VM | Monday, August 17 2015 | Issue 054
BUSINESS
VM1
X-RAY
Q2 results throw up glasses half-empty If failure is deemed a relative, and not an absolute metric then the companies that lagged behind in the first six months can take solace in the fact that they are in good company.
Nigerian oil rig technician. The fall in crude oil prices over the past 12 months has had a crippling effect on the Nigerian economy.
IN CONTEXT HEN NEWS LEAKED W last month that Afren, the AIM-listed independent exploration and production company, had been taken over by administrators, investors were rattled in no small measure. The company, which raised £31.2 million during its IPO and placements in 2005 produces about 22,000 barrels of oil per day from its Ebok and Okoro fields in Nigeria’s Niger Delta region. In sharp contrast to a pre-tax profit of $140 million declared in 2013, Afren an-
exchange rate volatility. Nigeria falls squarely in this category. The domino effects of the fall in global oil prices have raised ‘risks to general commerce given the weaker macro and currency in Nigeria’ wrote analysts at Renaissance Securities last month. This, coupled with the induced economic paralysis the country suffered in the run-up to general elections beginning in the last quarter of 2014 to the end of April this year, made for a tough operating environment.
The fall in oil prices has thrown up ‘risks to general commerce given the weaker macro environment and currency in Nigeria’ – Analysts at Renaissance Securities nounced losses of $1.95 billion in 2014. The Telegraph of London labelled the once shining star of frontier exploration ‘the first victim of the oil slump’. Indeed, reverberations from sub$60 oil prices regime, what many are calling the ‘new normal’ are being felt around the world. Of course, oil producing countries are feeling the pinch the most. Exporters are suffering unfavourable balance of payments position and unprecedented
Q2 REPORT CARDS A close study of the year-to-date deterioration of bank loan books paints a sobering picture of trouble ahead particularly for those with significant exposure to the oil and gas sector. First Bank, Fidelity Bank, and Diamond Bank have restructured 11 percent, 14 percent, and 5 percent of their books respectively. The sector average is about 10 percent.
Preceding the announcement of Q2 results, analysts at FBN Capital sent out a Half Year Results Preview note with a forewarning of what to expect. The prognosis was glum. ‘The combination of a weak underlying macroeconomic environment and a marked reduction in FX-related income due to decisions by the central bank would weigh on banks’ Q2 earnings. For manufacturers a weaker macro environment precipitated by softer crude oil prices would have a negative effect. Consumer focused companies will feel the squeeze on household wallets, and that is likely to translate into even weaker top line growth for most firms.’ The slate of half-year financial results released by most companies on the Nigerian Stock Exchange have played out their portent omen. Speaking of his bank’s half year results, Ladi Balogun, group managing director of FCMB Ltd, described the period as one ‘characterised by significant macro-economic and policy headwinds.’ The NSE’s All Share Index has fallen 9.3 percent this year. The exchange’s statistics show that over the 6 month period, foreign inflows of N285 billion were overcast by outflows of N304 billion, a net difference of N19 billion. Results posted by Mobil Nigeria, and Seplat, bellwethers of the oil sector, give support to Balogun’s
statement. Mobil Nigeria reported a 32.5 percent decline in H1 2015 revenue to N31.82 billion, and a 33 percent drop in profit to N4.11 billion against the same period last year. Seplat, which produces 70,000 barrels of crude oil per day, fared worse. Its revenue fell 36 percent to $247.58 million, and pre-tax profit for the first 6 months slipped 73.5 percent to $41.26 million. In a break from the omerta that shrouds the operators’ relationships with the national oil company, its filing disclosed that the Nigerian Petroleum Development Company (NPDC), the operating arm of the Nigerian National Petroleum Company (NNPC) had failed to meet obligations due to the company to the tune of $504 million, what is commonly referred to as cash call arrears. Seplat has a joint venture with NPDC for Oil Mining Leases (OMLs) 4, 38 and 41, in the western Niger Delta Basin. Other sectors were not immune to the malaise. UAC, the conglomerate, reported a loss of N150.19 million compared to a profit before tax of N2.44 billion in the same period last year. A breakdown showed that occupancy rates at its UPDC Hotels fell 24.24 percent to 31 percent from a year ago. At UAC Restaurants, operators of Mr. Biggs, the quick service restaurant franchise, revenue fell 14.4 percent. Nestlé, the nutrition giant with a portfolio of household brands like Milo, Golden Morn, Nescafe, Nido, and Cerelac, saw its profit after tax drop 33.18 percent to N8.89
137.4 percent to N1.6 billion in the first six months. In the alcoholic beverages category, Nigerian Breweries reported an 8.5 percent decline in profit before tax of N3.1 billion. This figure would have been worse save for the company’s value brands led by Ace Roots, its ready-to-drink (RTD) answer to Guinness’ Orijin drink, and the Consolidated Breweries brands led by 33” Export Lager Beer, Hi-Malt Malt Drink and Maltex Malt Drink. Sales of its premium and mainstream beer brands are expected to remain depressed due to weak consumer spending. In the technology arena, Computer Warehouse Group announced a 6 percent increase in revenues to N8.85 billion. Four factors combined to push the company’s second quarter results into the red. One, the negative movement of the naira increased CWG’s international procurement expenses. Two, the company was compelled to write-off N103 million that had been recognized in the last quarter of 2014 due to a cancellation of that transaction. Three, its financing costs went through the roof, growing 173 percent to N109.49 million. A fourth reason, according to Kunle Ayodeji, executive director, finance and operations, was that ‘many organizations are holding back on new capital expenditure and investments, as the economic direction of the new government is being observed.’ Put together, the company declared a loss of N350.59 million. Courteville Business Solu-
billion. Its results were dragged down by finance costs, which rose 199.85 percent to N3.23 billion during the period. Analysts at FSDH Merchant Bank fingered the nutrition company’s ‘exposure to foreign exchange loss and the rising interest rate prevailing in the country’ for the ballooning of debt servicing charges. Unilever was another tale entirely. The home and personal care products manufacturer reported that its pre-tax profit dropped 95.5 percent from N2.08 billion to N94.1 million. This was mainly due to finance expenses from foreign loans that rose
tions, another technology stock, cited ‘a difficult and volatile economic environment driven by the drop in oil prices, a depreciating naira, and uncertainty in the run-up to the general elections’ as reasons for the meagre growth in revenues. These, according to Adebola Akindele, its group managing director, dampened consumer spending, rattled business confidence, and dipped government budgets. Courteville posted a 1.9 percent rise in half year revenues to N822.2 million, just as it managed
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