Forex policy, others force down corporate profits in first half 2016

LAGOS — Corporate profit across various sectors has taken a huge nose-dive due to recent depreciation in Naira value as well as other harsh operating environment which increased costs and narrowed their profit margins. According to reports filed by 85 companies to the Nigerian Stock Exchange, NSE, for their financial results in the first half of the year, total profit dropped by N105.8 billion to N291.96 billion, a massive 26.6 per cent decline from N397.8 billion they recorded in the corresponding period of last year. The huge drop came despite a marginal increase in the companies’ total revenue which, at N2.5 trillion, represented a 4.8 per cent improvement against N2.4 trillion recorded in the same period last year. The Nigerian arm of the cement multinational corporation, Lafarge Africa Plc, led the pack of bad results with a loss of N30.2 billion, as against a profit of N30.8 billion in the corresponding period last year. The company’s revenue was also bad with a 29.4 per cent drop to N107.4 billion as against N152.2 billion reported about this time last year. The management of the cement giant said its result was affected by the impact of the Naira devaluation resulting in an unrealised exchange loss amounting to about N28 billion arising from dollar borrowings which at the first time of the devaluation consisted of USD310 million shareholder loans and USD85 million external loans. They also said gas supply shortage impacted its sales volume, hence the significant drop in revenue for the period under review. Next among the most adverse results came from the oil giant, Oando Plc, with a huge loss of N27 billion despite an equally huge rise in its revenue to N212 billion, about 17.8 per cent against N180 billion it recorded at same period last year. One-off unrealized foreign exchange loss of N28.6 billion from dollar denominated liabilities as a result of currency devaluation, in addition to the Niger Delta militancy crises were responsible for the abysmal results of the oil company. In a communication sent to the Nigerian Stock Exchange two days ago, Mr. Wale Tinubu, Group Chief Executive, Oando PLC said: “The first half of the year has attested to the deplorable state of security in the oil & gas environment in Nigeria, having experienced a 25% decline in production volumes arising from the increased disruptions from militant activities”. The company was also affected by huge debt servicing obligations but Tinubu informed that the company has benefitted from the implementation of the oil price hedge, which has helped to calm the effects of the disruption of production activities and aided in the rapid pay down of the USD900 million of Upstream related liabilities at the time of the Conoco Philips Acquisition, to USD440 million currently. In the third position of bad results was Transcorp Plc, one of Nigeria’s leading conglomerates, which recorded N12.2 billion loss despite an impressive rise in revenue. The company’s revenue rose 22.1 per cent to N24.8 billion from N20.3 billion in the corresponding period of 2015. The company has also blamed foreign exchange translation losses for its woes. It recorded a N14 billion loss in the exposure of the group to US Dollar  obligations in its subsidiary, Transcorp Power Limited. The company also said the generating capacity of the power subsidiary declined significantly due to shortages in gas supply since February 2016 where capacity was forced down from 600mw to 280mw daily. On the flip side there were mixed outcome as the companies with largest profits still recorded declines against the corresponding period of last year. Dangote Cement Plc led the pack of huge profit makers with N124.9 billion in the first half of this year, but that was about a 3.0 per cent decline from last year’s figure of N128.73. Explaining its results to the Nigerian Stock Exchange, the managing director, Onne van der Weijde, said   “we have achieved a commendable result, given the very challenging situation in our main market and general economic weakening across Africa. “Following the price cut we introduced last September, sales of cement in Nigeria continued their strong momentum and reached record levels of nearly 8.8 million tonnes, most of which was driven by smaller-scale building.  This explained why the sales volume rose with over 20 per cent rise in revenue.” However, the company added that due to the recent shutdown of oil and gas pipelines in Niger Delta region because of militant attacks, it was there forced to rely on more expensive alternative fuels to power its plants. This caused the company’s operating margins and net profit to fall, amidst growing sales volume. The French oil mulitinational, Total Nigeria Plc, led the pack in impressive rise in performance as profit surged 251.5 per cent to N12.9 billion from N3.68 billion just as revenue rose by 29 per cent to N145.5 billion against N112 billion recorded last year. First City Monument Bank, FCMB, recorded 96.2 per cent rise in profit at N16.3 billion against N8.3 billion in the corresponding period of last year.