On the back of hike in inflation rate, unstable foreign exchange market, among others factors, Dangote Cement, Seplat Energy Plc, Nigerian Breweries and 10 others most valued companies on the Nigerian Exchange Limited (NGX) reported 17 per cent increase in Operating Expenses (OPEX), analysis of their 2021 results has revealed.
The 13 companies reported a whooping N2.05 trillion OPEX in 2021 as against N1.76 trillion reported in 2020 financial year. Analysis of the companies performance revealed that Nigerian Breweries Plc, followed by MTN Nigeria Plc and Lafarge Africa recorded the highest OPEX in 2021
A breakdown revealed Nigerian Breweries reported total OPEX of N123.55billion in 2021, an increase of 37.4 per cent from N89.9billion reported in 2020. MTN Nigeria’s OPEX grew by 21.9 per cent to N505.3billion in 2021 from N414.6billion in 2020.
Lafarge Africa Plc reported N78.13billion OPEX in 2021, an increase of 21.82per cent from N64.14billion reported in 2020, while Dangote Cement’s grew its OPEX Dangote Cement Plc by 19.6 per cent in 2021 to N256billion from N214.06billion reported in 2020.
The National Bureau of Statistics (NBS) recently announced that Nigeria’s inflation rate closed 2021 at 15.63 per cent from 16.47 per cent reported in January 2021. The bureau had disclosed that the country’s inflation rate hits all-time high in March 2021 to 18.17 per cent, while all items (12 Months Avg. Change) closed 2021 at 16.73 per cent.
Besides inflationary pressure, the marginal increase in Naira/US dollar exchange rate in the official market also resulted in the hike in general prices of goods and services in the year under review.
According to the Central bank of Nigeria (CBN), Naira at the Investors & Exporters Foreign Exchange (I & EFX) was trading at an average price of N413.49/Dollar from N380/Dollar when it opened for trading in 2021.
Also, the NBS disclosed that the average price paid by consumers for Premium Motor Spirit (petrol) increased by 0.04 per cent on year-on-year basis to N165.77 in December 2021 when compared to the valued in December 2020, which is N165.70.
Although the retail price of Automotive Gas Oil (Diesel) paid by consumers presently sells for N350 a litre and more in other states, as commodity increased by 28.97 per cent on a year-on-year basis from a lower cost of N224.37 per litre recorded in November of last year to a higher cost of N289.37 per litre in December 2021.
Meanwhile, analysts have expressed that cost of buying diesels and trucks materials in the period under review have increased significantly, a major factors also contributing to cost of goods and services distribution.
In a chat with THISDAY, analyst at PAC Holdings, Mr. Wole Adeyeye stated that the operating expenses of most companies increased significantly in 2021, driven mainly by higher input costs.
According to him: “The upsurge was witnessed in inputs sourced locally (especially raw materials & consumables, fuel and power consumed, distribution expenses, among others). In addition, most listed companies complained about the depreciation of Naira as it raised cost of imported raw materials during the period.
“The high cost of imported raw materials and inputs sourced locally resulted in lower profitability of some listed companies, especially those who found it difficult to pass the cost to the final consumers.”
Commenting on the growth in OPEX, the Chief Executive officer, MTN Nigeria, Karl Toriola said: “On the costs side, we made good progress with our expense efficiency programme through which we realised N25.1 billion in cost savings, representing a 1.5pp margin impact. However, the continued effects of Naira depreciation on lease rental costs, acceleration in our site rollout, and the ongoing COVID-19 related expenditure resulted in operating expenses increasing by 21.9per cent.”
Similarly, some analysts believe regulatory levy by Asset Management Corporation of Nigeria (AMCON), and Nigeria Deposit Insurance Corporation (NDIC), were primarily drivers in commercial banks OPEX in 2021.
Extract from the commercial bank 2021 financial year report revealed that Access bank reported 13.08 per cent increase in OPEX to N371.14billion from N326.51billion reported in prior year, while Zenith Bank grew its OPEX by 13.08 per cent to N289.5billion in 2021 from N256billion in 2020.
In his reaction, Head, Financial institutions, Agusto & Co, Mr. Ayokunle Olubunmi had attributed hike in commercial banks OPEX to increasing cost of operating environment, and regulatory costs.
According to him: “Hike in operating expenses differs from banks to banks. AMCON levy and NDIC premium also contribute to OPEX of banks. Dont forget that double-digit inflation rate and fall in the Naira this year impacted on banks expenses. Since banks are not operating in isolation, of course it is expected to affect their OPEX in the period.”
In addition, CEO, Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf explained to THISDAY that inflationary pressures remain a key concern in the Nigerian economy, both for businesses and the citizens.
He highlighted that implications of high inflation rate include escalation of production and operating costs for businesses, leading to erosion of profit margins, drop in sales, decline in turnover and weak manufacturing capacity utilization, high food prices which impacts adversely on citizens welfare and aggravates poverty.
He further stated that Weak purchasing power, which poses significant risk to business sustainability and price volatility, which undermines investors’ confidence are major implications of high inflation pressure.
He explained that the major drivers of inflation and cost in the economy include exchange rate depreciation, which has a significant impact on headline inflation, “especially the core sub index and liquidity challenges in the foreign exchange market impacting adversely on manufacturing output.”
He added, “High transportation costs affecting distribution costs across the country. This is also reflected in the huge differential between farm gate prices and market prices; monetization of fiscal deficit (CBN financing of deficit) is highly inflationary because of the liquidity injection effects on the economy. This becomes worrisome when statutory thresholds are exceeded and high transactions costs at the nations ports increases production and operating costs of businesses.”
To tame the current inflationary pressure, he urged government to reform the foreign exchange market to stabilize the exchange rate and reduce volatility and address foreign exchange liquidity issues through appropriate policy measures.
Others are: “Address the security concerns causing disruption to agricultural activities, address the challenge of high transportation cost, reduce fiscal deficit monetization to minimize incidence of high-powered money in the economy, reduce import duty on intermediate products and raw materials for industries to reduce production costs, especially in the light of the sharp depreciation in the exchange rate and address concerns around high energy cost.”
Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion, however, called on the federal government to improve more on enabling business environment to reduce the burden of companies operating in the country.
He expressed further that companies’ performance of 2021 highlighted improvement when compared to 2020 financials when the COVID-19 pandemic ravaged the global economy.
He noted that despite the challenges, the management of these companies have understudied inflationary pressure and weaken Naira to enhance profitability and dividend payout to shareholders.
According to him: “This is not the first time business managers have seen a hike in inflation and weaken the Naira at the foreign exchange market. They have effectively managed their businesses and grow profitability despite the challenges.”