It is no longer news that Nigeria’s manufacturing sector contracted by 8.78% in the second quarter in real terms. This is a major decline when compared with a marginal growth of 0.43% reported in Q1 2020, and a contraction of 0.13 reported in the corresponding quarter of 2019.
According to the National Bureau of Statistics, only two sub-sectors in the manufacturing space – chemical & pharmaceutical products and motor vehicles & assembling, reported real growths of 3.79% and 6.95%, respectively. This is higher than the real growths of 0.58% and 1.04% in the first quarter, and a contraction of 1.27% and 1.5% in the corresponding quarter of 2019.
The other 11 sub-sectors in the manufacturing space all contracted.
Among the sectors that contracted were eight subsectors that reported double digits contraction, with oil refining activities contracting the most by 67.6%, extending the streak of contraction by six quarters. It should be noted that the last time the sub-sector reported a major expansion was during the fourth quarter of 2018 (33.6%).
The contraction in the activities of these subsectors is attributable to global & domestic supply chain disruptions, foreign exchange illiquidity, weak consumer spending, and high operating costs. Subdued operations caused by the lockdown and other containment measures to combat the pandemic also affected manufacturing activities.
The contraction in the manufacturing sector during the second quarter is consistent with analysts’ expectations, at least based on the CBN’s recent Manufacturing PMI reports. These reports signalled the contraction of the manufacturing sector in the second quarter, with the Manufacturing PMI for May and June standing at 42.4 and 41.1; well below the benchmark index of 50%.
The Director-General of Lagos Chamber of Commerce and industry, Dr Amuda Yusuf, maintained a cautious stance on the economy. He said that “although there has been a gradual reopening of the economy, business and commercial activities would remain subdued”.
He emphasized that with the protraction of the COVID-19 pandemic and lack of a vaccine, there is a high possibility that the economy would contract, though marginally, in the third quarter.
The DG of LCCI further raised concerns about how the manufacturing sector has been struggling before the pandemic, despite being one of the biggest beneficiaries of CBN’s loan-to-deposit policy.
He explained that the weakness of the manufacturing sector was due to global & domestic supply chain disruptions, foreign exchange illiquidity, weak consumer spending and high operating costs.
In his statement, he called for the removal of the structural bottlenecks to productivity through a mix of fiscal, monetary and regulatory measures.
He counselled that, a proper blend of fiscal and monetary policies, with proper implementation of the sustainability plan among other measures, would give the economy a boost in the near term.
Briscoe Motors: Pioneer dealer of Toyota automobile in Nigeria suffers N1.27billion loss
The Auto dealer has a working capital deficit of N14.76bn, driven by a bank overdraft of N15.76bn
Briscoe Motors has sent its audited financial results to the Nigerian Stock Exchange. The results revealed that the auto dealer suffered a loss of N1.27 bn in 2019.
According to the report released by the exchange today, the company’s performance is an improvement, when compared with the N2.18bn loss, the company reported in 2018.
- Revenue increased by 33.9%
- Cost of sales increased 41.8%
- Operating profit increased by 94.5%
- Finance costs decreased by 37.3%
- Loss for the year decreased by 41.7%
A cursory view of R.T. Briscoe’s performance, revealed that revenue increased from N5.18bn in 2018 to N6.94bn in 2019. This increase was driven by the improvement in the dealer’s core business segment, as the proceeds from the sale of Motor vehicle and accessories in 2019, rose by 59.7%.
This improvement in revenue is a consequence of the board’s decision in 2017, to return the company back to profitability, with avid steps taken to restructure the business for greater efficiency and economic rewards, via a strategic positioning of the company’s business segment to customers. This has helped the core business segment of Briscoe in recent years.
Despite this improvement, it is noteworthy that the 61% increase in the cost, coming from the company’s activities in the Motor vehicle and accessories segment, continue to pressure the growth prospect of the dealer.
In like manners, the rising cost of sales from this segment was compounded by a N1.45 billion finance cost, which the company incurred during the year, as the company is aggressively geared with bank overdraft of N15.76bn, representing 86% of the total liabilities of the company.
With recoverability of the trade and other receivables of the company long overdue, the Toyota Automobile dealer is exposed to credit risk, as trade and other receivables accounted for 31% of the total assets value of N8.914bn.
Key issues facing the company
It is noteworthy that the auto dealer has a massive working capital deficit of N14.76bn, driven by a current debt of N15.76bn.
With bank overdraft and other debt unpaid, the company faces penalty charges by banks and court litigations. All these issues have led to winding-up cases of the company, from the banks and other creditors.
As a result of both current and previous losses incurred over the years, the shareholders’ fund has been completely eroded, to the tune of N9.5bn and N9.9bn deficit for the group and company respectively, as at December 2019. The widespread vulnerability in the company’s book has cast doubts on the going–concern of the company.
Prices of rice and other commodities are expected to increase – Expert
The price of rice is expected to increase as the festive period draws near.
Nigeria’s rice production volume for 2020 is put at 8 million tonnes – with 2.5 million tonnes expected from Kebbi state. However, that expectation suffered a huge setback with over 2 million tonnes of rice washed away by floods among other factors.
According to the KPMG Rice Industry Review, rice is the third most consumed staple food in Nigeria (after maize and cassava). With the festive season fast approaching, the demand for rice is expected to increase.
Backstory: Nairametrics earlier reported that the recent floods in rice-producing Kebbi State had destroyed over 25% of Nigeria’s expected 8 million tons of rice harvests this year. The Kebbi State Commissioner for Agriculture, Attahiru Maccido, disclosed to newsmen that it had lost N1 billion worth of rice and other commodities in the state.
It also reported that the Pipeline and Product Marketing Company (PPMC), Ibadan depot issued an internal memo on September 2, 2020, notifying all stakeholders of an increase in the pump price of petrol to N151.56 per litre.
What to expect
Senior Research Analyst, Financial Derivatives Company, Temitope Olugbile explained that scarcity of rice is expected, as 450,000 hectares of rice – 2 million tonnes, were washed away in Kebbi state out of the expected 2.5 million tonnes this year. This will lead to a high demand for the scarce commodity, resulting in a price increase.
The new pump price of petrol, which led to increase in the cost of transporting farm produce to the market will inevitably cause a price surge for rice.
Journey to rice sufficiency
Nigeria’s journey to rice sufficiency has been full of ups and downs, especially with the tough decision of border closure to curb smuggling and boost local production. According to data from Index Mundi, Nigeria had a production volume of over 5 million tonnes of milled rice last year.
The current gains in rice production are evident, as volume increased by 11.06% in 2019. However, it is noteworthy that the country is still far from being self-sufficient in rice production.
She emphasized that the policies and programs which the government has implemented from forex restrictions to border closure and the Anchor Borrowers Program, which provides farm inputs to farmers, are all impressive.
However, these policies, as a stand-alone without adequate infrastructures, are not sufficient to combat exogenous factors like flood, which is beyond the control of the government and the rice farmers.
She called for proper irrigation and drainage infrastructure, as this would help to cushion the effects of water-logging in farms.
Big players in Paints and Coatings industry suffer 52% profit loss in the first 6 months of 2020
The COVID-19 induced lockdown took a huge toll on the activities of the producers.
The economic challenges triggered by the COVID-19 pandemic and accompanying issues from foreign exchange illiquidity coupled with the existing structural and regulatory imbalances in the economy constrained the operations of the big players in the paints and coatings industry in the first half of the year.
The knock-on effect of the COVID-19 induced lockdown on the global and domestic value chain like other sectors in the economy took a huge toll on the activities of the producers in the paint and coating industry, as the pandemic disrupted their operations and also their trade segments, and this in extension led to a fall in demand, sales volume, revenue and underlying profits of the players.
The paints and coatings industry is highly fragmented, with small producers accounting for more than half of the total revenues generated in the paints and coatings industry. The big players who have elaborate dominance in the industry include CAP plc, Berger Paints Nigeria Plc, Portland Paints and Products Nigeria Plc and Meyer Plc.
According to the half-year financial results of CAP plc, Berger Paints Nigeria Plc, Portland Paints and Products Nigeria Plc and Meyer Plc, the sales of these companies were severely affected by the pandemic with the cumulative revenues of these companies declining by 12.8% from N7.4 billion to N6.5 billion owing to disruption to the trade segment and the operations of the companies.
On the flip side, Berger paints was the only company that reported a growth in revenue in the first half of this year, with the company’s revenue growing by 16.77%. While the revenue of CAP plc, Portland paint and Meyer declined markedly by 10.71%, 43.27% and 34.82% from N3.91 billion, N1.36 billion and N604 million reported in H1 2019 to N3.5 billion, N771 million and N393 million respectively in the first 6 months of 2020.
Extensively, the raw materials such as resins, pigments and additives used in the industry have to be imported and these materials are subjected to import levies, exchange rate volatility and haulage costs.
Given the current business reality of the paints and coatings industry which is coloured by foreign exchange illiquidity as well as logistics and regulatory rigidities in importing raw materials, the margins of these companies were affected directly, as profitability was suppressed by the hike in input prices.
Although Berger paints reported a 16.77% growth in revenue, the cost impact of the raw materials it used in its operation along with the increase in administrative expenses led to the fall in profit after tax by approx. 72%, with the company spending N812 million on raw materials from N664 million last year it expended last year.
In like manners, the bottom line of Chemical Allied Products Plc and Portland paints Nigeria Plc fell by 30% and 217% respectively. While Meyer’s loss rose by 105% to post a N60.7 million loss from N29.5 million last year.
Survival strategy deployed
With revenue constrained, it is noteworthy that in the quest to make more sales, CAP Plc and Berger paints relaxed their credit policies, this development made trade and other receivables increase by 121% and 30% respectively, this indicates that the top producers of paints relaxed their credit policies in a bid to generate more sales with their buyers cash strapped.