intrinsically bad in themselves. However, as the popular saying goes, “there’s no free lunch, not even in Freetown”.Consequently, debt instruments that are given to the government of a country often come with terms and conditions (such as interest repayments plans) that are difficult to meet.

Agreed, debts can also be flexible, with a wide range of financial conditions that are specifically tailored to meet a country’s overall debt management strategy. Yet, there are many things to worry Nigerians in view of the country’s public debt profile;

  • The possibility of a foreign creditor taking over the country’s assets due to the inability to repay loans.
  • The possibility of launching the country into another recession if the debt profile is not properly managed.
  • Considering how much President Buhari’s Government has spent on debt servicing so far, analysts are worried that the country’s debt profile will hit a new high due to bad economic policies and realities.

Other factors to consider: Although Nigeria’s debt servicing has gulped over 28% of the country’s debt stock, it will not be fair to blame it all on bad government policies. Recall, that Nigeria nosedived into economic recession during the onset of the current administration, and it took a strategic increase in government expenditure and other beneficial policy measures to rescue the country’s ailing economy. Below are some of the measures-

  • In a bid to tackle shrinking growth, the government initiated the Economic Recovery Growth Plan (EGRP) and growth plan in 2017
  • The crux of ERGP provides for effective collaboration and coordination with the States to ensure that the Federal and State Governments work towards the same goals.
  • During the full-blown recession period, several states defaulted in paying salaries to the workers while poverty soars in the land. Following this, the Buhari’s administration intensified debt borrowing and offered bail-out to almost 30 states in the country.

READ: Accountant General says no problem paying N293 billion debt servicing

Nigeria's recession period, Buhari Ministerial list, Buhari ask for more time, Nigeria's economy - growth

President Muhammadu Buhari

In the meantime, there could be more debt on the way. This is because evidence suggests that Nigeria is broke and at the edge of bankruptcy. As President Buhari’s administration is desperate for growth, it will be needing funds to facilitate the growth plan and as such, may have to rely on debt. After all, debt sourcing appears to be a very potent tool in the hands of the current administration.

[READ FURTHER: Does Buhari’s new minimum wage approval mean “Nigeria is broke”?]

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Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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    Blurb

    GSK in big trouble as losses mount

    The results were less than impressive with several key indicators showing a year-on-year decline.

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    GSK Consumer Nigeria Plc records 3.34% increase in 2020 9M revenues.

    GlaxoSmithKline Consumer Nigeria Plc (“GSK Plc” or “the Company”) is a public limited liability company with 46.4% of the shares of the Company held by Setfirst Limited and Smithkline Beecham Limited (both incorporated in the United Kingdom); and 53.6% held by Nigerian shareholders.

    The ultimate parent and controlling party is GlaxoSmithKline Plc, United Kingdom (GSK Plc UK). The parent company controls GSK Plc through Setfirst Limited and Smithkline Beecham Limited.

    The Company recently published its unaudited first quarter (Q1) 2021 consolidated financial statements for the period ended 31 March 2021.

    The results were less than impressive with several key indicators showing a year-on-year decline. For example, Group revenue (turnover) declined from ₦4.99 billion in Q1 2020 to ₦3.46 billion in Q1 2021 a drop of over 30.66%. The revenue drop was due to a sharp decline in the local sale of its healthcare products.

    Total loss after tax as of Q1 2021 was ₦238.07 million compared to a profit after tax of ₦113.47 million for the same period to Q1 2020.

    The company is essentially divided into two segments viz: Consumer Healthcare and Pharmaceuticals. While the Healthcare segment was largely profitable in Q1 2021 (making a profit before tax of ₦ 8.73 million by March 31, 2021, the pharmaceuticals segment made a loss of ₦262.93 million in the same period.

    The Consumer Healthcare segment of the company consists of oral health products, digestive health products, respiratory health products, pain relievers, over the counter medicines, and nutritional healthcare; while the pharmaceutical segment consists of antibacterial medicines, vaccines, and prescription drugs. While goods for the consumer healthcare segment are produced in the country, the pharmaceuticals are all imported.

    The largely imported pharmaceutical products are thus exposed to the vagaries of foreign currency fluctuations coupled with a negligible to no revenue from the foreign sale of its healthcare products (same as in Q1 2020) as it barely exports its products out of the country.

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    The cost of importing the antibacterial, vaccines and prescription drugs, and the significant local operating expenses wiped off the marginal gross profits made by the pharmaceutical segment of the company. In effect, the gross profit of ₦508.12 million made by the pharmaceutical segment of the company was eliminated by an operating expense of ₦735.7 million and this resulted in a net loss for the pharmaceutical segment of the business.

    Apart from the impact of imported pharmaceutical products as already discussed, other issues that affected the company’s Q1 2021 results and are likely to continue to affect its performance in future include:

    1. A limited product mix that has only the likes of Macleans and Sensodyne (Oral Healthcare); Pain relievers (Panadol and Voltaren); Digestive Health (Andrews Liver Salt); and Respiratory Health (Otrivin and Panadol Cold and Catarrh) all within the Consumer Healthcare segment.
    2. Increased competition, particularly from local pharmaceutical manufactures of similar over the counter medicines and other prescription medications and vaccines.

    In addition, in October 2016, GSK Plc divested its drinks bottling and distribution business that manufactures and distributes Lucozade and Ribena in Nigeria, and other assets including the factory used for the drinks business to Suntory Beverage & Food Limited. The loss in revenue from these popular brands continues to impact its topline.

    GlaxoSmithKline (GSK) is a global healthcare company and is well-known and acknowledged for its pioneering role in discovering and distributing vaccines for the likes of hepatitis A and B, meningitis, tetanus, influenza, rabies, typhoid, chickenpox, diphtheria, whooping cough, cervical cancer and many more.

    It is also renowned for its manufacture and distribution of prescription medicines such as antibiotics and treatments for such ailments as asthma, HIV/AIDS, malaria, depression, migraines, diabetes, heart failure, and digestive disorders.

    Perhaps GSK Plc’s fortunes may change if the company is able to obtain the parent company’s licence to manufacture GSK-owned vaccines and prescription medicines within the country while also exploring the possibility of extending the sale of its products outside the shores of the country.

    Since different expertise is required for vaccines and prescription drug manufacture and distribution as compared to manufacture and sale of consumer healthcare products, perhaps another alternative may be for the company to create two separate companies with one company being a 100% vaccines and prescription drug pharmaceutical manufacturing and distribution company while the second company specializes entirely in the manufacture and sale of consumer healthcare products.

    Jaiz bank

    As a result of the Q1 2021 performance, the company’s earnings per share (EPS) dropped to -20 kobo compared to the 9 kobo earnings per share reported in Q1 2020. At the start of 2021, GSK Plc’s share price was ₦6.90 but the company has since lost over 10% of its price valuation as the company’s share price closed at ₦6.20 on April 30, 2021.

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    Blurb

    NB Plc’s share price and dividends keeping shareholders happy

    It was not all hunky-dory for the company as its cost of sales jumped from N48.3 billion in Q1 2020 to N66 billion in Q1 2021.

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    Jordi Borrut Bel, Nigerian Breweries Plc

    Nigerian Breweries Plc (“NB Plc” or the “Company”) reported its first-quarter (Q1) 2021 results on April 23, 2021.

    The company’s performance was impressive considering the headwinds it faced late in 2020 and early 2021 from inflationary pressures, poor consumer purchasing power, lethargic economic growth, and increase in the company’s beer prices which took effect from Q4 2020.

    The company achieved a net revenue for the three months to March 31, 2021 of N105.68 billion compared to N83.23 billion for the same period to March 31, 2020 — a 27% increase compared to the Q1 2020 results.

    It also achieved a N39.67 billion gross profit — a 13.7% increase in gross profit compared to Q1 2020.

    Quarter-on-quarter EBITDA rose by 22.8% from N19.82 billion in Q1 2020 to N24.34 billion in Q1 2021. Other positive outcomes quarter on quarter were the increase in operating income (from N10.94 billion to N14.49 billion), profit before tax (from N8.3 billion to N11.51 billion), and profit after tax (from N5.53 billion to N7.66 billion).

    It was not all hunky-dory for the company as its cost of sales (direct costs attributable to NB Plc’s production) jumped from N48.3 billion in Q1 2020 to N66 billion in Q1 2021, an increase of N17.7 billion. According to the company, its costs are subject to seasonal fluctuations as a result of weather conditions and festivities. As a result, the company’s results and volumes are dependent on the performance in the peak‐selling season, typically resulting in higher revenue and profitability in the last quarter of the year.

    The total cost of sales, marketing and distribution, and administration expenses grew from N72.47 billion in Q1 2020 to N91.63 billion in Q1 2021 – a jump of 26.43%. This jump was largely attributable to the cost of raw materials and consumables which grew to N46.53 billion (compared to N30.2 billion for the same period in Q1 2020).

    The raw materials cost pressure has been a trend since Q2 2020 driven by the rising commodity prices, foreign exchange devaluation and domestic inflationary pressures. As a result, the cost of the raw materials to net income ratio has continued to rise. This ratio was 36.3% in Q1 2020 but has risen to 44% in Q1 2021.

    Hotflex

    What may be a source of particular concern for the company is how well working capital is being managed from a liquidity and leverage perspective. The company reported cash and cash equivalents of N30.37 billion in Q1 2020, this had dropped to N18.43 billion by Q1 2021. In the same period, trade debtors and other receivables (i.e., those that owe the company for purchases that have not been paid for) had increased from N11.42 billion in Q1 2020 to N23.48 billion in Q1 2021, an increase of over 105% in just 12 months!

    More worrying, in terms of magnitude, are trade creditors and other payables (i.e., those that the company owes payments for goods and services purchased) which grew from N139.2 billion in Q1 2020 to N145.41 billion in Q1 2021, a rise of N6.21 billion (or 4.5%) in just 12 months.

    While the company’s loans and borrowings had reduced significantly (short-term loans in Q1 2021 was N35.65 billion versus N39.64 billion in Q1 2020; and long-term loans in Q1 2021 was N15.87 billion versus N51,81 billion in Q1 2020), the cost of borrowing, that is, interest expenses that the company paid on borrowed funds, rose from N2.7 billion in Q1 2020 to N3 billion in Q1 2021. This suggests that while short term and long-term borrowing have reduced, working capital needs are being refinanced at a higher cost or alternatively, most of the reduced short term or long-term borrowings have simply been restructured from longer-term loans to shorter-term overdrafts and commercial papers with a higher interest expense. The balance sheet as of Q1 2021 showed a liability in the form of bank overdraft and/or commercial papers of N21.44 billion which was not in the books in Q1 2020.

    The first-quarter report also showed that as of March 31, 2021, the company had revolving credit facilities with five Nigerian banks to finance its working capital with the approved limit of the loan with each of the banks ranging from N6 billion to N15 billion (total N66 billion). N9 billion of the available amount was utilized at end of March 2021 (2020: Nil).

    It should be noted that NB Plc’s financial statements for the 3 months ended 31st March 2021 are yet to be independently audited, so the results may be further improved or be worse, depending on the views and professional opinion of the external auditors in terms of accounting treatments and management judgement on significant transactions.

    From the company’s numbers and explanations, the results are clearly driven by:

    (1) Benefits from its increased pricing with the raised prices taking effect from December 10, 2020. The increases ranged from 5.2% to 6%, mainly on selected brands packaged in aluminium cans and on the 600-ml Star Larger returnable glass bottle.

    Jaiz bank

    (2) Volume growth in its premium brands (particularly Heineken) and non-alcoholic portfolio (particularly Maltina).

    (3) Relative inelastic demand for its portfolio mix despite price increases, availability of substitutes, and stagnate consumer wages eroded by inflation. In economics, inelastic demand occurs when the demand for a product remains static or changes less than changes in price.

    Overall, the company achieved outstanding results that would have confounded analysts’ estimates. Given continued inflationary trends and currency depreciation, it would be interesting to see whether turnover and profitability growth are sustainable over the remaining quarters of the year. On its financial year 2020 performance, the company paid a final dividend of NGN0.69 in April 2021 (interim of NGN0.25 paid in December 2020). If the trend is sustained, it can only be good news for NB Plc in terms of increases in its share price and dividends for its shareholders.

    Heineken Brouwerijen B.V owns 37.73% of the company to which NB Plc pays annual technical service fees and royalties.

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