ICT, Consumer Good Firms Drag NGX Into Negative Profit Margin

The Information and Communications Technology (ICT) and consumer goods companies who are reeling from foreign exchange losses have plunged the NGX ASI firms into negative profit margin.

Excluding financial firms, companies in the NGX ASI that announced first quarter results saw a negative profit margin of -2.84 percent as at March 2024, from a positive figure of 4.23 percent as at March 2023, according to data gathered by MoneyCentral.

Of course, ICT firms such as MTN Nigeria Plc and Airtel Africa and nearly all the consumer goods firms are responsible for deteriorating operating performance.

In the last one year, companies have been reeling from rising input costs, higher interest rates, and foreign exchange crisis which forced them to hike the price of their products.

Removing subsidies on fuel by the current administration and the adoption of a unified exchange rate aggravated imported inflation as it ballooned the cost of production to the detriment of firms who face depressed demand and margin erosion.

Analysts say negative profit margins mean a firm will find other means of paying its bills, like reaching out to more investors or taking out loans.

In April, the headline inflation rate rose to 33.69 percent, in March 2024, marking an increase of 0.49 percent points according to the National Bureau of Statistics (NBS).

The largest listed firms posted a combined loss after tax of N554.91 billion as at March 2024 from a profit position of N1.07 trillion the previous year, according to data gathered by MoneyCentral

As a result of foreign exchange revaluation losses that were not expected, the ICT sector led by MTN Nigeria and Airtel Africa posted a combined net loss after tax of N467.53 billion as at March 2024. The industry’s profit margin was -7.69 percent in the period under review from 9.20 percent the previous year.

Analysts are optimistic that the telco firms will return to profit and deliver higher returns to shareholders as foreign exchange losses are a one off event not expected to recur often and that Fintech is increasingly becoming an integral part of Teclos’ operations.

“With the deliberate efforts of mobile network operators (MNO) to drive data and Fintech revenues, we expect the contribution of data to revenue to maintain its upward trend,” said analysts at Meristem Securities Limited.

Consumer goods firms collectively incurred a loss after tax of N405.24 billion, while industry profit margin was at the negative region of -24.26 percent as at March 2024 from 6.86 percent the previous year.

The industry average profit margin of Industrial Goods firms fell to 3.76 percent as at March 2024 from 16.26 percent as at March 2023, no thanks to Notore Chemicals, whose deteriorating financial conditions, unhealthy balance sheet, and negative profit margin of -154.93 percent dragged its peers down.

The Agric sector that comprises Presco Nigeria Plc and Okomu Oil Plc saw industry profit margin increase to 45.61 percent in the period under review from 43.74 percent the previous year.

Persistent foreign exchange illiquidity that hindered competitors from importing the products in large quantities paved the way for these palm oil producers to raise prices and bolster margins.

Based on this analysis, the conglomerates sectors are the star performers as the average net profit margin of Transnational Corporation of Nigeria or Transcorp and UACN Plc increased to 27.57 percent in March 2024 from 1 percent the previous year as their diversified product bases and strong cash flow support capital efficiency.

There are concerns that the incessant hiking of the interest rate by the central bank who seeks to tame stubborn inflation will undermine economic growth and suppress future earnings as rising bond yields poses threat to the equity market.

The Monetary Policy Committee of the Apex on Monday (May 21) increased the benchmark interest rate by 150 basis points to 26.25 per cent.

The Nigeria 10 year government bond has a 19.36 percent yield, according to data from World Government Bonds.

Data from the statistics body shows first quarter (Q1) 2024 GDP growth slowed to 2.98 percent year on year (yoy) from 3.46 percent yoy in fourth quarter (Q4) -2023, but better than 2.31 percent in the first quarter 2023.

“The growth number is also behind our forecast of 3.52 percent yoy and Bloomberg consensus of 3.49 percent yoy,” said analysts at Chapel Hill Denham Limited.

Get More of our proprietary news and analysis as MoneyCentral is now on WhatsApp Channels  Follow the MoneyCentral Nigeria channel on WhatsApp: Click here!