"Six major headwinds Nigerian firms faced in 2022"

" Six major headwinds Nigerian firms faced in 2022 \r\n\r\n \r\n \r\n\r\nAt the start of 2022, many Nigerian companies were still yet to fully recover from the fallout from the COVID-19-induced recession that the country slipped into in 2020 and were expecting the recovery to gather steam this year. But their woes worsened.\r\n\r\nThe spillover effects of the Russia-Ukraine war, which started on February 24, took a heavy toll on the operations of many businesses in Africa\u2019s biggest economy.\r\n\r\nManagers had to devise strategies to reduce costs in a bid to survive and thrive in the increasingly challenging business environment.\r\n\r\nBusinessDay analysed the financials of the top 20 listed companies: Dangote Cement Plc, BUA Cement Plc, Nestle Nigeria Plc, Zenith Bank Plc, Seplat Energy Plc, Guaranty Trust Holding Company Plc, Transnational Corporation Plc, Nigerian Breweries Plc, FBN Holdings Plc, Stanbic IBTC Plc, Lafarge Africa Plc, Access Holdings Plc, United Bank for Africa Plc, Okomu Oil Palm Plc, Ecobank Transnational Incorporated, Dangote Sugar Refinery Plc, Union Bank of Nigeria Plc, Presco Plc, Guinness Nigeria Plc, and Fidelity Bank Plc.\r\n\r\n Here are six major headwinds companies faced in 2022: \r\n Rising input costs \r\n<img class=\"wp-image-697992 aligncenter b-loaded\" src=\"https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/input-cost-year-on-year-growth-reported-by-nigerian-companies-9m-2022-1-300x251.png\" sizes=\"(max-width: 629px) 100vw, 629px\" srcset=\"https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/input-cost-year-on-year-growth-reported-by-nigerian-companies-9m-2022-1-300x251.png 300w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/input-cost-year-on-year-growth-reported-by-nigerian-companies-9m-2022-1-1024x856.png 1024w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/input-cost-year-on-year-growth-reported-by-nigerian-companies-9m-2022-1-768x642.png 768w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/input-cost-year-on-year-growth-reported-by-nigerian-companies-9m-2022-1.png 1220w \" alt=\"\" width=\"629\" height=\"526\" \/>\r\n\r\nSupply chain disruptions in the global market as a result of the Russia-Ukraine war caused prices to rise globally and locally. As a result, rising global inflation has been the order of the day, and Nigeria\u2019s headline inflation surged to 21.47 percent in November from 15.63 percent at the end of last year.\r\n\r\nThe 20 companies saw their combined cost of sales surge by 26.45 percent to N1.67 trillion in nine months (January to September) from N1.32 trillion in the corresponding period of 2021.\r\n\r\nData collated by BusinessDay also show that their total cost of sales accounted for 51.57 percent of their aggregate revenue during the period. Aggregate revenue generated by these firms grew by 25.88 percent to N3.24 billion in the nine-month period from N2.58 billion in the same period of 2021.\r\n\r\nTheir combined profit grew slightly by 0.54 percent to N501.32 billion from N498.64 billion in the same period of 2021, and the profit margin, the amount by which revenue from sales exceeds costs in a business, declined by 390 basis points year-on-year to 15.46 percent.\r\n Increased cost of doing business as OPEX rise \r\n<img class=\"wp-image-697994 aligncenter b-loaded\" src=\"https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/opex-year-on-year-growth-for-nigerian-companies-9m-2022--300x251.png\" sizes=\"(max-width: 629px) 100vw, 629px\" srcset=\"https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/opex-year-on-year-growth-for-nigerian-companies-9m-2022--300x251.png 300w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/opex-year-on-year-growth-for-nigerian-companies-9m-2022--1024x856.png 1024w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/opex-year-on-year-growth-for-nigerian-companies-9m-2022--768x642.png 768w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/opex-year-on-year-growth-for-nigerian-companies-9m-2022-.png 1220w \" alt=\"\" width=\"629\" height=\"527\" \/>\r\n\r\nThe companies saw their operating expenses (OPEX) rise by 24.52 percent to N2.23 trillion in the nine-month period under review from N1.79 trillion in the corresponding period of 2021.\r\n\r\nData obtained from the company results available on the Nigeria Exchange Group (NGX) show that the major cause of the increase in operating expenses is selling and distribution expenses, largely driven by the increase in energy costs.\r\n\r\nEnergy costs for these companies increased by 39.36 percent to N360.37 billion from N258.59 billion in the same period last year.\r\n Rising interest rates \r\n<img class=\"wp-image-697995 aligncenter b-loaded\" src=\"https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/the-year-on-year-increase-of-net-finance-costs-income-reported-by-nigerian-companies-9m-2022--300x285.png\" sizes=\"(max-width: 626px) 100vw, 626px\" srcset=\"https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/the-year-on-year-increase-of-net-finance-costs-income-reported-by-nigerian-companies-9m-2022--300x285.png 300w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/the-year-on-year-increase-of-net-finance-costs-income-reported-by-nigerian-companies-9m-2022--1024x972.png 1024w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/the-year-on-year-increase-of-net-finance-costs-income-reported-by-nigerian-companies-9m-2022--768x729.png 768w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/the-year-on-year-increase-of-net-finance-costs-income-reported-by-nigerian-companies-9m-2022-.png 1220w \" alt=\"\" width=\"626\" height=\"595\" \/>\r\n \r\n \r\n \r\n <iframe id=\"google_ads_iframe_\/147246189,21781351181\/businessday.ng_728x250_in_article_desktop_1_0\" tabindex=\"0\" title=\"3rd party ad content\" role=\"region\" name=\"google_ads_iframe_\/147246189,21781351181\/businessday.ng_728x250_in_article_desktop_1_0\" width=\"728\" height=\"90\" frameborder=\"0\" marginwidth=\"0\" marginheight=\"0\" scrolling=\"no\" sandbox=\"allow-forms allow-popups allow-popups-to-escape-sandbox allow-same-origin allow-scripts allow-top-navigation-by-user-activation\" aria-label=\"Advertisement\" data-google-container-id=\"3\" data-load-complete=\"true\"> \r\n \r\n \r\n \r\nThe Central Bank of Nigeria, in an attempt to tackle inflation, hiked its monetary policy rate by a total of 500 basis points this year to 16.5 percent in November from 11.5 percent in May.\r\n\r\nAs a result, borrowing became costlier, making it hard for many firms to get access to the funds needed to effectively carry out their operations.\r\n\r\nCollectively, these firms generated a net finance income of N1.70 trillion, up 17.09 percent from N1.46 trillion in the same period last year.\r\n\r\nFurther analysis of the company results shows that all the companies, excluding banks, saw their interest expenses on loans and borrowings rise by 30.63 percent to N133.29 billion in the nine-month period from N102.04 billion in the same period of 2021.\r\n\r\nRead also:\u00a0 Consumer goods companies opt for small sizes as pockets shrink \r\n FX volatility \r\n<img class=\"wp-image-697996 aligncenter b-loaded\" src=\"https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/fx-gains-losses-reported-by-nigerian-companies-in-the-nine-month-period-of-2022-n-bn--300x294.png\" sizes=\"(max-width: 623px) 100vw, 623px\" srcset=\"https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/fx-gains-losses-reported-by-nigerian-companies-in-the-nine-month-period-of-2022-n-bn--300x294.png 300w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/fx-gains-losses-reported-by-nigerian-companies-in-the-nine-month-period-of-2022-n-bn--1024x1004.png 1024w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/fx-gains-losses-reported-by-nigerian-companies-in-the-nine-month-period-of-2022-n-bn--768x753.png 768w , https:\/\/149520306.v2.pressablecdn.com\/wp-content\/uploads\/2022\/12\/fx-gains-losses-reported-by-nigerian-companies-in-the-nine-month-period-of-2022-n-bn-.png 1220w \" alt=\"\" width=\"623\" height=\"611\" \/>\r\n\r\nThe depreciation of the naira against other major currencies negatively impacted companies that import raw materials into the country for production as their cost of sales increased, putting pressure on their profitability.\r\n\r\nHowever, most banks reported gains from trading foreign exchange amid the depreciation of the naira. They reported foreign exchange (FX) gains amounting to N229 billion in the nine-month period, compared to N242 billion in the same period of 2021.\r\n\r\n\u201cDangote Cement incurred a significant foreign exchange loss due in part to the FX crisis impacting imported input components as well as depreciation in some pan-African currencies i.e. CFA and Ghanaian cedi, severely eroding the group\u2019s bottom line,\u201d Coronation Research analysts said.\r\n Pre-election uncertainties \r\nExperts say Nigerian companies are putting critical investment decisions on ice ahead of the 2023 general election amid rising uncertainty over the outcome of the elections and its implications for the economy.\r\n\r\nA weakening macroeconomic environment in Nigeria increases uncertainties for companies operating in the country and is expected to exert pressure on corporate profits and valuations in 2023, Cordros Securities said in a note to clients.\r\n\r\nAnalysts at the investment firm believe that macroconditions are unlikely to improve next year as demand will come under pressure due to inflation, political bedlam in the aftermath of the election, and the impact of the central bank\u2019s aggressive monetary policy on profits.\r\n\r\n\u201cAs stated in our domestic outlook, the 2023 macroeconomic narrative will remain weak, dampened by elevated prices, high unemployment, and FX liquidity constraints, amid a more subdued prospect for global economic recovery given policy tightening actions from major central banks and the lingering Russia-Ukraine conflict,\u201d said analysts at Cordros Securities.\r\n \u2018Japa\u2019 wave \r\nMore than ever before, Nigerian companies are contending with an exodus of talent to developed countries that are luring skilled workers with better pay and more flexible working conditions.\r\n\r\n\u201cSo many of our very experienced talents, especially in the area of software engineering are either leaving the industry or leaving the country,\u201d Abubakar Suleiman, chief executive officer of Sterling Bank Plc, was quoted by Bloomberg as saying at the end of a recent meeting of bank CEOs.\r\n\r\nBusinessDay findings show that the development is putting more pressure on companies to rethink their hiring and compensation strategies in order to retain skilled employees, especially tech talent.\r\n\r\n \r\n "

"Six major headwinds Nigerian firms faced in 2022"

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