lPre-tax profit up 32.4%
lHealth, insurance, agric sectors more resilient
lOil & gas, transport/aviation, real estate worst hit
By Nkiruka Nnorom
Leading companies in the Nigerian Exchange (NGX) Limited seemed to have beaten the impact of the Covid-19 pandemic, posting significant upticks in both top-line and bottom-line figures.
The companies, numbering 83, posted 11.45 percent and 32.4 percent rise in their revenue and pre-tax profits respectively.
The bottom-lines also show the corporates outperformed the high inflation rate (15.75%) prevailing during the financial year, which has since galloped to 18.3 percent as at last month, with likelihood of further rises in April and months ahead.
Nigeria, alongside other countries in the world, went into recession last year following the effects of the restrictions to movement and economic activities implemented across the country in early second quarter (Q2) of the year in response to the COVID-19 pandemic.
However, the government launched some stimulus interventions meant to curtail the impact of the pandemic on businesses and individuals.
Financial Vanguard’s analysis of the financial performance of the companies for the year ended December 31, 2020, showed that the combined revenue of the 83 companies rose to N11.47 trillion, representing 11.45 percent increase over the N10.29 trillion recorded in 2019.
The pre-tax profits outperformed inflation, rising by 32.4 percent to N2.92 trillion from N2.21 trillion in 2019, a development financial analysts said must have been aided by non-cash items including low tax rates, and lower than expected loan loss provisions among others.
Robert Omotunde, Chief Investment Officer, Afrinvest Asset Management Limited, attributed the outstanding performance to the combined support from both the fiscal and the monetary authorities to boost economic activity through special interventions to the most vulnerable individuals and companies during the period.
“More interestingly, the improvement in the combined bottom-line of these companies could be linked to the adoption of aggressive cost management strategy to curtail the impact of the global shock on overall expenses as it became difficult to deliberately grow revenue owing to depleted consumer purchasing power, low investment and constrained government spending,” he said.
A breakdown of the companies’ performance shows that apart from the oil and gas, real estate/construction and transportation/aviation sectors that took the worst hit from the pandemic with huge decline in both their revenue and pre-tax profit, other sectors showed resilience in the face of daunting challenges within the year.
However, the banking sector posted mixed performance, recording 4.7 percent increase in revenue to N5.35 trillion from N5.11 trillion in 2019, while its pre-tax profit declined marginally by 1.08 percent to N1.56 trillion from N1.57 trillion in the previous year.
The sector, however, led others in the size of both revenue and profits.
Financial Vanguard’s inquest into the performance of the companies showed that the insurance sector, boosted by the heightened risk environment in 2020 that necessitated the transfer of risk, led the pack with 18.9 percent growth in revenue. The nine companies reviewed in the sector posted N241.71 billion revenue compared to N203.29 billion in the same period in 2019.
The agriculture sector (comprising of five companies reviewed) followed with 18.2 percent revenue increase to N58.96 billion from N49.90 billion in 2019. The classification of the sector as essential allowed farm produces and its derivatives unhindered movement from producers to the markets/consumers, hence, improving their financial position.
The telecommunication sector (represented by MTN Communication Nigeria) followed with 15.1 percent growth to N1.35 trillion from N1.17 trillion in the previous year.
Meanwhile, the health sector ranked first in terms of profitability, recording 55.7 percent growth to N3.55 billion as against N2.28 billion in the previous year. The insurance sector ranked second with 50.1 percent increase to N35.09 billion as against N23.38 billion in 2019, while the industrial goods and the agriculture sectors followed, rising by 36.3 percent and 35.5 percent to N466.11 billion and N16.4 billion respectively.
Kato Mukuru, Managing Director, Head of Frontier Markets Research, EFG Hermes, described the sectors that showed resilience within the year as need-base, saying: “You needed your mobile, you needed your medicine, you needed food…
These sectors did not see the demand weakness that the airlines saw for example.”
Meanwhile, the oil and gas sector suffered most as the sector recorded steep decline of 52.9 percent and 99.8 percent in revenue and Profit Before Tax (PBT) respectively.
Specifically, the sector’s revenue fell to N845.17 billion from N1.79 trillion in 2019 as all the seven companies reviewed (with the exception of Ardova Plc) recorded revenue decline. The sector recorded N20.04 billion loss before tax as against N108.65 billion PBT affected by huge losses in Seplat Petroleum Development Company Plc during the year.
Analysts believe that the major halt to economic activities had led to an unprecedented plunge in oil price, which made most oil companies operate at the minimum and maximum loss levels.
The transportation/aviation sector posted 8.32 percent and 46.1 percent decline in revenue and pre-tax profit to N47.28 billion and N1.37 billion respectively, while the real estate/construction sector posted12.4 percent and 15.46 percent decline in revenue and PBT respectively.
Speaking on the performance of the companies, Robert Omotunde of Afrinvest Asset Management said that the reduction in the staff strength he the companies as well as their pro-activeness to embrace various integral technologies helped in boosting their performance.
According to him, the companies also took advantage of the low yield environment to drive down interest expenses.
“The sectors that witnessed a rise in both revenue and pre-tax profit was due to their importance to the economy; They were, essentially, crucial during the pandemic,” he said.
Also speaking, Abdulmuttalib Garba, Corporate Finance Analyst at DLM Capital Group, said: “When faced with the reality of a prolonged pandemic, most companies hastened to accept changes which included expanding channels of sales beyond face-to-face experiences.
With more smart phones in circulation and a growing acceptance of online and mobile payments in the business-to-customer transactions space, they were forced to redesign their sales processes and preserve employee productivity.”
On the dismal performance of some sectors, he said: “The decline in revenues and profitability in the aviation and real estate/construction sectors, which essentially require face-to-face or on-location interactions, was very much anticipated.
“The sectors that required human experiences suffered more because there was a significant drop in both mobility and location attendance.”
Corroborating him, Kato Mukuru of EFG Hermes, said: “You would expect to see this as the COVID-19 lockdown restricted movement and these sectors require people to move.
On real estate, building was halted for long periods and most importantly, consumer confidence was weak. In an environment of weak consumer confidence, people do not buy houses.”
Outlook for 2021
Looking ahead, David Adonri, Managing Director/CEO, Highcap Securities, said the battered sectors are expected to come back to life with global recovery. “The economy has exited recession. Consequently, companies are expected to recover fully in 2021. The downside factors that may work against their success in 2021 are the galloping inflation and pervasive insecurity,” he said.
In his own view, Kato Mukuru of EFG Hermes, projected a moderate pick-up in earnings growth as the economy comes out of COVID-19. “There will clearly be a favourable base effect over the first half of 2021.
Having said that, the recovery will not be rapid and there will be a lot of breaks in the recovery as more waves of outbreak reoccur.”