Blue-chip Companies’ OPEX Tops N5.1tn on Inflation, Regulatory Charges, Naira Devaluation

Kayode Tokede

On the back of galloping inflation, regulating expenses, and devaluation of the local currency, a total of 23 leading companies on the Nigeria Exchange Limited (NGX), reported a whooping N5.1 trillion operating expenses in the half year (H1) ended June 2024.

This is about 100.5per cent increase from N2.56 trillion reported in the half year ended June 2023. 

The 23 companies are made up of financial institutions, cement manufacturing companies etc.

Nigeria’s inflation rate, according to the National Bureau of Statistics (NBS) stood at 34.19 per cent as at June 2024 from 22.79 per cent in June 2023, driven by money supply, exchange rate, net exports, interest rates, fiscal factors, agro-climatic factors and real output.

With inflation currently at 32.15 per cent, analysts have predicted further hike in OPEX this year, stressing that its impact may cut down on earnings and dividend payout to shareholders.

Also, the Naira depreciated to N1,482.982 against the dollar as of June 2024, from N770.38 against the dollar June 2023, influenced by the Central Bank of Nigeria (CBN) policy on Naira at the foreign exchange market.

Aside from inflationary pressure, other key factors contributing to high banks OPEX include; wages and salaries for staff, Deposit insurance premium, Asset Management Corporation of Nigeria (AMCON)’s 0.5 per cent sinking funds levy, among others.

Analysis of the H1 result and accounts submitted to the NGX showed that MTN Nigeria Communication Plc, followed by Ecobank and Access Holdings Plc recorded the highest OPEX.

In H1 2024, MTN Nigeria reported N738.55 billion OPEX, about 108 per cent increase from N355.23 billion reported in H1 2023.

According to the management of MTN Nigeria, deprecation of the naira, higher energy costs and the introduction of Value Added Tax (VAT) on tower leaser in September 2023 contributed to its 108 per cent increase in OPEX.

According to MTNt, “When excluding these effects, OPEX increased by 31.7 per cent, below the average inflation rate of 32.8 per cent. This demonstrates the efforts made to improve expenses efficiencies. Although constrained by macro headwinds, our expense efficiency programme delivered N15.8 billion in cost savings in H1 2024.”

Also, Ecobank announced N728.73 billion OPEX in H1 2024, representing an increase of 165 per cent from N274.88billion in H1 2023 while Access Holdings declared N719.1billion OPEX in H1 2024, an increase of 128 per cent from N315.94 billion reported in H1 2023.

Following the 165 per cent increase in Access Holdings OPEX, its  Cost-to-income ratio (CIR) remained relatively flat at 60.4per cent in  H1 2024 despite double digit growth in inflation and devaluation in the same period.

“Cost to income was moderated as revenue outpaced operating expenses. The increase in operating expenses was primarily from on-going IT upgrade and integration, double-digit growth in AMCON levy and NDIC premium which increased by 63.1per cent and 37per cent, respectively, and will normalise in the second half of the year, inflation-related cost-of-living adjustments, higher energy expenses, and the currency conversion impact of subsidiaries’ operating costs,” the Group in a statement explained.

In a chat with THISDAY, analysts stated that the hike in inflation rate is affecting not only banks profit generation,

Speaking, the Vice President, Highcap Securities Limited, Mr. David Adnori said the hike in banks operating expenses is a reflection of global economic unrest, stressing that financial institutions operating in Nigeria and in Africa do not operate in isolation.

He expressed that the growth in operating expenses reported by listed companies would definitely have an impact on profit and dividend payout to shareholders.

He said, “The world is currently facing a high inflation rate and Nigeria, Africa at large are not exempted from this experience, with countries on the continent witnessing record high inflation rate. The surge in inflation rate is following the rally in crude oil prices, amidst the face-off between Russia/Ukraine, among other nations.

“Reacting to the surging inflation rate, regulators of several countries where Nigerian companies operate have also raised their interest rates to curb the rising cost of goods and services. However, this is yet to yield any significant positive as the inflation rate above 30 per cent. With cost impacted, Nigerian companies may suffer slow profitability this year and it might impact on dividend payout,” he added.

On his part, the CEO, Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf stated 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 transaction costs at the nation’s ports increases production and operating costs of businesses.”

The World Bank in a report had stated that global headwinds are slowing Africa’s economic growth as countries continue to contend with rising inflation, hindering progress on poverty reduction.

According to the World Bank report, the risk of stagflation comes at a time when high interest rates and debt are forcing African governments to make difficult choices as they try to protect people’s jobs, purchasing power and development gains.

It added, “The war in Ukraine is exacerbating already high inflation and weighing on economic activity by depressing both business investments and household consumption.”