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For the first in nine months through September 2016, the cumulative net income of 30 firms which make up the Nigerian Stock Exchange (NSE) 30 index or 87.50 percent of the total market capitalisation fell by 20.34 percent to N510.73 billion from N641.15 billion the previous year.
Seven firms out of the NSE-30 also posted a cumulative loss of N140.19 billion in the third quarter, as the economic downturn continues to blight every sector of the economy.
Some of Nigeria’s biggest companies lost significant investment in the period under review, on the back of a weak naira, crimping consumer spending and limited access to foreign currency for essential imports.
“The fact that people are losing their jobs and the inflation that has eroded the purchasing power of consumers impacted negatively on the performance of these firms,” according to Ayodele Akinwunmi, Head, Research and Strategy at FSDH Merchant Bank Ltd.
“Costs are going up because of foreign exchange scarcity and naira devaluations and the increase in costs cannot be easily shifted to consumers whose pockets are already squeezed. Some firms cannot shift cost to consumers because they sell goods that have perfectively elastic demand,” said Akinwunmi.
Seven Up Bottling Plc, a beverage and consumer goods giant, recorded a loss of N1.55 billion in the third quarter, the first in more than a decade, as higher price of raw sugar, which is a raw material component in the manufacture of soft drinks, spiked.
An industry source told BusinessDay that the basic problem of foreign exchange affects practically everything. “Whether the firms are importing directly or not, it has some kind of a linkage on import,” said the source, who does not want to be named.
He said for instance, that his company does not import sugar but it buys from Dangote Sugar, BUA and Golden Sugar, which import raw sugar, and that these firms are constrained by dollar scarcity.
“Sugar price alone has gone up two times in the last eight to nine months, which explains the spiralling input costs bedevilling our operations” he summed.
A breakdown of the huge losses shows some firms, especially the oil majors, got cash flows crippled as a result of militant attacks on oil infrastructure like the Forcados terminal, which transport crude and gas.
Oando Nigeria Plc and Seplat Corporation Development Plc recorded losses of N36.45 billion and N24.07 billion respectively.
For the building material and construction firms, Lafarge Africa and Julius Berger Nigeria Plc recorded losses of N37.40 billion and N3.32 billion, respectively.
Bashir Saheed, head of research at Meristem Securities Limited, said for firms to rebound to the path of profitability, there has to be a recovery in the economy.
“It depends on pace and success of all economic recovery strategies of the FG. Nevertheless, we may not see any positive impact until third quarter 2017,” said Saheed.
For Ayodele, the ability of government to resolve the dispute in the restive Niger Delta region will help increase oil production which will boost FX and enlarge allocations to state that will enable them clear salary arrears owed to workers.
“Once they are able to pay salaries, it will increase the ability of people to buy consumer goods.
Federal Government investment in infrastructure will boost production,” summed Ayodele.
Nigeria’s Gross Domestic Product (GDP) contracted by 2.20 percent in the third quarter of the year, according to data from the National Bureau OF Statistics (NBS). The International Monetary Fund (IMF) forecasts the economy will shrink by 1.70 by 2016.
Inflation rate for the month of October was 18.30 percent, fuelled by higher price of petrol and foodstuffs. Unemployment is at 13.30 percent for the second quarter.
“If the economy is in a recession, firms within the economy will not have strong demand for their products and they will record lacklustre results,” said John Chukwu, managing director and founder, Cowry Asset Management Limited.
While the apex bank has adopted a semi-flexible exchange rate after pegging the currency for 15 months, companies say the new policy has not assuaged the pains of dollar scarcity.
BALA AUGIE
