Investors lose N2.63tr
• Shareholders to forfeit dividends as profits shrink
• Cadbury, Total, Unilever others record huge losses
• Operators urge govt to boost real sector
The devastating effect of COVID-19 on critical sectors of the economy may shrink profit of quoted companies and negatively impact dividend pay-out by as much as 60 per cent. In Nigeria, lockdowns were imposed across various states, limiting operational activities in the first quarter. Public and private sector revenues were also hit by lull in economic activities and sudden drop in crude prices, limiting capital spend and purchasing power.
The Guardian investigations revealed that some listed firms were modifying the dividend pay-out and reviewing policies to cushion effects of COVID-19 crisis on business operations.
Further investigation showed the review led to the decision by the board to either defer or cancel dividend payments to reduce volatility on the company’s bottomline and sustain liquidity flow.
Already, stock market investors have lost over N2.6 trillion in the last three years following security challenges which triggered investment apathy.
Market capitalisation which stood at N15.691 trillion on January 26, 2017, was down to N13,055 trillion yesterday, representing N2,636 trillion or 20.1 per cent fall, while the All-Share Index, which measures performance of quoted companies closed at 25,027.61, from 26,216.46 representing 1,188.85 points (4.7 per cent drop).
Although the Central Bank of Nigeria (CBN) had announced measures to battle economic impact of the crisis, analysts and operators at the weekend insisted that government must prioritise ease of business and provide the favourable business environment to boost performance in the real sector as well as avoid collapse of fragile economy.
Investors also expressed the concern that the trend could extend to the 2021 financial year as few companies that had released their earnings across the quarters reflected negative impact of the pandemic with many companies recording losses and mixed numbers.
They argued that government’s inability to provide enabling environment for quoted companies and improve their bottomline would ultimately erode their profitability.
According to them, the effect of the pandemic has been predicted to linger and will further affect profitability and their ability to declare dividends to shareholders going forward.
For instance, directors of Julius Berger Plc had withdrawn their previously announced final cash dividend payment to enhance the company’s sustainability
Following a good 2019 financial year, Julius Berger had announced a dividend payout of ₦2.75 kobo per 50 kobo share for the financial year ended December 31, 2019 and a bonus of one new share for every existing five.
However, in an attempt to brace itself for impending challenges, the board of the company withdrew its previously announced final cash dividend payment of ₦2.75 kobo per 50 kobo share, and instead recommended a final cash dividend pay-out of ₦2.00 kobo per 50 kobo share.
In an announcement, it revealed the board had carefully considered the emerging social, operational, financial and economic impact of the COVID-19 pandemic, the outlook for Nigeria for the financial year 2020, and impact on business and cash flows of the group.
It is the company’s way of protecting its liquidity and ensuring long-term sustainability, while balancing returns to shareholders.
A breakdown of financial performance of Julius Berger, under the building construction sub sector, showed the firm’s financial statement for the half year (H1) ended June 31, 2020 showed a loss after tax of N1.9 billion, down from a N2.8 billion profit achieved in the corresponding period in 2019.
The company’s earnings pressure was mostly driven by a slowdown in revenue amid challenging operating environment as well as losses arising from currency adjustments in the second quarter of the year.
In the same vein, one of the leading companies under Transcorp Hotels Plc, started the year on a rather wrong note, recording a loss in the first three months of 2020.
THE travel/tourism sector remains one of the most affected as flights have been grounded due to closure of airports around the world, while some hotels have been converted into isolation centres to cater for those infected with the virus.
The company revenue was flat at N4.2 billion over the comparative periods, while cost of sales increased to N1.2 billion, from N1.1 billion in Q1 2019, with gross profit slightly down to N3.0 billion from N3.1 billion.
However, the company said there was improvement in the other operating income, which closed at N129.5 million, higher than N80.0 million in the corresponding period of last year.
But the operating profit declined to N660.7 million from N1.1 billion in the first three months of last year.During the period under review, Transcorp Hotels said there was a spike in its administrative expenses to N2.5 billion from N2.1 billion in the same time of last year, with the net finance costs also rising to N1.4 billion from N673.5 million.
The firm also recorded a loss before tax of N686.5 million compared with a profit before tax of N436.5 million in First Quarter (Q1) 2019. Also, loss after tax stood at N686.5 million in contrast to the profit after tax of N296.8 million in the same time of last year. Its earnings per share closed at negative during the period at nine kobo against four kobo of Q1 2019.
In the personal/household product sub sector, the first six months of 2020 was not favourable for Unilever Nigeria Plc and its shareholders, as the firm’s revenue plunged by whooping 40.1 per cent.
Specifically, the company recorded a total turnover of N27.3 billion for the period ended June 30, 2020, compared with N42.7 billion recorded same period of 2019.
Also, the firm said its cost of sales stood at N21.2 billion during the period in contrast to N31.3 billion posted same time of 2019 while its gross profit went down to N6.2 billion from N11.4 billion.
A FURTHER analysis showed sale and distribution expenses fell slightly to N1.8 billion from N1.9 billion while in the first six months of 2020, the sum of N5.2 billion was used for market and administrative costs, lower than N5.4 billion expended in the first six months of 2019.
COVID-19 disruptions also impacted on the earnings of Total Oil Plc in the oil and gas sector, propelling N373.9 million decline in its unaudited Q2 2020 results.
The company’s revenue declined by 50.3 per cent to N 36.5 billion, occasioned by weaknesses across product lines while revenues from petroleum products also contracted by 55.7 per cent and lubricants sales dipped by 26.7 per cent to N9.9 billion.
Analysts had earlier predicted that many banks might hold off dividend payments to cut costs, in view of COVID-19 and its attendant economic implications.Banks around the world have either been warned not to pay dividends at all or to be careful with payouts.
In a similar development, regulators in Europe also banned European banks from paying any dividend in 2020. In Australia, banks were advised to slash dividend payouts. Meanwhile, in North America, the US Federal Reserve announced in late June it would temporarily restrict dividend payouts by some of the country’s biggest banks.
IN Nigeria, Augusto & Co had predicted how the pandemic would weaken Nigerian banks’ assets. An April report by PwC also highlighted some of the ways COVID-19 could impact Nigerian banks.
Between 2018 and 2019, quoted Nigerian banks paid out a total of N538.1 billion as dividends to shareholders. In 2019 alone, the total dividends paid by the banks stood at N277.9 billion,
Interestingly, even though the banking index of the Nigerian Stock Exchange has been one of the most liquid and best-performing indexes so far in 2020, there are strong indications that many bank shareholders will receive lesser or no dividends in 2020. This is because of the recent economic challenges occasioned by the coronavirus pandemic.
However, some banks may resort to lesser or no dividends in 2020.Stockbroker with APT Securities Limited, Muhammad Jamiu Kayode, said COVID-19 lockdown would affect the audited reports of many companies in 2020.
Jamiu explained that companies in the banking, insurance and manufacturing sector would be greatly affected, especially in the second quarter because their business activities were affected within the period.
“The interest income has been greatly affected because business activities have been crippled with lockdown.” The Chief Research Officer of Investdata Consulting Limited, Ambrose Omordion, said the coronavirus pandemic would definitely affect dividend payment in some sectors for the current financial year.
Omordion stated that companies that released earning reports already reflected negative impact of the pandemic as most of the companies posted loss accounts and mixed numbers.
Professor Ndubisi Nwokoma of the Centre for Economic Policy Analysis and Research (CEPAR), University of Lagos said government must ensure the operating environment is conducive for listed firms to thrive. He said credit and foreign exchange policies of the CBN needed to be tailored to enhance operations of quoted companies.
“Already the access to credit has been made easier for firms with the latest CBN loan-to-deposit ratio. The multiplicity of bank charges and taxes need to be ameliorated to reduce costs, at least for those in the non-financial services sector.”
The Head of Research, FSL Securities, Victor Chiazor said the Federal Government through the CBN has been supporting businesses in the current pandemic.
However, Chiazor argued that fiscal authorities, on the other side, must be judicious in use of funds to avoid wastage and complement the efforts of the monetary authorities.
“Other policies, like the CBN additional moratorium of 1 year on CBN intervention facilities, interest rate reduction on intervention facilities from 9 per cent to 5 per cent, granting regulatory forbearance to banks to restructure terms of facilities in affected sectors amongst other policies are critical measures expected to aid the overall economic recovery.
“In our view, the CBN has been proactive with regards to its policies that would address the anticipated negative growth, however the fiscal policy aspect needs to also play its part, as federal and state governments need to use the little funds being generated effectively and avoid wastage and leakages of government resources, as that seems to be a major setback for us as government.
“Also, the need for the country to shift its bulk income base away form crude oil cannot be over-emphasized as we cannot continue to be significantly vulnerable to the drop in crude oil prices.”
Get the latest news delivered straight to your inbox every day of the week. Stay informed with the Guardian’s leading coverage of Nigerian and world news, business, technology and sports.