The devastating effect of COVID-19 on critical sectors of the economy may shrink profit of quoted companies and negatively impact dividend pay-out by as much as 60 per cent. In Nigeria, lockdowns were imposed across various states, limiting operational activities in the first quarter. Public and private sector revenues were also hit by lull in economic activities and sudden drop in crude prices, limiting capital spend and purchasing power.
Investigations revealed that some listed firms were modifying the dividend pay-out and reviewing policies to cushion effects of COVID-19 crisis on business operations.
Further investigation showed the review led to the decision by the board to either defer or cancel dividend payments to reduce volatility on the company’s bottomline and sustain liquidity flow.
Already, stock market investors have lost over N2.6 trillion in the last three years following security challenges which triggered investment apathy.
Market capitalisation which stood at N15.691 trillion on January 26, 2017, was down to N13,055 trillion yesterday, representing N2,636 trillion or 20.1 per cent fall, while the All-Share Index, which measures performance of quoted companies closed at 25,027.61, from 26,216.46 representing 1,188.85 points (4.7 per cent drop).
Although the Central Bank of Nigeria (CBN) had announced measures to battle economic impact of the crisis, analysts and operators at the weekend insisted that government must prioritise ease of business and provide the favourable business environment to boost performance in the real sector as well as avoid collapse of fragile economy.
Investors also expressed the concern that the trend could extend to the 2021 financial year as few companies that had released their earnings across the quarters reflected negative impact of the pandemic with many companies recording losses and mixed numbers.
They argued that government’s inability to provide enabling environment for quoted companies and improve their bottomline would ultimately erode their profitability.
According to them, the effect of the pandemic has been predicted to linger and will further affect profitability and their ability to declare dividends to shareholders going forward.
For instance, directors of Julius Berger Plc had withdrawn their previously announced final cash dividend payment to enhance the company’s sustainability
Following a good 2019 financial year, Julius Berger had announced a dividend payout of ₦2.75 kobo per 50 kobo share for the financial year ended December 31, 2019 and a bonus of one new share for every existing five.
However, in an attempt to brace itself for impending challenges, the board of the company withdrew its previously announced final cash dividend payment of ₦2.75 kobo per 50 kobo share, and instead recommended a final cash dividend pay-out of ₦2.00 kobo per 50 kobo share.
In an announcement, it revealed the board had carefully considered the emerging social, operational, financial and economic impact of the COVID-19 pandemic, the outlook for Nigeria for the financial year 2020, and impact on business and cash flows of the group.
It is the company’s way of protecting its liquidity and ensuring long-term sustainability, while balancing returns to shareholders.
A breakdown of financial performance of Julius Berger, under the building construction sub sector, showed the firm’s financial statement for the half year (H1) ended June 31, 2020 showed a loss after tax of N1.9 billion, down from a N2.8 billion profit achieved in the corresponding period in 2019.
The company’s earnings pressure was mostly driven by a slowdown in revenue amid challenging operating environment as well as losses arising from currency adjustments in the second quarter of the year.
In the same vein, one of the leading companies under Transcorp Hotels Plc, started the year on a rather wrong note, recording a loss in the first three months of 2020.
THE travel/tourism sector remains one of the most affected as flights have been grounded due to closure of airports around the world, while some hotels have been converted into isolation centres to cater for those infected with the virus.
The company revenue was flat at N4.2 billion over the comparative periods, while cost of sales increased to N1.2 billion, from N1.1 billion in Q1 2019, with gross profit slightly down to N3.0 billion from N3.1 billion.
However, the company said there was improvement in the other operating income, which closed at N129.5 million, higher than N80.0 million in the corresponding period of last year.
But the operating profit declined to N660.7 million from N1.1 billion in the first three months of last year.During the period under review, Transcorp Hotels said there was a spike in its administrative expenses to N2.5 billion from N2.1 billion in the same time of last year, with the net finance costs also rising to N1.4 billion from N673.5 million.
The firm also recorded a loss before tax of N686.5 million compared with a profit before tax of N436.5 million in First Quarter (Q1) 2019. Also, loss after tax stood at N686.5 million in contrast to the profit after tax of N296.8 million in the same time of last year. Its earnings per share closed at negative during the period at nine kobo against four kobo of Q1 2019.
In the personal/household product sub sector, the first six months of 2020 was not favourable for Unilever Nigeria Plc and its shareholders, as the firm’s revenue plunged by whooping 40.1 per cent.
Specifically, the company recorded a total turnover of N27.3 billion for the period ended June 30, 2020, compared with N42.7 billion recorded same period of 2019.
Also, the firm said its cost of sales stood at N21.2 billion during the period in contrast to N31.3 billion posted same time of 2019 while its gross profit went down to N6.2 billion from N11.4 billion.