Q1: Dangote Cement, MTN, Others’ OPEX Reached N1.01trn as Inflation, FX Scarcity Persist

Kayode Tokede

MTN Nigeria Communication Plc, Dangote Cement Plc, and 15 other listed companies on the Nigerian Exchange Limited (NGX) saw their operating expenses to income up by 31per cent in first quarter of (Q1) 2023 over double-digit inflation rate, foreign exchange scarcity worsened by the general elections and slow growth in the nation’s economy.

The companies cut across manufacturing, Oil & gas, financial institutions and telecommunication.

THISDAY analysis of their Q1 results showed that they reported N1.01trillion total operating expenses in Q1 2023, an increase of 26 per cent from N800.96 billion reported in Q1 2022, while total income reached N3.25 trillion in Q1 2023, representing an increase of 16 per cent from N2.81 trillion reported in Q1 2022.

In the period under review, inflation rate moved from 15.92 per cent in March 2022 to 22.04 per cent in March 2023, while Naira against the dollar depreciated to N460.35/$ from N415.75 /$ a year ago.

Extracts from the unaudited result and accounts for period ended March 31, 2023 revealed that most manufacturing companies struggled grow income, caused by low purchasing power and uncertainty towards the 2023 general elections.

The Purchasing Managers’ Index (PMI)—produced by Stanbic IBTC Bank and S&P Global—dropped to 42.3 basis points in March, down from February’s 44.7 basis points. As a result, the index moved further below the 50 basis points mark, signaling the starkest deterioration in private-sector operating conditions since May 2020.

Further analysis showed that MTN Nigeria in the period under review reported the highest OPEX and income.

MTN Nigeria declared N173.5 billion OPEX in Q! 2023, an increase of 29.2 per cent from N134.3 billion reported in Q1 2022, as revenue closed Q1 2023 at N568.14 billion, a growth of 21 per cent from N470.98 billion in Q1 2022.

But the telecommunication company explained the continued impact of foreign exchange availability, naira depreciation and higher consumer price index (CPI) adjustments on lease rental costs, the new site rollouts, and rising energy costs exerted upward pressure on OPEX, resulting in a 29.2 per cent increase.

“However, the impact of the higher OPEX was moderated by the cost savings realised from our expense efficiency programmes and our disciplined approach to capital allocation. In addition, we achieved a reduction in the growth rate of cost of sales to 15.6per cent, resulting in a 24.2per cent increase in total expenses,” the company explained to investing public.

In the manufacturing sector, likes of Dangote Cement, Lafarge Africa Plc and BUA Cement recorded significant increase in OPEX, accounting for 12.3 per cent of the overall OPEX in Q1 2023 compared to 12.9 per cent in Q1 2022.

Dangote Cement reported N87.39 billion OPEX in Q1 2023, a growth of 13 per cent from N77.6 billion in Q1 2022, while Lafarge Africa declared N24.4 billion OPEX in 2023 from N20.59 billion in Q1 2022 (an increase of 21 per cent).

Conversely, Nigeria Breweries announced N123.3billion revenue in Q1 2023, a decline of 10.5 per cent from N137.77billion reported in Q1 2023 but its OPEX grew by nearly five per cent to N41.91billion in Q1 2023 from N40.04billion reported in Q1 2022.

The multinational company expressed that, “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 inflation.”

 In the banking sector, Access Holdings Plc, followed by Ecobank Transnational Incorporated declared highest OPEX in Q1 2023.

Access Holdings declared N149.79 billion OPEX in Q1 2023, an increase of 28.3 per cent from N116.76 billion reported in Q1 2022, as its income rose by 27.3 per cent to N287.8 billion reported in Q1 2023 from N226.05 billion reported in Q1 2022.

Analysts believe inflationary pressures remain a key concern in the Nigerian economy, both for businesses and the citizens.

The CEO, Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf told THISDAY 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.”

On his part, the Vice President, Highcap securities, Mr. David Adnori said the inflationary pressure and scarcity of foreign exchange were key drivers of companies OPEX in Q1 2023, stressing that hike in interest rate by CBN also contributing factor.