Investors risk losing 2020 dividends

Capital market

Capital market operators have expressed worry that the prolonged coronavirus pandemic and attendant Foreign Exchange (Forex) illiquidity may cause investors to lose their dividends this year.

The pandemic and the accompanying shutdown of economy have adversely affected operations of many listed firms with multiplier effects on their half year (H1) and nine months results.

Operators urged the Federal Government (FG) to reschedule loan repayment obligations of companies and grant tax holiday to listed firms to ease recovery and avoid erosion of equity investors dividend payout in 2020 and 2021 financial year.

The COVID-19 crisis has disrupted operations in different sectors of the economy, leading to a fall in demand, sales volume, revenue and underlying profits.

The effect of the lockdown on global and domestic value chain has taken a huge toll on the activities of quoted companies on the Nigeria Stock Exchange (NSE).

The pandemic has disrupted major macroeconomic policies across the globe, leading to huge import levies, exchange rate volatility and haulage costs of imported raw materials in the manufacturing sector.

WITH prevailing foreign exchange instability and logistics and regulatory rigidities in importing raw materials, the margins of these companies were affected directly, as the hike in input prices suppressed their half-year profitability.

The operators urged government to roll out palliatives in form of short-term grants, payable within three to five years for sectors mostly affected to enable them boost their working capital, expand business operations and sustain current rally in stock market.

According to them, failure to adopt these measures would result in massive job loss, social unrest and high level of poverty.

They also stated that poor earning might extend to 2021 full year performance and dividend payout to the detriment of investors.

A look at the performance of quoted companies for the half year ended June 30, 2020 showed that banks reported a profit after tax of N415.5 billion, representing five per cent decline compared to N436.9 billion achieved in 2019.

For Fast Moving Consumer Goods (FMCG), the rising middle-income class and steady economic growth positions Nigeria as an attractive investment destination for FMCG players globally.

HOWEVER, the pandemic, tight consumer spending, widening income inequality and unstable forex have slowed growth in consumer goods and impacted negatively on their earnings.

The sector’s half-year profits plummeted by 27.8 per cent as six of the biggest listed consumer goods posted a net profit of N40.4 billion during the half year ended June 30, 2020, compared to N56.13 billion recorded same period in 2019.

The industry revenue also dropped slightly at 2.9 per cent, totalling N453.81 billion from N467.52 billion within the same period in 2019.

Nestle, the biggest in the consumer goods sector by market capitalisation, reported 0.3 per cent decline in revenue in second quarter and 0.6 per cent in the first half of the year.

In the first half of 2020, Nestle’s net profit moderated at 16.8 per cent year-on-year to N21.8 billion owing to slowed revenue growth.

Also within the sector, Cadbury’s half-year revenue dropped by 18 per cent to N15.91 billion from N19.45 billion recorded during the same period in 2019.

The company’s cost of sales, which includes the cost of materials and labour directly used to produce, recorded 17 per cent drop to N12.6 billion from N15.31 in the same period in 2019.

Unilever Nigeria posted its first half-year loss since 2013, suggesting that Fast Moving and Consumer Goods companies (FMCGS) in Nigeria may be up for a significantly challenging year.

The company reported revenue of N27.3 billion in H1, 2020, compared to N42.6 billion achieved in the corresponding period in 2019.

Also, Unilever’s revenue for the Q3 2020 unaudited results also declined by 13.4 per cent to N44.7 billion from N51.6 billion recorded in the corresponding period in 2019.

The company’s loss before tax stood at N2.6 billion within the period while loss after tax stood at N2.1 billion. Its net assets also declined by 3.1 per cent from N66.5 billion to N64.5 billion.x

FOR the paint industry, the half-year financial results of CAP, Berger Paints Nigeria Plc, Portland Paints and Products Nigeria Plc and Meyer Plc were severely affected by the pandemic with the cumulative revenues of these companies declining by 12.8 per cent from N7.4 billion in 2019 to N6.5 billion in 2020.

Berger Paints was the only company that reported a growth in revenue in the first half of this year, with the company’s revenue increasing by 16.77 per cent.

However, the revenue of CAP Plc, Portland Paint and Meyer declined significantly by 10.71 per cent, 43.27 per cent and 34.82 per cent from N3.91 billion, N1.36 billion and N604 million reported in H1 2019 to N3.5 billion, N771 million and N393 million respectively in the first six months of 2020.

For the Q3 2020 unaudited results, Meyer Plc revenue declined by 34 per cent to N567 million from N858 million achieved in the previous quarter.

The company’s loss before tax stood at N98 million with loss after tax of N101 million within the same period. Net assets also declined by 15.5 per cent from N650 million to N549 million.

Reacting to the development, the Vice President of Highcap Securities Limited, Imafidon Adonri, said the COVID-19 lockdown in H1 disrupted global supply chain and stifled consumer demand.

He pointed out that trading and production-based enterprises suffered greatly from the disruptions, compounded by forex scarcity.

He said while most of them relied heavily on importation, their operations were grounded due to lockdown in industrialised countries.

To facilitate recovery, Adonri reiterated the need to reschedule repayment of loans. He also urged banks to give soft loans to quoted companies that required additional working capital to boost their operations.

“To ease their recovery, repayment obligations on their loans should be rescheduled. They also need tax holiday. These are short-term revival measures.x

“To sustain their medium to long-term productive momentum and overcome the strangulating appetite for forex, Nigeria must provide the vital engineering infrastructure for domesticating the economy.”

He, however, stated that with pervading insecurity, remedial measures could end up as wishful thinking.

Former Secretary General of Independent Shareholders Association, Adebayo Adeleke, urged government to offer three to five year grant to sectors mostly hit, such as oil and gas, aviation, hotel and tourism as well as manufacturing.

He warned there would be massive job loss and if government failed to rescue firms from the devastating effect of COVID-19.

Aside aggravating job loss, Adeleke pointed out that the rate of social unrest would increase significantly if nothing was done to boost the working capital of these firms.

The President of Standard Shareholders Association, Godwin Anono, advised Federal Government to roll out palliative measures for quoted companies affected by the pandemic.

He sought special palliatives for companies in the hospitality, manufacturing and aviation sectors to prevent total collapse.

“By its very nature the hospitality business is entirely dependent on the movement of people and a fall-off in demand of this magnitude has never been experienced before. Hotels, airlines, manufacturing and other businesses related to travel and tourism have come to a grinding halt,” he observed.

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