Close button
The Guardian
Email YouTube Facebook Instagram Twitter WhatsApp
x

Conglomerates reel under high costs, poor infrastructure

Related

(Photo by PIUS UTOMI EKPEI / AFP)

• Operators seek incentives to avert job loss
• ‘We need indigenous firms in the sector not foreigners’

The challenging business environment has continued to assail operations of the nation’s conglomerate sector, just as the bottom-line of the industry’s quoted companies keeps heading south due to apathy and low investors’ confidence.

Exacerbated by one year of devastating COVID-19 crisis and recession, the situation has left investors counting losses as quoted firms grapple with reduced profit margins while naira depreciation takes its toll on imported raw materials.

The sector is further plagued by parlous infrastructure, which has seen production cost transferred to consumers in a period of rising inflation.

This is besides the fact that in the first quarter (Q1) of 2021, the Nigerian Stock Exchange (NSE) now renamed Nigerian Exchange Limited (NGX) posted a disappointing result just after it was ranked the world’s best-performing stock market for 2020. The market shed N634 billion or three per cent as policy reversal and continued absence of foreign investors influenced the performance of the market.

The most hit were share prices of firms under the sector – UACN, Unilever, SCOA and Chellaram – which have remained stagnated at the nominal value year to date, following dwindling demand for the stocks. UTC, CFAO and AG Leventis had been delisted from the exchange few years ago.

x

Apart from UACN that recorded improved performance in the 2020 financial year, others have been struggling to survive with their operations reeling under losses.

The sector, had in times past, occupied the commanding heights of the Nigerian economy in conjunction with the petroleum and brewery sectors.

A review of performance in the sector showed that from a nominal share price value of N0.92 kobo as at January 2016 to 0.51 kobo as at close of trading the other week, John Holt Plc reported N319 million loss in its full year ended September 30, 2020 audited results compared to N236 million reported in prior full year ended September 30, 2019.

The conglomerate that provides technical, engineering services, leasing, fire safety solutions, properties management services, ended the period with gross profit of N272 million, down by 32.3 per cent from N402 million recorded in 2019.

Another firm under the sector, UAC of Nigeria Plc (UACN’s) Q3 2020 Unaudited results for the period ended September 30th, 2020 showed a revenue growth of 1.7 per cent to N57.8 billion from N56.8 billion in the previous quarter. The company’s 2020 audited results presented to the NSE showed that revenue rose by three per cent from 2019 figure.

SCOA Nigeria Plc, another conglomerate firm active in furniture production, interior design, automobile assembly, distribution, power generation, retailing and trade recorded 90.04 per cent drop in profit after tax in its unaudited statement of comprehensive income for the period January to December 31st, 2020 after tax dropped to N31.78 million from N319.18 million in 2019.

x

The Chairman of AG Leventis, a delisted firm under the sector, Ahmed Kazalma Mantey, at the group’s 59th Annual General Meeting (AGM), said: “The effect of the recession in our economy continues 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.”

The dwindling fortunes of conglomerates can be attributed to their loss of competitive edge in manufacturing and marketing of consumer goods. Many of them had weak domestic base and relied excessively on importation to survive.

The Publicity Secretary of Independent Shareholders Association, Moses Igbrude, said due to headwinds such as weak demand on the back of household wallets, most conglomerates in Nigeria have continued to find it difficult to weather the storm.

“Liquidity crisis in the foreign exchange market due to shortage of dollar is considered to be the major challenge facing the sector. The reason for this is not far-fetched as the devastating impact of the pandemic bites harder on global economy, including Nigeria, compounded by low foreign remittances into the country and capital flight by foreign investors.”

He urged government to fix the infrastructure gap and improve on the ease of doing business to avert job losses in the sector. He insisted that the room for growth in conglomerate business is hinged on huge infrastructural development and stable operating environment.

The Director General of Lagos Chambers of Commerce and Industry, Muda Yusuf, said the poor performance of the sector was a reflection of the harsh operating environment considering that most companies under the sector are import dependence.

“From forex shortage to depreciation in currency, all these are impacting negatively on cost of production. The liquidity problem in the forex market is affecting access to forex. If you are importing without access to forex, it will affect the business.

x

“These factors are currently affecting their operations and productivity, thereby increasing their cost in the face of weak demand and poor purchasing power. The problem at the port, security, and transport are general logistics problems affecting every business but it is weighing heavily on the sector,” he said.

An economist, Johnson Chukwu stressed the need for the country to support Small and Medium Enterprises (SMEs) that would subsequently grow into big enterprises and form local conglomerates. He pointed out that Nigeria is in dire need of local conglomerates. According to him, the era of waiting for a foreign enterprise to come to Nigeria and form a conglomerate is gone.

He said: “We have a huge market. We have enormous opportunities. We must support these SMEs to grow and develop into a conglomerate, away from the likes of the John Holt, AG Leventis and SCOA of this world.”

The Managing Director of Highcap Securities, David Adonri, listed the challenges facing the sector currently to include regulatory bottlenecks, infrastructure deficit, high cost of production among others, noting that if these constraining factors are not tackled, the outlook for the sector remains gloomy.

He described the sector as a ‘shadow of its former self presently, stating that its contribution to GDP currently is quite insignificant.

x


Receive News Alerts on Whatsapp: +2348136370421

No comments yet