Finance

Despite hyperinflation, Nigerian companies record higher revenues and margins in Q1 2022


Nigeria’s largest companies earned a whopping sum of N2.33 trillion as revenue in the first quarter of 2022, outpacing their earnings in the corresponding period of 2021 by 33.2%. This is according to information contained in the quarterly reports of these companies as compiled by Nairametrics research.

According to the compilation, 28 of the most capitalized companies on the Nigerian Stock market, operating in the manufacturing, telecommunication, oil and gas, and agricultural sectors grew their topline revenue from N1.75 trillion recorded in Q1 2021 to N2.33 trillion in the review period.

Most interestingly is the stellar 38.1% growth recorded in their operating profit at N614.25 billion compared to N444.89 billion recorded in the corresponding period of 2021. This shows how the companies have been able to manage their operating expenses despite inflationary headwinds in the Nigerian economy.

A cursory look at the data shows that telco giant, MTN Nigeria recorded the highest revenue of N470.98 billion, largely driven by its voice call revenue, while leading cement manufacturer, Dangote Cement followed with a N413.18 billion top-line revenue.

The revenue growth recorded by the companies is remarkable, considering economic disruptions in the global economy occasioned by the ripple effect on energy, power, food cost, amongst others, caused by the Russia-Ukraine face-off and the aftermath of the covid-19 pandemic.

What is driving growth?

The global economy is suffering from inflationary pressure, with US printing a near 40-year high inflation rate of 8.3% in April 2022, Canada at 6.8% (31-year high) in April 2022, while UK’s inflation rate for the same month was 9%, the highest in 40 years.

  • Despite the rise in the cost of production, Nigerian businesses in the manufacturing sector have been able to shift this cost to their customers without affecting their margins despite drop in sales volume.
  • For example, BUA Cement recorded a 52.2% increase in production cost, triggered by 66.1% and 63.7% increases in the cost of raw materials and energy in Q1 2022. However, its operating profit was able to shoot up by 62.5% as revenue from cement rose by 58.5% during the period under review.
  • Another typical example is Dangote Cement, whose revenue soared by 24.2% despite a 3.2% decline in sales volume. Its operating profit also rose by 20.5% YoY to N182.8 billion.
  • Similarly, Nigerian Breweries was able to grow its revenue by 30.4% YoY, while its cost of sales only increased by 14.1%, resulting in a 57.4% increase in gross profit, while its gross profit margin moved from 37.5% recorded in Q1 2021 to 45.3% in the review period.
  • For the oil and gas sector, upstream players like Seplat Energy gained from the bullish oil price in Q1, as its revenue ballooned from N57 billion to N100.6 billion YoY (74% increase). Downstream marketer like TotalEnergies was also able to grow its operating profit by 47.6% despite a significant surge in production cost.
  • It is safe to say that the improvement recorded by the companies is mostly attributable to the increase in their sales price, due to inflationary pressure.

What experts are saying

According to Ebitonye Atte, a research analyst at United Capital Plc, he noted that “following supply chain disruptions and the Eastern European crisis, companies that primarily export commodities, such as upstream Oil and Gas firms like Seplat, and palm producers, Presco and Okomu, have seen their margins boosted by increased commodity prices. Also, in the early parts of the year, global demand for commodities improved following the recovery from demand shocks seen in 2020 and 2021.”

“We expect the cement Industry to face significant cost pressures as a direct consequence of the Russia-Ukraine Crisis. Hence, the expectation is that all cement companies will face decent upward pressure on production costs because of mounting energy cost inflation. However, we expect that demand for cement and pricing power will continue to outweigh increases in the cost of sales for the rest of 2022,” he added.

Likewise, Ugochukwu ‘Ugodre’ Obi-Chukwu, the Chief Analyst at Nairametrics, while discussing at a Nairametrics Daily Reviews session on Twitter Spaces, he noted that companies that sell essential commodities, that is, those whose demand is inelastic, would always grow their revenue irrespective of changes in price.

Inelastic products are items whose demand does not change irrespective of economic factors, in this case, price.

“We noticed that a lot of Nigerian products are actually quite inelastic, meaning that no matter how much they are priced, you would still end up buying them. The only thing you can do will be probably to reduce the quantity a bit. So, if you are in that kind of business, your margins will still go up even if the volume might drop,” Obi-Chukwu added.

What this means

The stellar growth recorded by the companies suggests increased activities in the Nigerian economy, which would suggest some level of growth in the nation’s gross domestic product for Q1 2022. Nigeria’s economy had expanded by 3.4% in real terms in 2021 following a covid-induced recession experienced in 2020.

However, the Central Bank of Nigeria has maintained an expansionary monetary policy by keeping interest rates low, which means cheap credit in the economy and more liquidity to fund more spending.

This monetary direction helps in spurring growth in the economy, as there would be more activities across various sectors, although it is believed that an expansionary monetary stance could be counter-productive as it could quicken inflation rate.

How the companies performed

  • In terms of ranking, the top five companies by revenue in the first quarter of 2022 were MTN Nigeria, Dangote Cement, Flour Mills, Nigerian Breweries, and Nestle Nigeria. The five companies generated a total revenue of N1.43 trillion, accounting for 61.6% of the total revenue recorded for the 28 companies.
  • Meanwhile, in terms of revenue growth, CAP Plc led the list with a 122% year-on-year growth in its revenue from N2.1 billion in Q1 2021 to N4.66 billion. It was closely followed by pharmaceutical company, GSK with a revenue growth of 113% to stand at N7.36 billion.
  • The likes of Seplat Energy, Notore, and Okomu Oil made the list of fastest revenue growth in the period under review with 74%. 71%, and 63% revenue growth respectively.
  • While considering the operating profit of the companies, Dangote Cement led the list with N182.8 billion, closely followed by MTN with N149.3 billion, while Seplat Energy was third on the list with N42.43 billion.

It is however worth noting that Cadbury Plc recorded a 495% growth in its operating profit, CAP Plc and Seplat Energy grew their operating profit by 218% and 151% respectively.





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