COMARTs count on price increases and contraction to post record revenues in the first half of 2022
Nigerian companies in Construction, Oil & Gas, Manufacturing (including FMCG), Agriculture, Real Estate and Technology sectors otherwise known as COMART recorded combined sales of 5.2 trillion naira in the first half of 2022 defying the challenges of inflation and exchange rates.
The amount represents a 28.1% increase in income compared to 4 trillion naira reported at the same time last year.
On a quarterly basis, the companies also saw revenue increase by just 1.3%, however, compared to the second quarter of 2021, revenue growth topped 29.2%. This is a growth of 28.8% comparing the first quarter of 2022 to the first quarter of 2021.
The data excludes banks, insurance companies and any business in the financial services sector.
- The data also points to likely growth in Nigeria’s GDP for the second quarter of the year, as higher revenue growth for Nigerian companies will often correlate with an increase in GDP.
- A general increase in revenue often indicates either an increase in sales volume or an increase in prices, or both. In this case, the companies appear to have relied on price increases to post one of the strongest revenue increases in recent years.
Profits are also soaring
Nairametrics also looked at the companies’ operating profits and observed that the companies recorded a whopping 31.9% growth. Operating profit excludes finance charges, taxes, and items that are not directly associated with a company’s core business. It is a better performance indicator that does not take into account inefficient capital structures.
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- According to the data, in the first half of this year, enterprises printed a total of 1.5 trillion naira operating income before tax and financial charges up by 1.1 trillion naira same period in 2021. On a quarterly basis, during the year, operating profits also increased, with companies growing by 22%.
- The increase in revenue and operating profit indicates several factors such as rising prices and cutting costs amidst a very turbulent economic year marked by exchange rate devaluation and runaway inflation.
What drives performance (H1 2022 vs H1 2021)
Nigeria’s inflation rate currently stands at around 18.6% while the exchange rate has fallen to N670/$1 from N580/$1 at the start of the year. Yet the companies are still recording impressive profits.
In all sectors examined, revenue and operating profit growth is clearly driven by price increases and cost reductions.
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Higher commodity prices
For example, in the agro-allied sectorrevenues increased by 72.1% while operating profits also increased by 70.3%.
- Excerpts from the financial statements of Okomu Oil and Presco show that they both benefited from an increase in the prices of palm crude oil and rubber respectively.
- In the oil and gas sector, higher oil prices benefited Seplat, helping them post record revenues and profits. Seplat, for example, saw its turnover and profit increase by 82% and 138.8% respectively in the first half.
- While some companies like Ardova, Caverton and Conoil struggled in the downstream sector, Total saw growth in revenue and operating profit.
Increase in demand and price adjustments – In the telecommunications sector, MTN and Airtel continue to take advantage of increased data demand to post strong profits, generating revenue of 1.4 trillion naira in just 6 months this year.
- The cement sector, made up of companies such as Dangote Cement, BUA and Lafarge, also recorded strong profits thanks to increased demand for real estate and construction.
- With a combined revenue of N1.1 trillion in the first half of the year, growth was 23% higher than the same period in 2021. Cement companies also raised prices.
Manufacturers are also seeing growth
Industries such as Notore, Chemical and Allied Paints all saw impressive revenue increases.
- By analyzing their results, we also observe an increase in demand mainly due to a recovery in manufacturing activities.
- Vitafoam also continued to benefit from reliance on local inputs and price adjustments to increase sales and improve margins.
- Some also performed better due to completing various capacity utilization plans, such as Notore.
Shrinkflation and price increases
- Food companies like Nestle, Flour Mills and Dangote Sugar also saw an increase in revenue and profits. The Nairametrics survey indicates that revenue growth was largely driven by price increases and contraction.
- Combined, the food sector generated N1.1 trillion in revenue in 6 months, 39% more than the same period in 2021.
- In the Brewing sector, better performances from Guinness and Nigeria Breweries also helped drive revenue growth. Guinness, for example, confirmed price increases and increased demand for its ready-to-drink brands that are helping to boost sales.
- Combined, the brewing sector recorded revenue growth of 30.6% to N435.8 billion.
What the macro data says
PMI Data – Latest data from the Central Bank of Nigeria reveals that the Purchasing Managers Index (PMI) for the Nigerian manufacturing sector reached 51.1 index points in the month of June, beating the benchmark by 50 points. ‘index.
- This represents an increase of 2.2 points compared to the 48.9 points recorded the previous month.
- Similarly, the non-manufacturing PMI exceeded the benchmark by 50 points to 50.2 index points in the month of review, from 49.9 points recorded in May.
- A rise in the PMI indicates that purchasing managers are seeing economic growth as inventory orders are above average. This results in increased sales, especially if accompanied by price increases.
Effect on GDP – The National Bureau of Statistics has yet to release its second quarter 2022 GDP report. However, the first quarter data shows a real GDP growth rate of 3.1%.
- During the same quarter, COMART recorded a revenue growth rate of 31% without taking inflation into account.
- But in the second quarter of this year, revenue growth is now 28%, down slightly from the previous quarter.
- Based on this data, Nairametrics predicts that Nigeria is likely to replicate the first quarter GDP growth rate in 2022, albeit a little slower at between 3 and 3.3%.
CBN expects GDP growth – In the latest monetary policy statement, the apex bank estimated that Nigeria’s GDP growth was being driven by non-oil sectors.
- This consistent positive performance is largely due to continued growth in the non-oil sector, particularly the services and agriculture sub-sectors; continued political support after the COVID lockdown; and the base effect of the corresponding period.
- The apex bank also predicts further GDP growth based on its own research data. “Services projections showed the economy should remain on the sustained positive growth path seen in recent quarters.”