ANALYSIS of the first quarter (Q1) financial statements of some corporate organisations and companies across various sectors of the Nigerian economy reveals poor operational performance as well as low and negative net profit margins largely linked to President Bola Tinubu’s policies.
Surging inflation, higher interest rates, and weak naira value were some of the economic headwinds that affected business operations and impacted their profitability margins as a result of policy reforms of the Tinubu’s administration.
Tinubu’s government removed the petrol subsidy and floated the exchange rate which heightened risk exposure for most of the companies, with high energy prices taking a further toll on their companies’ balance sheets.
The effects were more significant in the non-service sectors, such as the fast-moving consumer goods than in the service sector that faced less severe corporate challenges.
Despite most businesses’ revenue growth, the net profit margins shrank considerably.
A net profit margin perhaps is the most important measure of a company’s overall profitability. It is the ratio of net profits to revenues expressed as a percentage.
It shows how much profit is generated from every naira sale, after a business accounts for all its expenses in earning the revenue.
Financial analysts say a larger profit margin means more of every naira in sales is kept as profit.
In the quarter under review, however, most businesses reported a decline or negative net profit margins as production and borrowing costs significantly squeezed their corporate profits.
Production costs especially raw materials rose as the Nigerian currency depreciated above N1,000 to about N1,900 to the dollar during the quarter.
Operating costs shot up higher as the fuel subsidy removal increased energy costs for businesses.
Borrowing costs also rose marginally as the central bank hiked benchmark interest rates by 600-basis-point to 24.75 per cent in the quarter.
Among the various sectors considered include consumer goods, information and communication technologies (ICT), industrial goods, oil and gas, agriculture, and services.
At the same time, MTN Nigeria Communications, BUA Food, Seplat Energy, Dangote Cement MTN Nigeria, Okomu Oil Palm, and Lafarge Africa were among the companies The ICIR analysed their first quarter financial statements.
Consumer goods
In this sector, Dangote Sugar Refinery and BUA Foods’ financial reports were examined.
Dangote Sugar Refinery’s revenue rose slightly to N122.73 billion from N102.22 billion. Its net profit declined to a net loss of N68.99 billion in 2024 from N12.80 billion in 2023. This resulted in a negative net profit margin of 56.22 per cent from 12.52 per cent.
A negative net profit margin indicates the company was unprofitable during the reporting period.
BUA Food’s revenue rose to N356.92 billion from N144.32 billion, its net profit to N55.82 billion from N40.47 billion while its net profit margin dropped to 15.64 per cent from 28.04 per cent.
Oil and gas
Seplat Energy and MRS Oil Nigeria were the companies sampled in this sector.
Seplat Energy’s revenue grew to N268.62 billion from N151.99 billion. It reported a net loss of N2.87 billion from a net profit of N26.42 billion and a negative net profit margin of 1.07 per cent from 17.39 per cent.
MRS Oil Nigeria saw its revenue grow to N79.16 billion from N30.79 billion with a slight increase in net profit to N1.99 billion from N1.48 billion. The performance puts its net profit margin at 2.51 per cent from 4.79 per cent.
Industrial Goods
Dangote Cement, BUA Cement, and Lafarge Africa were the companies which financial statements The ICIR analysed in this sector.
Dangote Cement posted an N817.35 billion revenue growth from N406.72 billion, net profit increased to N112.67 billion from N109.50 billion but its net profit margin shrank to 13.79 per cent from 26.92 per cent.
BUA Cement followed with an N161.13 billion increase in revenue from N106.35 billion with a decline in net profit to N17.97 billion to N26.80 billion which also affected its net profit margin to 11.15 per cent from 25.20 per cent.
Lafarge Africa also recorded growth in revenue to N137.77 billion from N91.82 billion with a decline in its net profit to N5.19 billion from N14.93 billion. This resulted in a sharp drop in its net profit margin to 3.77 per cent from 16.27 per cent.
“Despite elevated input & output cost pressures as well as increased FX volatility, our first quarter results further re-iterated the resilience of our business model and dynamism of our market approach.
“Revenue leaped by 147% while PBT increased by 36% to N62 Billion. Net Profit was up 38% at N55 billion further reaffirming our position as the most profitable food business on the exchange,” BUA Foods’ Managing Director, Ayodele Abioye, said.
Information and communications technology (ICT)
MTN Nigeria Communications was the only company analysed in this sector. While Its revenue grew to N752.98 billion from N568.14 billion it posted a N392.69 billion net loss from N108.43 billion net profit.
Like the two others in this report, MTN Nigeria Communications also reported a negative net profit margin of 52.15 per cent from a 19.09 per cent net profit margin.
The ICIR reported that MTN Nigeria Communications widened losses in its operation in the review quarter due to the concentration of funds outside its core business operations, indicating that the telecommunications giant is in financial distress.
“We expect 2024 to be a challenging year due to the rising inflation and devaluation of the naira. In January 2024, the inflation rate reached 29.9 per cent, while the exchange rate has further devalued to N1582/$ as of 26 February 2024.
“This is anticipated to put additional pressure on consumers, the cost of doing business, and further potential forex losses,” MTN Nigeria,’s Chief Executive Officer, Karl Toriola, said.
Agriculture
Presco and Okomu Oil Palm were the companies considered in this sector. The financial statements show that the companies posted the highest profit margin than companies in other sectors.
Presco’s revenue increased to N42.55 billion in Q1 2024 from N21.92 billion in Q1 2023. Its net profit also rose to N24.06 billion from N9.96 billion, and its net profit margin to 56.54 per cent from 45.46 per cent in the period.
Okomu Oil Palm’s revenue grew to N43.48 billion from N24.21 billion and its net profit to N15.08 billion from N10.18 billion. However, its net profit margin declined to 34.68 per cent from 42.04 per cent.
Although a good margin varies by industry, a general rule of thumb considers a 10 per cent net profit margin as average, 20 per cent as high or good, and a five per cent as low.