Poor corporate results highlight worsening economic anxieties




The string of poor corporate results released by firms in the past few days are highlighting the persisting economic anxieties in the country, Business Hallmark checks have revealed.

While a number of corporate entities, notably several well-heeled banking sector organizations and a few others have published fairly passable to above average results outcomes, several more, and most notably in the ‘less protected’ real sector of the national economy have been left with very little elbow room to manouvre on account of the persisting negative economic headwinds that the nation has been grappling with for the better part of the last half-decade and counting.

Particularly affected are some of the oldest business brands in the country like Unilever and UACN. There are also relatively very secure corporate high fliers like Guinness Nigeria Plc who have been struck with dwindling performance records.

As reflected in its half year 2019/2020 results covering the period ended December 31, 2019, post-tax profit declined by a confounding 49 per cent as its numbers slumped to N1.32 billion, down from the N2.58 billion it had recorded in the corresponding period in the 2018/2019 trading year.

And it was not as if Guinness, which had changed its C-Suite last year, as part of what observers saw as a spirited rally to stave off further losses, did not put up a fight to get a better outcome. It did and the result was that despite the drop in profit, the company’s revenue numbers succeeded in rising marginally by 0.78 per cent to N68.33 billion in the first half of 2019/2020 financial year, compared to the N67.80 billion it had garnered in the corresponding period in 2018/2019.

Attesting to this, incumbent Managing Director/CEO, Guinness Nigeria Plc, Mr. Baker Magunda, remarked: “In the H1 ended December 31, 2019, Guinness Nigeria delivered results that reflected a very strong second fiscal quarter performance despite continued regulatory, competitive and inflationary challenges in the operating environment.”

And equally confirming the fact that hard-pressed Nigerian consumers may presently be drinking less, Guinness’ prime competitor in the local market, Nigerian Breweries Plc had also posted a huge loss of –N2.2billion in third quarter 2019.

UACN also

Away from the brewery sector, things are equally not looking good with conglomerates and FMGC’s and the saga of United African Company Nigeria, UACN attests to this. In fact so beleaguered has the organization been in recent years that many are asking, who will help UACN? This sentiment re-echoed from the lips of many market watchers following news last week that the company had suffered an N9.23billion loss in its full year 2019 showing.

Already, this twist in fortunes is also having a telling impact on the performance of the company at the equities range in the Nigeria Stock Exchange, NSE.

Trading in the stock, which opened at N8.90 at the commencement of operations on the bourse in January 2nd this year, continued apace in twists and turns and moved bullishly up to N10.55 by Jan 27. However, it has now crashed to 9.00 as at 1.30 pm on Friday 31st January.

To be sure, UAC is clearly not a fly-by-night player in the Nigerian business landscape. The company which began operations in the country as far back as 1879 is acknowledged as being one of the oldest surviving and continually running business brands in the country.

No doubt a lot has changed since those early years, but part of the UAC dynamic has been its ability to weather transitional moments and ride the wave.

For example, when the new modern state had not formed and all that there was were trade opportunities of a diverse kind, its progenitors had applied for a charter from the British authorities to superintend over the business fortunes of the area.

When years later, the British authorities made an offer to buy out the charter, they consented, collected the cash, but remained in the territory to continue doing business on a non-charter basis. They even accepted that their Managing Director, Frederick Lugard, move over to serve as Governor-General of the new nation.

Again, when the process of decolonization began, complete with all of its variables of Independence, Nigerian majority rule and indigenization, the company returned to the drawing board and elected to remain a player in the equally changing Nigerian business landscape.

Through military eras and in democratic constructs and coming on to the recent years when Asia-linked businesses have come to feature more strongly in the competitive arena, UACN, like many other businesses in the country, has continued to make adjustments to keep its prospects high.

Critical leadership change

To be fair, feelers from Niger House indicate that the company has long become aware of the challenges before it and has also been taking steps to address them. Last year for example, it made a big pitch to revamp its management, placing it on the shoulders of the youthful Fola Aiyesimoju.

Since then, the new management has moved on to initiate substantial reform in a drive to rejig the system. Among others, it is supervising the unbundling of UPDC, the property division of the company, which is being taken off the group. It has also given up some more eight per cent of its equity in MDS Logistics Limited, a subsidiary where it controlled 51 per cent shareholding. The shares are being acquired by Imperial Logistics to now raise the latter’s holding from 49 per cent to a prime and commanding 57 per cent.

SEE ALSO: Finance Act will stimulate Nigerian economy – Osinbajo

Under the terms of that transaction, Imperial Logistics was to transfer selected profitable contracts to MDS and pay $2.4 million in cash.

These divestments and adjustments, which had previously seen UACN pull out of its Gossy Water collaboration with the Ekiti State Government as well as its hold over the Festac 77 Hotel in Festac Town, Lagos, are expected to lead to a slimmer, fitter company.

Analysts say that, among other factors, it is the cash injection from some of its sales as well as reduction of its overheads that has now ensured that its loss position as at the end of the trading year in 2019 is N9.23 billion, which is marginally more bearable given that it is essentially 4 per cent lower than the N9.58 billion loss it had declared in 2018.

As attested to also in its unaudited financial statement for the period ended December 2019 that was released to the Nigerian Stock Exchange (NSE) on Thursday, the conglomerate increased revenue by 10 per cent to N83.96 billion at the end of 2019 compared to N76.56 billion it generated in the prior year.

The growth in revenue was equally inspired by increase in earnings from animal feeds, paints and slightly from its fast food restaurant and logistics businesses.

Last year, the company raked in 18 per cent lower finance income to N2.77 billion, and likewise, finance expenses went down 27 per cent to N450.93 billion.

But even more drastic action is needed as operating income in FY 2019 still increased by 16 per cent to N5.78 billion, while it’s selling and distribution costs also jumped by 40 per cent to N6.6 billion. This is even as its total assets were depleted 17 per cent to N108.53 billion.

The challenge then now is, going forward, how would UACN play? Responding to this, the analyst, Tony Ezeh says that the challenges facing the good old behemoth are most unfortunate:

‘The company lacks strategic muscle. The S curve requires corporations to reinvent themselves at moments the corporate imperative changes based on new business realities. This, very sadly, is yet to happen at UACN. And time may be running out.’

Like UACN, like Unilever?

As Unilever Nigeria waits for its new Managing Director-designate, Mr. Carl Cruz to mount up the saddle at the Fast Moving Consumer Goods, FMCG conglomerate, it is clear that the incoming CEO would be resuming for duty in Nigeria to literally do ‘what Napoleon could not do!

Business Hallmark checks reveal that firms in the FMCG segment of the economy have for some time now been battling with assuaging the not-too-favourable economic headwinds that the economy has been mired in. Indeed, the FMCG segment of the national economy has been caught in a colossal and deepening strain for some time now.

With pundits forecasting that relative to the nation’s 2.6per cent birth rate, about the least GDP growth rate that could begin to provide matching impetus for the national economy, and in particular FMCGs (given their close affinity with population numbers and demographic adjustments) would be 5 per cent, the current 2.28 per cent growth rate comes across as one that cannot drive the much needed impetus that is required to give the sector a boost.

Significantly also, analysts have pointed to the fact that several, smaller, nimbler and more agile Asian firms and players have also quite significantly eaten into the market margins of larger FMCGs like Unilever and in the process introduced additional challenges for them to respond to.

Correspondingly, in its choice of Mr. Carl Cruz as its new helmsman at a time like this, pundits hazard that the Board of Unilever Nigeria Plc is banking on the fact that having run fairly successful operations in Asia itself, the new managing Director, who effectively takes over the leadership of the company from 1st February 2020, would be bringing in a much needed Asian touch to respond to what has been termed ‘the Asian threat.’

Kingsley Eze sees part of the challenge as market-induced. Until recently, the general mood in the equities market has been bearish. There has been a slight shift on some of the days in January but analysts say it is yet too early to call.

Says Kingsley Eze: ‘I think the challenge that FMCG AGMs like Unilever have had to face has to do with the market. Overall their fundamentals are still fairly strong. Except there are developments that have not fully come to the open.’

For Godson Achuwa, it is a question of the big picture: ‘Fast moving consumer goods have been harshly affected by slow GDP growth (2.28% Q3 2019), reduced effective consumer demand and creeping inflation (recently 11.98%). FMCGs companies have reeled under recent fiscal and monetary policy with thinner margins.’

Challenges notwithstanding, the team at Unilever is bracing to do what it must do to continue to drive and build on the legacy of doing business in the country going forward. According to spokesperson, Soromidayo George, the mood in the business at the moment is excellent.

The task before Cruz

In fact, the severity of the task before Cruz has made some to speculate that it is not impossible that the Unilever Nigeria board took the decision to bring him onto the saddle because they could really not see too many other alternatives to work with.

Arguing that it may really be an extreme position for a board to take, Achuwa equally concedes that the action of the board could not however be faulted if it is in the overall interest of the firm: ‘Axing an MD for secular market decline does not seem right but I can only say that the board of the company may have more tangible concerns.’

Timeline of developments

For Unilever Nigeria Plc, a firm that has long ingrained itself in the hearts of many Nigerians as manufacturers and marketers of sundry consumer products, primarily in the home, personal care and foods categories, it had like many other players in the segment continued to weather the storms precipitated by the larger climate of national economic ill-management.

In 2019 however, things began to become even more troubling for the Company that sells products such as Omo washing powder, Key soap, Royco bouillon, Lipton tea, Blue Band margarine, Pears baby care goods, Vaseline petroleum jelly, Lux soap, and Close Up toothpaste.

Even at the time of its last AGM, the signs were already beginning to show that there was indeed something quite troubling that needed to be addressed.

Post-AGM, the company proceeded with the normal fare of business and went on to register that revenues had dropped in the 3rd quarter of 2019 from N72billion to 51billion.

That was not all as Profit before Tax also dropped from N12.6m to N647m.

From there on, it was now a case of how badly it would close the year even as the FMCGs player went on to report a pre-tax loss of N8.3 billion in the full year ended December 2019.

Further insights reveal a 34.6% drop in revenues to N60.7 billion, which is arguably its lowest score since 2015 when it reported revenues of N59.2 billion. Notably, two of its major segments, Food Products, and Home & Personal Care, were implicated in the decline story.

Precisely, revenues from the Food Products Division dipped from N44.3 billion in 2018 to N31.9 billion in 2019 even as the Home & Personal Care segment also saw revenues go down from N47.7 billion in 2018 to N28.8 billion in 2019. And compounding its woes, cost of sales and operating expenses remained high at the same time!

A National crisis that runs quite deep

Long sustained by a macro-economic framework that is comprehensively linked with crude oil foreign exchange receipts, the Nigerian economy has for years now been reduced to the very discomfiting situation of having to stand or rise on account of developments relating to the upward or downward swing of oil prices.

Part of the paradox of the situation is that it is from the activities of some of these presently shell-shocked firms that the Nigerian authorities are expecting to drive improved revenues that it expects to bring into the coffers in the current year. How realistic this is still remains to be seen but as these early figures are already demonstrating, it is evident that it will not just be a simple walk in the park to get there.

While the companies blame the shrinking economy, which has remained weak at the GDP growth of 2.3 per cent in the third quarter 2019, the weak naira is also partly responsible for lower domestic demand for products.

Low consumer spending has also been fingered for its challenge. Among the troubles faced by businesses are rising consumer prices and growing volumes of unpaid workers’ salaries in the public and private sectors, in addition to increasing unemployment. Stiffer competition in the sectors seems to also increase the cost of sales now than ever before. Insecurity in the country has also featured as part of the challenges.

In a sense, the same charge that Ezeh has given to the managers of UACN may also be extrapolated onto a wider canvass to the current managers of the Nigerian national economy. With widespread security challenges, unyielding birth rates and tottering GDP growth figures, it is looking increasingly more evident that Houdini has to bring that magic elixir out of the hat now. But where would he get it from?

 

 

Source: Business Hallmark