Last year posed a great challenge for many businesses in Nigeria. The business community had started 2020 with their usual style of brick and mortar operation, then COVID-19 came knocking by end of Q1, and the status quo changed in the private sector.
COVID-19 disrupted the model of operation, threatening to neutralise revenue of companies. While informal markets, small and medium businesses couldn’t mitigate the challenges of the pandemic and COVID-19 induced-lockdown, deep pocket corporations had to dig into their purse to stay in business and keep revenue flowing.
Corporate managements resorted to the very model many companies have distanced themselves from prior to COVID-19; work-from-home programme. The initiative was adopted to enable business continuity amid lockdown.
The strategy came at a cost, shooting their operating expenses through the roof. This is according to analysis of seven financial statements of Nigeria’s most capitalised companies on Nigerian Stock Exchange (NSE).
Expenses rise higher than revenue amid COVID-19
With work-from-home programme initiated and COVID-19 protocol put in place by companies considered too essential to close its brick and mortar operation, corporate entities budgeted more for operation in 2020 when compared to corresponding period of 2019.
Analysis of seven companies out of ten most capitalised companies on the NSE – Dangote Cement, MTN Nigeria, BUA Cement, Nestle, Zenith Bank, Nigerian Breweries and Stanbic IBTC – showed cost of operation rose higher than revenue.
Out of ten of the most capitalised companies on the NSE, only the aforementioned companies have released their 2020 full year (FY) financial statements as at the time of filing this report.
Analysis of their financials showed combined operational expenses rose by 17.3 percent last year, while combined revenue rose by 10.4 percent during the same period. Among the seven companies, expenses rose to N1.21 trillion in 2020, against the N1.03 trillion of 2019.
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Breakdown of each company’s expenses
Breakdown of the financial report showed that MTN Nigeria spent more on operations, with N310.24 billion reported for the period under review, higher than the N246.60 billion spent in corresponding period of 2019.
Nigerian Breweries expenses climbed to N218.35 billion last year, surpassing the N191.75 billion the network company infused into operation in the same period in 2019. Nestle Nigeria’s expense also rose, hitting N167.87 billion in 2020, against the N155.88 billion reported for 2019.
Analysis of Dangote Cement financials state N160.55 billion was put into cost of sales last year, rising above the N122.80 billion the company reported for the corresponding period in 2019.
Zenith Bank expenses hit N148.11 billion in 2020 full year, surpassing the N129.45 billion the company budgeted for the same period in 2019. BUA Cement budgeted N114.04 billion for operation in 2020, higher than the N93.07 billion earmarked for cost of sales in 2019 FY.
Stanbic IBTC set aside N94.27 billion for the same purpose last year, an amount above the N94.02 billion the lender set apart for operations in 2019.
Companies reaction to impact of COVID-19 on operation
In a note included in the financials, Nestle Nigeria said despite receiving exemption to operate as an essential product during COVID-19, the company battled with inflation in price of raw materials.
“All manufacturers in the food and beverage sector were classified as essential services and excluded from the lockdown Notwithstanding the exemption, our Company encountered challenges with the availability of key raw and packaging materials including sugar.
“The prices of some materials increased exponentially while access to foreign exchange for the importation of key items became more restricted.” Nestle Nigeria stated.
While Nigerian Breweries said the pandemic had an impact on the economy and by implication, on the Company during the year under review, Zenith Bank stated it is resilient to COVID-19 shock, but had to conduct several stress test to assess the possible impacts of the pandemic on its liquidity, capital adequacy and earning capacity.
“In line with regulatory requirements, we recognize the Impact of Covid-19 on our risk assets, loan-provisioning and net interest margin.” Zenith said its financials.
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