Conglomerates reel under harsh environment
The effects of challenging operating environment has continued to assail the operations of the nation’s conglomerates sector, just as the bottom-line of the industry’s quoted companies in the last few years had remained subdued, occasioned by assessed policy issues.
Exacerbated by parlous infrastructure, which has inevitably transferred the high production cost to consumers, the companies are now less competitive, with shrank profit margins, as naira depreciation takes its toll on imported raw materials.
Indeed, increase in Nigeria’s exchange rate has forced most conglomerates and manufacturing sector to borrow at a high rate, compelling them to raise cost of production.
Most hit within the period were the share prices of these companies on the trading floor of the Nigerian Stock Exchange (NSE), which have remained stagnated at the nominal value year to date, following negative sentiments that have enveloped the demand for the stocks.
For instance, from a nominal share price value of 59 kobo in September 2017, to 31 kobo as at close of trading on Thursday, large Nigeria-based conglomerate, A.G. Leventis (Nigeria) Plc has continued to battle with lower sales and declining bottomline, posting a loss position in 2016, closed 2017 in the same trend and continued the 2018 unimpressively, finishing both first and half quarters of the year with a loss after tax.
Specifically, the company began the year 2017 with a loss after tax of N139.098 million for the first quarter ended March 31, 2017 as against a loss after tax of N114.897 million reported in 2016.
According to a report from the Nigerian Stock Exchange (NSE), the company also reported pre- tax loss of N204.556 million during the period under review as against pre-tax loss of N1658.965 million recorded in 2016.
Revenue stood at N3.350 billion in 2017 as against N3.581 reported in 2016, accounting for a drop of 6.45 per cent.
AG Leventis finished the half-year of 2017 in the red, as the trend of loss position was sustained.
The company posted a loss after tax of N590.416 million for the half-year ended June 30, 2017 as against a loss after tax of N335.930 million reported in 2016.
AG Leventis sustained loss position in the third quarter ended September 30, 2017 with a loss after tax of N1.065 billion as against a loss after tax of N560.267 million reported in 2016.
Also, UACN Plc, one of Nigeria’s oldest conglomerates, has been rocking under the pangs of harsh operating environment.
The stock sank to levels not seen in over three years from N42.31 kobo in 2015 to N8.65 kobo as at close of trading last Thursday, .
Results for the third quarter ended September 30, 2018, show that revenue fell from N68.2 billion in 2017 to N55.7 billion in 2018.
Profit before tax fell sharply from N3.1 billion in 2017 to N483 million in 2018. Profit after tax also declined from N2.2 billion in 2017 to N347 million in 2018.
John Holt Plc’s result for the nine months ended 30th September 2017 showed a turnover of ₦2.29billion as against ₦2.67 billion recorded in 2016. The result also shows a loss before tax grew to ₦223million as against ₦204 million recorded in 2016.
Market watchers had majorly attributed this poor outing to weak consumer demands, stiffer competition and increased financing cost, which had resulted in slow growth of many companies.
The Managing Director of Highcap Securities, David Adonri said the manufacturing content in the conglomerates is high and since the manufacturing industry has been under performing, investors have developed apathy sectors affected.
“Manufacturing content of enterprises in the Conglomerate sector is high. Since manufacturing has not been performing well in the economy, investors’ confidence for all sectors affected has diminished.”
For the Publicity Secretary of Independent Shareholders Association, Moses Igbrude, due to headwinds such as weak demand on the back of household wallets, most consumer goods companies in Nigerian have continued to find it difficult to weather the storm.
He added that the operating environment is tensed and full of uncertainty of the general elections elicited caution on the part of investors.
“ I think that is the main reason this is happening. Also, those foreign investors has moved their funds away from the market to safe environment until stability return after the elections. “
The Chairman, AG Leventis, Ahmed Kazalma Mantey, speaking at the group’s 59th Annual General Meeting (AGM), said: “The effect of the recession in our economy continued to impact adversely on our operations as there was a reduction in credit opportunities, which in turn affected our income. This harsh environment along with the continued lag in infrastructure especially power and road network added to our cost of doing business.
“Nevertheless, we strove to ensure that we continued to develop our business as much as possible”.