Major ground handling companies in Nigeria are facing a revenue crisis following published results in the first nine months of 2020. Reports from two of the major listed ground handling companies listed on the Nigerian Stock Exchange, reveals a revenue decline of over 20%, due to a fall out of the COVID-19 induced lockdowns and travel restrictions.
The state of their financials led some of them to consider job cuts, and cost reduction measures in a bid to survive even after the lockdown was eased.
Since the breakout of COVID-19 in March 2020; the FG approved lockdown in Abuja and Lagos State, both international airport hubs, forcing most airlines to shut down operations. This further affected the operations of the ground handling firm, as the government sought to contain the spread of the virus.
Aside from the COVID-19 pandemic dilemma, the sector was also affected by the activities of #EndSARS protesters that blocked the entrances of the Lagos airport to express their grievances against police brutality and extortion in the country.
The companies are Skyway Aviation Handling Company Plc (SAHCO) and the Nigerian Aviation Handling Company Plc (NAHCO). Their combined revenue for the nine-month period ended September 30 dipped by N2.7billion to N10.1bllion from N12.8billion in the same period of 2019.
According to their financials, the drop represents a 21% reduction in revenue in the period under review.
- Revenue for the first nine months of the year dipped by 29.8% from N7.4 billion to N5.2billion.
- A loss before tax of N76.1 million for the nine months of 2020, as against a profit before tax of N973.1million in the corresponding period of 2019.
- A loss after tax of N65.9million for the nine months of 2020, as against a profit after tax of N782million in the corresponding period of 2019.
- Less income for passenger/aircraft handling for the first nine months of 2020 compared to the same period in 2019.
- Passenger/aircraft handling for the nine months of 2020 was N1.7billion compared to the N4.1billion recorded for the same period of 2019, representing a revenue reduction of 56%.
- It recorded a revenue decline of N4.9billion for the first nine months of 2020, as against N5.4billion recorded within the same period in 2019 – a drop of 9%.
- Profit before tax stood at N549million, compared to the N599million recorded in 2019.
- It recorded N318.8million profit after tax for the first nine months of 2020, compared to N341.8million in the corresponding period of 2019. This represents a decline of 6.7%.
- Revenue from foreign handling dropped to N605.6million from N950.4million.
- Revenue from domestic handling was down N278.9million compared to the N447.7million recorded for the same period of 2019.
What they are saying
Country Manager, Nigeria & West Africa, Qatar Airways, Kennedy Chirchir, explained that the state of the sector is the result of the new normal of the industry, which means a total paradigm shift.
He said, “We are moving to the digital space where physical interaction would be reduced drastically. Most of the operations will be on a digital platform. There will be more requirements in terms of the turnaround of aircraft. Before now, it takes about 1 hour for aircraft to turnaround, but now it may take as long as 2 or 3 hours because there would be stricter checks. These will happen but will not stop people from travelling and that means the future is bright for the sector.”
On the part of travel agencies, Managing Director, BTM Travels Limited, Lola Adefope, explained that the adoption of technology would be emphasized. Before this, she insisted that it was important for operators and regulatory authorities to ensure that right policies and processes were in place to drive the technology, else the nation would be placing the cart before the horse.
“What we need to do is to implement a proper education process and platform. That is to ensure people understand the risk of travel and the safety measures in place with the technology to support the process. The technology will push notifications to people directly.
“We are going to see a move to much smaller groups when it comes to actual leisure travel. Leisure travel won’t develop at the international scene immediately, but we have to develop domestic tourism. We must put in place policies and processes before we open our borders for intercontinental or international tourism,” she said.
Dangote Sugar, sweet in more ways than one
Significant growth in gross revenue was driven largely by sale to Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited.
By refining capacity, Dangote Sugar Refinery Plc (DSR Plc) is acknowledged as the largest Sugar Refinery in sub-Saharan Africa and one of the largest in the world. With up to 60 percent market share, it is also clearly, the most dominant player in the Nigerian sugar market.
DSR Plc recently released its audited Financial Statements for the year ended December 31, 2020 and overall and year-on-year group performance results were very good.
Despite the impact of the Covid-19 induced lockdown which curtailed distribution across the country and resulted in decreased revenues from income generated from freights, gross revenues increased by over 33 percent year-on-year to ₦ 214.3 billion. The significant growth in gross revenue was driven largely by a rise in revenue from the sale of its 50kg sugar, with the two main customers being the Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited who operate principally from Lagos.
Year-on-year, gross profit increased by over 40 per cent to ₦ 53.75 billion, Profit before tax increased by almost 53 per cent to ₦ 45.62 billion, and Profit after tax increased by 33 per cent to ₦ 29.78 billion.
Notwithstanding the good result, the group operating results showed some issues and headwinds. First, during the year, DSR Plc wound up Dangote Niger Sugar Limited (one of four companies that had been set up to acquire large expanse of land and locally grow sugarcane as part of its concerted backward integration project). The winding-up was sequel to continued community dispute over land acquired in Niger State for this purpose. This winding-up event cost DSR Plc approximately ₦ 100 million.
Second, there continues to be a heavy reliance on Lagos for its gross revenues as revenues generated from Lagos State increased significantly from circa 33 per cent at the end of 2019 to over 50 per cent by the end of 2020. The share of the Lagos segment in gross revenue thus continued to grow and currently represents a significant market concentration risk for DSR Plc.
Third, provision for impairment on financial assets or in simple terms, receivables that are unlikely to be collectable, also trended upwards from ₦ 1.3 billion in 2019 to ₦ 1.45 billion by end of 2020 with net financing expenses also rising significantly from ₦ 516.2 billion in 2019 to ₦ 1.92 billion by the end of 2020. This rise in expenses was largely driven by a significant rise in exchange losses incurred in the ordinary course of business, rising from about ₦ 7 million in 2019 to over ₦ 1.57 billion at the end of 2020.
Finally, administrative expenses represented mainly by employee salaries grew year-on-year by over ₦ 1.2 billion.
With the recent reopening of land borders, we expect that revenues and margins will become squeezed as sales and production volumes become constrained by the influx of largely smuggled, lower quality, and much cheaper sugar and its substitutes. DSR Plc’s sugar refinery is also strategically located very close to the Apapa port and its logistics operations, distribution of raw materials and delivery of finished goods will continue to be impacted by the infamous Apapa Traffic Gridlock and road diversions/closures around the axis. Although the effort of Lagos state and the recent introduction of the electronic call up of truck by the NPA has eased the issue, still, it needs to be watched closely.
Earnings per share at the end of 2020 was ₦ 2.45 (2019: ₦ 1.87; 2018: ₦ 1.85)
Subject to approval at its forthcoming Annual General Meeting, DSR Plc board of directors have proposed a dividend of N1.50k per ordinary share (2019: ₦ 1.10k, 2018: ₦ 1.10k).
This performance is sweet in more ways than one.
The Nigerian economy is increasingly dollarized but there is a way-out
Nigeria’s overdependence on Oil has brought about high dollarization in Africa’s biggest economy.
For managers of the Nigerian economy, it was a huge sigh of relief when the National Bureau of Statistics reported that the country had surprisingly exited a recession in the 4th quarter of 2020. Contrary to most analyst expectation, the Nigerian economy grew by 0.11% in the 4th quarter of 2020.
Despite the return to growth, albeit tepid, a dark cloud of uncertainty continues to hover over the minds of millions of Nigerians as the broader economy remains in a fragile state. A key factor that remains a bellwether for the economy is the exchange rate, which is always perfectly correlated with the price of oil and the resultant dollar related export earnings.
Data has repeatedly shown that the country of over 200 million people is affected by the volatility of crude oil prices in the international market, particularly in the exchange rate value of the naira. Without oil, the Nigerian economy in its current state will collapse.
Data from Nairalytics, a data-sharing portal, reveals that the oil sector provides for 85% of Nigeria’s export earnings and 55% of its government revenues, making the nation highly dependent on the dollar for its survival. It appears a lot of financially savvy Nigerians now this already and are increasing their dollar positions.
According to Silas Ozoya, Founder/CEO of SUBA Capital LLC, in an exclusive interview with Nairametrics, a growing number of Nigerians are getting more attached to the US dollar due to high inflation and low purchasing power of the naira.
“Many Nigerians are beginning to dollarize their spending, investment and asset holdings to hedge against the ever-increasing inflation rate and our strong economic romance with recession,” Ozoya said.
Nigeria, Africa’s biggest crude oil producer, has been heavily impacted by the plunge in crude oil prices following the outbreak of the COVID-19 pandemic, with the nation’s authorities adjusting the naira twice in the year 2020 to deal with the pressure.
Besides the drop in foreign exchange revenues from crude oil export, diaspora remittances, which made up about 5% of Nigeria’s GDP in the year 2019, also experienced a significant decline in 2020, again due to the impact of the pandemic and the economic challenges faced by many nations across the globe.
Uwa Osadiaye, a financial analyst in a leading merchant bank, in a note to Nairametrics, revealed that the Nigerian apex bank had made great efforts to reduce the country’s high dependence on the dollar. He advised the nation to increase its Agricultural production.
“The central bank has tried to do this with little success but I believe that beyond administrative measures, the key could lie in increased domestic production of things we consume that aren’t commoditized internationally for a start, such as food crops,” Osadiaye said.
Temitope Busari, CFA, in a telephone interview with Nairametrics, said that it was time for Nigeria as a country to diversify.
“One outcome of the diversification of the Nigerian economy, and perhaps the most critical one at this time, is the potential to diversify our foreign exchange earnings as a sovereign state. It will reduce overdependence on crude oil, maximize opportunities in erstwhile neglected sectors and project the country as the destination for top-class value creation in other areas outside being an oil-producing state,” Busari stated.
The financial analyst also spoke on the need for Africa’s leading oil producer to invest more in intellectual property and encourage Nigeria’s talent in the diaspora, saying:
“We have produced some of the most brilliant minds in the world evidenced by the ground-breaking successes recorded by Nigerians in diaspora (Medical professionals, Software engineers, resilient small business owners to mention a few), and we must begin to drive policies to retain that talent in-country and make the world pay premium dollar for it.”
Adetayo Teluwo, a scholar at Warwick Business School, said that the narrative seems to be changing as Nigerians are now beginning to embrace homemade goods.
“The Fashion & Style scene continues to boom. From side hustles to globally-competitive websites with options to accept payments from customers all over the globe,” Teluwo said.
Economic experts believe that the way to solve this growing menace is for Nigeria to promote free markets and support large scale exports from the Agricultural, Mining, and Technology sectors. The country should tap into its raw diamond which is “intellectual services” to develop a knowledge economy.
Nigeria can draw lessons from India, which has performed remarkably well in creating an outsourcing and knowledge-based economy valued at over 150 billion dollars per annum. This has put India on the technology map, as a destination of low-cost but high-quality technical services, helping the densely populated nation to generate sufficient economic ripple effect to drive job and wealth creation.
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