Economy bleeds as blue chips lose N51.8b

• Manufacturers under pressure from forex, input costs
• Weak consumer purchasing power dims earnings outlook

With four major blue-chip companies losing as much as N51.86 billion in the first half of 2016, the lot of the manufacturing sector is getting bleaker.

This is just as the firms continue to grapple with input cost pressure and weak consumer purchasing power, while earnings outlook for the second half of 2016 is dim.

Indeed, companies like Nestlé Nigeria Plc, Nigerian Breweries Plc, Dangote Cement Plc, and Lafarge Africa, in the first half of the year, suffered combined profit losses to the tune of N51.86 billion, while there are indications that other unlisted equities may have incurred more losses during the period.

A review of unaudited financial reports of many of the firms for the first half of 2016 revealed a struggle between balancing rising input cost pressures and passing the inflationary pressures on already constrained consumers by raising prices of some products during the period.

Some of the input cost pressures being encountered by many manufacturers border on foreign exchange losses on dollar loans, the inability to access foreign exchange, the high cost of production as well as poor electricity supply and tariff hike.

Others are prolonged gas supply shortages across Nigeria, which forced companies to rely on the more expensive backup – low pour fuel oil (LPFO), monetary policies and constrained consumer purchasing power.

For instance, Nestlé Nigeria Plc reported a 94 per cent drop in profit after tax for the second quarter ended June 30, 2016, representing N535.809 million for the quarter against a profit of N8.887 billion recorded a year earlier. However, its revenue stood at N80.442 billion during the period under review up from N65.924 billion reported in 2015, representing a 22 per cent growth.

According to the reports filed with the Nigerian Stock Exchange (NSE), Dangote Cement Plc’s profit after tax for the period under review stands at N106.3 billion representing a decline of three per cent from N123.1 billion declared a year earlier. The company attributed the loss to foreign-exchange constraints in the country, which prompted it to reconsider the pace of its expansion and now believes a five-year building programme is more appropriate.

Following a tax provision that fell to N6.48 billion in 2016 half year, Nigerian Breweries Plc’s Profit After Tax (PAT) stood at N19.07 billion from N21.48 billion in the corresponding period of 2015.

The company’s profit margins fell in HY1 2016 compared with HY1 2015, reflecting weak consumers’ spending power, rising inflation, high input costs, foreign exchange losses, the difficulty in sourcing foreign exchange and stiff competition.

For Lafarge’s Q2 2016 results, its after-tax loss narrowed to N24.3 billion, although Lafarge had issued a profit warning, which stated that it expected Q2 2016 earnings to be materially impacted by N28 billion unrealised foreign exchange loss.

The losses arise from forex denominated loans consisting of shareholder loans of $310 million and external loans of $85 million.

While Lafarge was able to refinance most of its naira debt via its N60 billion bond issue, it has not been able to refinance the forex component, even as it also brought in some forex loans of UNICEM into the Lafarge books.

Besides, the latest monthly survey of the Statistics Department of the Central Bank of Nigeria (CBN) shows a sustained decline in activities in the manufacturing sector as the Purchasing Managers Index (PMI), again recorded declining levels of production, new orders, employment and raw material inventories, in the buildup to the release of the second quarter Gross Domestic Product (GDP).

The manufacturing index, which rose marginally to 44.1 index points in July 2016, compared to 41.9 in June, is still below the basic level. The PMI had dropped to 41.9 index points in June 2016, compared to 45.8 in May, implying that the manufacturing sector declined at a faster rate during the period.

The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), noted that the real sector is reeling under the burden of rising costs of production in a state of near-economic stagnation while facing the prospects of being the base by which the government hopes to obtain tax revenue to finance the economy.

The chamber noted that the outlook of the economy has been bleak in the last six months, as the rate of inflation has almost doubled, electricity generation reduced by almost 50 per cent, and the price of petroleum products has also doubled.

NACCIMA’s National President, Bassey Edem, noted that while the effort of the Federal Government in addressing the challenges can be acknowledged, the efforts have not translated into measurable positive indicators; rather it has led into recession which has become a thing of worry to private sector operators.

He noted that business operators and Nigerians are patiently looking forward to the “change” that will bring about the economic turnaround of the country.