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Conglomerates wobble under rising interest rate, poor infrastructure

By Helen Oji
21 September 2023   |   4:08 am
High interest rate and poor infrastructure have adversely impacted the half-year performance of listed firms under the conglomerate sector, even as a review of share prices indicates a steady decline in performance.

High interest rate and poor infrastructure have adversely impacted the half-year performance of listed firms under the conglomerate sector, even as a review of share prices indicates a steady decline in performance.

Half-year performance of companies under the sector listed on the Nigerian Exchange Limited (NGX) showed that besides TransNational Corporation of Nigeria, which has consistently recorded an improvement in its half-year result, the companies have been struggling to survive reeling under losses.

Similarly, the stock prices of quoted companies under the sector have also stagnated in the past few years following negative sentiments that have enveloped the demand for the stocks.

Experts have attributed the dwindling fortunes of conglomerates to the loss of competitive edge in manufacturing and marketing of consumer goods as many of the firms have weak domestic bases and rely excessively on the importation of inputs.

Indeed, the sector was impacted by cash shortages relating to the currency redesign programme as well as the closure of trading days on account of elections.

Businesses have continued to grapple with rising inflation, forex crisis and hike in fuel price within the period, resulting in rising input cost and an inability to pass costs to the already beleaguered consumer.

One of the conglomerate sector giants, Unilever Nigeria Plc 2023 half-year results showed N54.2 billion in revenue, an increase of 24 per cent from N43.8 billion recorded in the corresponding period in 2022.

However, the company recorded a gross profit of N13.1 billion, representing an eight per cent drop when compared to N14.2 billion achieved in the corresponding period in 2022.

Recall that the company posted a revaluation loss of N14.36 billion in the second quarter of 2023 from N1.06 billion in Q1 2023.

According to the company, the revaluation loss was due to foreign currency-denominated balances related to trade loans.

Scoa Nigeria Plc revenue for the period stood at N3.4 billion, representing 44 per cent gain when compared to 2.4 billion posted in the corresponding period in 2022 while profit after tax declined by 52 per cent from 395 million to 190 billion.

For Johnholt Plc revenue declined by 86 per cent from N 1.3 billion in the half year 2022 to N187 million while loss before tax stood at N88 million from N95 million in 2022, representing 193 per cent decline.

Also, eight years of performance of the share price of the companies showed that Unilever’s share price declined from N43 to N14.50 kobo while Scoa depreciated to N1.40 kobo from N4.16 kobo in 2015. UACN also fell from N38 to N10.60 kobo within the period.

Stakeholders have urged the government to implement initiatives that would help to alleviate challenges faced by operators in the industry, even as they continue to seek more efficient ways to manage rising costs.

Vice President of Highcap Securities, David Adonri, said the conglomerates and multinationals have suffered exchange rate losses in Q2 2023 as a result of crystallisation of their foreign exchange risks.

According to him, virtually all the firms in the sector are import-dependent with credit arrangements for the supply of inputs and products by their overseas parent companies.

Adonri said the expeditious implementation of the unification of the exchange rate by the CBN increased the amount of Naira they require to settle outstanding foreign currency obligations.

He also stated that the huge increase in their distribution costs arising from the deregulation of the energy industry is another contributory factor.

However, he noted that these are temporary setbacks that the enterprises will overcome when the economy starts readjusting to the new price levels.

Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka, said businesses under the sector have continued to face valuation challenges, arising from possession of net dollar liabilities which plunged them into negative positions, as naira suffers depreciation against most currencies in the foreign exchange market.

“I expect them to run through a recovery process, though modest in the short term, as they work around re-pricing inventories and other earning assets”, he added.

President of New Dimension Shareholders Association of Nigeria, Patrick Ajudua, said due to headwinds such as weak demand on the back of household wallets, most consumer goods companies in Nigeria have continued to find it difficult to weather the storm.”