China’s economic exploits across Africa have continued to fascinate observers. Here in Nigeria, the Asian superpower has been able to successfully establish itself as an important ally, a situation that has resulted in some very positive outcomes.
One of the outcomes of the economic partnership between Nigeria and China is the growing number of Chinese-owned enterprises in the country. Typical examples include the likes of Boomplay, Opera (and its many subsidiaries), and CWay among others.
Focus on Boomplay’s success
The rate at which Chinese companies are expanding in Nigeria is something that should be emulated. As you may recall, Nairametrics reported last month that Boomplay was set to expand into some Francophone African countries. The move came after the Chinese-owned music streaming company had consolidated on its Nigerian operation, thanks to the millions of dollars’ worth of investment funding which it recently secured.
The company’s recent partnership with Warner Music gave it an edge over competitors by allowing it to bring international contents to Africa. This is part of the company’s strategic effort to become a one-stop-shop for local and global contents.
The Opera family is also doing well
As you can expect, Chinese-owned companies in Nigeria specialise in offering solutions to basic Nigerian problems, thereby creating value in return. In the case of OPay, which is a subsidiary of Opera, the company has brought so much vigour into the Nigerian payment ecosystem within a rather short period of time.
While its competitors like Paga and QuickTeller agents use kiosks and other means to remain visible, OPay developed “nearby agent”, an in-app feature for finding agents. It uses GPS to connect users with the nearest agents.
Along with its components such as ORide (a bike-hailing service) and OFood, which specialises in food delivery, the company has continued to expand. In the meantime, the parent company (Opera), which was bought over by its current Chinese owners from some Norwegian owners in 2016, has continued to be the internet browser of choice for many Nigerians.
Other notable Chinese companies
In the same vein, CWay Nigeria Drinking Water Science & Technology Co. Ltd came into the Nigerian market in 1999. Although the Nigerian portable water industry was already saturated at that time, the Chinese-owned company was able to create a niche for itself. Since then, it has diversified its operation in Nigeria with the launch of several beverage brands, even as it has also expanded operations into five other countries including Kenya.
Let’s not even talk about the story of Huawei, the globally successful phone manufacturer and ICT infrastructure company which has long established its presence in Africa’s most populous country. Perhaps the success of Huawei in Nigeria is what motivated several other Chinese companies to set up shop here.
Back to the issue at hand…
That said, it is important to note that the ability of these Chinese companies to meet basic needs in Nigeria is not necessarily the only factor behind their success. After all, there are many Nigerian businesses (with good business models) that are still struggling to survive despite many years of being in operation. Let’s not even talk about the thousands of Nigerian entrepreneurs with incredible business ideas whose businesses have yet to take off.
What secrets are the Chinese using?
Well, apart from their viable business models, another thing that is really helping Chinese companies in Nigeria is easy access to funding. According to a report published by the Institute of Developing Economies, which is under the Japan External Trade Organisation, China’s financial institutions play an immense role when it comes to supporting Chinese businesses in Africa.
The likes of Industrial and Commercial Bank of China, the China Export-Import Bank, the China Development Bank, etc., are reportedly willing to stake parts of the huge financial resources at their disposal just to support Chinese enterprises in Nigeria and elsewhere.
“Critical to China’s economic successes in Africa has been the important use of the country’s state backed banking institutions. Under-pinning the aggressive buy-out of foreign resource companies, mineral and energy reserves and large institutional investment projects in the continents oil and infrastructure sectors, are a phalanx of state funding agencies supported by massive national reserves of accumulated liquidity of over US$2 trillion, ready to be shifted into the global market at a moment’s notice.”
This is probably nothing new, especially to those in the know. However, it underscores a very important point – the fact that adequate funding is necessary for business growth and success.
What Nigeria should learn from this?
Again, let it be argued here that the greatest problem facing Nigerian entrepreneurship is not the dearth of viable business plans, but the absence of adequate funding. There are many business plans by Nigerians that could solve Nigeria’s problems. Sadly, not enough funds are readily available to finance these business ideas. Unfortunately, no business can succeed without adequate funding.
The issue of lack of adequate funding for Nigerian businesses by Nigeria’s financial institutions is so serious that majority of the country’s tech ecosystem is built almost exclusively with foreign capital. This situation has elicited concerns from stakeholders, with a Nigerian VC expert (Abasiama Idaresit) highlighting its problematics.
That said, it is high time Nigeria’s financial institutions began to try harder to provide financial support to Nigerian businesses. This is the only way they too can succeed like their Chinese counterparts. Already, the Central Bank of Nigeria has given the country’s lenders till next month to ensure that they maintain a loan-to-deposit ratio of 65%.
If this directive is strictly implemented by the CBN and adhered to by the lenders, it will go a long way towards ensuring that entrepreneurs in the country are availed access to finance. This will, in turn, enable them to grow/expand their businesses.
Nigerian Breweries leveraging, but stacking cash through rising input costs
The marathon continues for Nigerian Breweries with its 2020 financials.
Humanity might need more booze to survive the increasingly daunting intricacies of life, but Nigerian Breweries 2020 financial statement is proof that even the best can get caught up in the reality of changing business lifecycles.
Nigerian Breweries Plc had floored the market providing both alcoholic and non-alcoholic premium quality beverages across the nation. But with brands like Star lager beer launched as far back as 1949, Gulder lager beer launched in 1970, and even the family-friendly Maltina introduced as far back as 1976, it is only natural that both the old and new generation competition gives them a run for their market share.
Much like other old money companies, Nigerian Breweries has done its bit to remain relevant in the industry from creating new variants of existing favoured brands to paying dividends consistently annually for the past few years. Yet within the same period, the company’s financial statements have been a testament to its streamlined market share and reducing profits. The marathon continues with its 2020 financials. The industry giant may as well be setting itself up for a debt quagmire peradventure its projections do not match the true reality of events.
2020 financials: A tale of higher costs & larger debts
2020’s unfavourable financial/ business environment led to the increase in the prices of raw materials and disruptions in logistics for many Nigerian-domiciled businesses including Nigerian Breweries. Raw materials and consumables witnessed a 17% increase despite the marginal growth in revenue.
While the group’s 2020 results revealed a 4.35% increase in revenue from N323 billion in the prior year to around N337 billion, these gains were curtailed by a higher-than-par increase in cost of sales which had risen by 13.9%, from the N191.8 billion expended in 2019 to N218.4 billion as its 2020 financials reveal and interest rates going way up.
The company’s lower operating expenses were not enough to salvage the disruption caused by the raging interest expense following increased charges paid on bank loans and overdraft facilities as well as the significant increase in overall debt. Between 2019 and 2020 alone, long term loans and borrowings increased by 974% from N4.8 billion to as much as N51.8 billion. Even trade and other long term payables increased by 35%.
In its financials, the company noted that it has revolving credit facilities with five Nigerian banks to finance its working capital. The approved limit of the loan with each of the banks range from ₦6 billion to ₦15 billion (total of ₦66 billion) and each of the agreements had been signed in 2016 with a tenor of five years. The Company had also obtained Capital and Working capital finance from the BoI in 2019.
It is no news that the company is involved in diversified lease arrangements. Following reclassifications made in 2019 to some of its lease assets, the 2020 asset base also witnessed significant increase in Right of Use Assets which increased by 288%% from N11.1 billion to N42.9 billion. Yet, the fact that in one year, interest expense on Lease Liabilities rose from N19.7 million in 2019 and to a whopping N4.171 billion shows that the company is taking way more debt than its books require.
But what’s it using all the cash for?
Beyond rising material costs, borrowing costs have been huge and the annual interest payment by virtue of these loans make the possibility of higher profits for the company a mirage. That said, the overall increase in total liabilities might not have been such a bad idea if the funds were being used to increase revenue and profits. But having a huge chunk of all that money in cash creates a different kind of challenge. Cash and bank values in its statement of financial position significantly increased by 377% from N6.4 billion in 2019 to N30.4 billion in 2020.
Is the cash being held to mitigate possible challenges of the volatile economy or are they being used to pay dividends? Even at a share price of N52 per share, the company’s price-to-book value sits at 2.5816, testament of its dire overvaluation. Consequently, there is an ardent need for the company to come up with newer ways to attract the wider market and keep its book in the green with a little less external funding.
Secret behind MTN’s blistering performance
Despite COVID-19 disruptions, MTN Nigeria’s 2020 financials showed marked improvements compared to its 2019-year-end.
MTN Nigeria Communications Plc (MTN Nigeria) released its audited financial results for the financial year ended December 31, 2020.
Despite a challenging 2020 to individuals and businesses caused by COVID-19 disruptions, MTN Nigeria’s financial and non-financial information showed marked improvements compared to its 2019-year-end as well as prior quarters of 2020 results that were impacted by the COVID-19 pandemic.
Indeed, the evolving pandemic which intensified lockdown, remote working, and work-from-home procedures, appeared to have led to increased adoption of MTN Nigeria data and digital services.
Specifically, year-on-year on non-financial information, mobile subscribers increased by 12.2 million to 76.5 million; active data users increased by 7.4 million to 32,6 million while the company’s mobile money business continued to accelerate with a 269.2 % increase in the number of registered agents to over 395,000 and 4.7 million active subscribers from approximately 553,000 in 2019.
Year-on-year on financial information, service revenue increased by 14.7 % to NGN1.3 trillion driven principally by voice (with revenue growth of 5.9 %) and data revenues (rising by 52.2 % led by increased data use and traffic); profit before tax (PBT) grew by 2.6 % to N298.9 billion; profit after tax (PAT) increased by 0.9 % to N205.21 billion; while Earnings per share (EPS) rose by 0.9 % to N10.1 (N9.93, 2019).
Nonetheless, significant increases were noted in its operating expenditure as well as capital expenditure. First, there was a 2.3 % increase in operating expenses arising from the rollout of new sites and the impact of naira currency depreciation affecting the costs of MTN Nigeria lease contracts. Secondly, EBITDA margin declined by 2.5 %age points to 50.9 % (from 53.4 % in 2019) There were also other significant cost rises including a 25.4 % increase in net finance cost, and 19.4 % increase in capital expenditure which had a 11.7 % knock-on increase in depreciation and amortization costs.
On the back of the year-end result, MTN Nigeria has proposed a final dividend per share (DPS) of N5.90 kobo per share to be paid out of distributable income and brings the total dividend for the year to N9.40 kobo per share, representing an increase of 18.7 %. MTN Nigeria paid N4.97 as final dividend for the year ended December 31, 2019. This was in addition to an interim dividend of N2.95, which brought its total 2019 dividend to N7.92 per share.
The proposed dividend implies a yield of 3.4%. Having paid an interim dividend of NGN3.50 in 2020, the proposed dividend, if approved, will bring the total dividend per share to NGN9.40 or c.19% higher compared with 2019. We expect a positive reaction from the market due to the marked improvement in earnings. However, the market’s reaction may be dampened by negative investor sentiments on equities arising from the uptick in yields on fixed-income securities.
We expect that the introduction of additional customer registration requirements requiring subscriber records are updated with respective National Identity Numbers (NIN), and the continued suspension of the sale and activation of new SIM cards will affect subscriber growth.
MTNN share price remains unchanged at the end of trading yesterday at N174 per share.
Tade Fadare PhD, is an economist, and a professionally qualified accountant, banker and stockbroker. He has significant experience working or consulting for financial institutions in Europe, North America, and Africa.
Nairametrics | Company Earnings
- Seplat falls into a loss in FY 2020
Seplat Petroleum Development Company […]
- 2020 FY Results: Cornerstone Insurance Plc reports a 61.1% decline in profit
Cornerstone Insurance Plc has released […]
- Ellah Lakes increases operating expenses by 33.36% in HY 2020
Ellah Lakes Plc released its half-year […]
- 2020 FY Results: Nigerian Breweries reports a 54.3% decline in profits in 2020
Nigerian Breweries Plc released its […]
- Abbey Mortgage Bank projects N51.08 million profit in Q2 2020.
Abbey Mortgage Bank has released its […]