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By Chinwendu Obienyi
Amid the cash crunch, elections and the galloping inflation in the economy, quoted companies on the Nigerian Exchange Limited (NGX) have so far reported a widespread increase in operating expenses for the first quarter (Q1) of 2023, Daily Sun investigations can reveal.
The Nigerian economy has been experiencing galloping inflation which arose out of a combination of higher energy prices, an increase in the money supply, and exchange rate depreciation.
Some of these companies also reported the impact of the cash scarcity brought about by the introduction of new naira notes as a contributing factor.
Some of the companies include Beta Glass, BUA Cement, BUA Foods, Dangote Cement, Dangote Sugar, MTN Nigeria, Seplat, Nigerian Breweries, Unilever Plc, May and Baker and NASCON. Others are Julius Berger, Okomu Oil, Notore, Nestle, Fidson and Total. These companies cut across manufacturing, construction, FMCGs, healthcare, agriculture, and conglomerates.
Operating expenses include selling and distribution expenses as well as admin and general expenses. The first quarter of 2023 was particularly pitiful, especially due to a combination of economic pressures that were completely out of the control of companies.
During the first quarter, Nigerians suffered through currency crisis that affected trade nationwide. The general elections in February and March also affected the flow of business across the country.
For example, BUA Foods which reported profit before tax (PBT) and profit after tax (PAT) of N49.5 billion and N40.5 billion, saw its total operating expenses rise by over 299 per cent from N2.22 billion reported in Q1 2022 to N8.9 billion.
Reacting, its Managing Director, Engr Ayodele Abioye, said, “BUA Foods Plc continues to deliver strong performance across key financial metrics despite the business climate headwinds characterized in Q1 by the economic impact of the general elections, high food inflation, and shortage of cash in circulation following the currency redesign policy. We continue to leverage our unique strategic business model to minimize the impact”.
MTN Nigeria’s largest telecom, also cited the naira scarcity, elections, and inflation as major cost pressures during the quarter. The company’s marketing and distribution expenses rose from N21.7 billion to N36.1 billion in 2023. Admin expenses also rose from N11.3 billion to N13.5 billion in the first quarter of 2023.
Its Chief Executive Officer, Karl Toriola, said, “We continued to experience headwinds in our operating environment in the first quarter of 2023. The impacts of the ongoing global macroeconomic and geopolitical developments on energy, food, and general inflation were exacerbated locally by petrol and cash shortages experienced during the period. This placed additional pressure on economic activity, consumers, and businesses.
The private sector experienced the deepest contraction in March 2023 since the recovery from COVID. In addition, supply chains were compounded by exchange rate volatility and the availability of foreign currency needed for capex”.
Speaking to newsmen during its Pre-AGM meeting in Lagos recently, the Managing Director, Nigerian Breweries Plc, Hans Essaadi, complained that the cash crunch as well as inflation caused a negative drawback on its margins. The company reported operating expenses of N42 billion compared to N39.5 billion in the same period in 2022.
“The operating environment during the period under review was very challenging for businesses. The impact of the cash crunch, which led to a near collapse of payment channels, as well as the security and safety uncertainties associated with the general elections, created disruptions in the economy. These were in addition to the continuing headwinds of inflationary pressure with its impact on purchasing power, input cost, and operating expenses”, Essaadi said.
Reacting to the development, analysts noted that despite some of the companies reporting impressive results, the outlook for the rest of the year remains uncertain.
“The impact of inflation, cash shortages, and election uncertainties is expected to persist, as these factors are largely beyond the control of companies. As Nigerian businesses brace themselves for the rest of the year, the prospect of a new government coming into power can introduce more uncertainties and headwinds. A new government typically takes time to settle into its role, and during this period, policy decisions and regulations may be subject to change, creating additional challenges for businesses.
The delay in decision-making and policy implementation can cause a slowdown in economic activities, affecting the flow of business across the country. In addition, new regulations or policies may have unintended consequences for businesses, which may require time and resources to adjust to”, analysts at Nairametrics Research said.
