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Listed Companies’ N99.13bn net loss Flash Economic Warnings

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Twenty-six Nigerian companies fell off the cliff as they collectively posted a net loss of N92.13 billion in the second quarter, which could be a harbinger of a recession.

All sectors of the economy felt the pang of the headwinds brought on by a crash in oil price and the coronavirus pandemic that forced the government to impose a lockdown that disrupted the demand and the supply side of the market.

The battered bottom-lines evident in this report are a troubling development in private-sector activities, as business managers may find it hard to justify hiring and investing when profits are falling.

When profit contracts, it often has early warnings of recession. The second quarter GDP report by the National Bureau of Statistics (NBS) showed the economy contracted by 6.10 percent in the three months through June from a year earlier, compared with growth of 1.87 percent in the previous quarter.

“While some of these firms may record losses in the third quarter, it will still be an improvement from the second quarter,” said Yinka Ademuwagun, equity research analyst at United Capital Limited.

“The same can also be said about the economy as there will be a recession but there will be an improvement in contraction in the third quarter,” said Ademuwagun.

The central bank has raised concerns that worsening current account deficit, decline in oil price, and risk aversion on the part of investors could pressure the external reserve.

The Apex bank has estimated that the external reserves would be pressured lower between $29 billion and $34.30 billion by the end of December 2020.

Analysts attribute corporate profit slump and deterioration in margins to poor government policies that stifled investment and punitive regulations by regulators.

For instance, the border closure imposed by the government last year has hindered manufacturers from shipping their products across the borders, while a low yield environment and hike in the Loans to deposit ratios by the central bank means lenders’ earnings are growing at a slow pace.

Inflationary pressures and a hike in electricity and fuel prices mean consumer wallets will continue to be under pressure, a triple whammy for consumer goods firms that are finding it difficult to pass on cost to the final consumer in the form of higher prices.

Unilever Nigeria, P Z Cussons, Champions Breweries, International Breweries, posted combined losses of N44.15 billion as at June 2020.

Analysts have warned that currency volatility and expectation of the depreciation in the currency could balloon the dollar denominated debt on the balance sheet of companies.

The hospitality sector is the hardest hit from the Covid-19 induced crisis as flights were grounded for three months while hotels and bars were forced to close.

Trancorp Hotels Plc, Ikeja Hotels, Tourist Corps, and Capital Hotels, posted a combined loss of N8.92 billion in the period under review, while declining revenue and cash flow cast a pall over the ability of firms to honor mounting obligations.

Seplat Development Corporation, the largest listed upstream oil and gas exploration company, posted a net loss of N37.87 billion as of June 2020, as the slump in oil price led to rising impairment on assets.

Analysts fret that Seplat could take the lane of some oil majors that have already embarked on reduction in headcount so as to stay afloat since there might not be a rebound in oil price to the pre-Covid era.

Chevron Nigeria Limited said on Friday that it would slash its workforce by 25 per cent as it was reviewing its manpower requirements in the light of the changing business environment.

The international oil benchmark, Brent crude, had slumped to as low as $15.98 per barrel in April from $70 per barrel in January. It rose above $40 per barrel in recent months but fell to $39.27 per barrel last Friday.

Analysts say there will be improved performance by companies in the third quarter because the easing of lockdown will start to impact positively on their books.

They added that the low interest rate environment makes it easier for firms to borrow money to finance expansion that will add impetus to cash flow and earnings.

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