2020 was no doubt a tough year for businesses in Nigeria and across the world with the attendant effects of COVID-19 pandemic disruptions in economic activities.
This was as the global economy was hit by the worldwide lockdown on movements and restrictions with policies that affected and discouraged investments.
Unfortunately, the impact of COVID-19 has continued amidst governments’ concerted efforts to reset the economy.
Against this backdrop, the performance of many companies was impacted by the pandemic, which had wider effect on FX in Nigeria.
Low oil prices, constrained consumer demands due to liquidity squeeze, and lack of social interactions also contributed to the dire forex situation.
In addition, there were civil unrest and heightened insecurity. There was a steady rise in inflation in the year; real GDP contracted by 6.1 per cent and 3.6 per cent Year-on-Year in the second and third quarters of the year.
Consumer companies listed on the Nigerian Exchange Limited (NGX) were not exempted as reports from their financial statement for the year ended 2020 was reflective of the harsh reality, with companies recording a decline in their profits while a few reported loss.
Having foreseen the circumstance, some companies alerted their investors of the possible decline or loss in their financials.
Management of Guinness Nigeria had warned its investors that their result for the year ended June 2020 would be bad, noting that adverse impact of the sharp contraction in economic activities and the knock-on effect of the COVID-19 lockdown took a toll on the on-trade segment of the business across all its markets, with production and revenues being negatively affected.
Many companies took proactive measures to stay afloat among which was asset impairment, increase in retail prices of goods, and laying off of staff, among others. Nestlé Nigeria Plc suffered a N6.5 billion or 14 per cent profit drop in 2020, closing the year with an after tax profit of N39 billion, the lowest in three years.
The company’s audited financial report for the 2020 operations shows that inability to grow revenue or cut costs was the management’s challenge in the year. Unilever Nigeria Plc, a leading consumer goods company declared in its unaudited annual financial report that it made a loss amounting to N1.59 billion in the year 2020, while its revenue increased to N61.57 billion, up by 1.34 per cent when compared to Year 2019.
For Dangote Sugar Refinery, earnings for the year 2020 were limited by a spike in the cost of sales by 31 per cent from N122.801 billion to N160.552 billion, just as a 112 per cent leap in taxation, on the account of carrying forward deferred tax, capped the company’s gains.
According to its audited financial statements, the company posted a profit after tax of N29.78bn in 2020, compared to N22.36bn in 2019, while pretax profit rose 53 per cent to N45.622 billion from N29.820 billion.
A breakdown of the Nigerian Breweries’ audited results indicated that the Profit after Tax (PAT) recorded for the 2020 financial year stood at N7.52billion representing a significant 53.3 per cent decline from the preceding year, while net revenue increased sharply from N323 billion to N337.01 billion between 2019 and 2020, representing a 4.3 per cent rise.
Guinness Nigeria in its audited results for the period ended June 30, 2021 revealed a 110 per cent increase in profit after tax to N1.25 billion from loss of N12.6 billion reported in full year ended June 30, 2020. The revenue increased 54 per cent to N160 billion in 2021 from N104.4 billion reported in 2020.
While different approaches were applied by many companies to ensure returns on their shareholders’ investment and to remain in business, some of which have been effective as seen in the 2021 half year result, directors’ remuneration still raises eyebrows when compared with the financial strength of the companies.
A review of the remuneration of chief executive officers of some consumer goods companies listed on the Nigerian bourse in the 2020 financial year indicated that some of them are rated among the highest paid CEOs in the country.
Top on the list is Nigerian Breweries. As of 2020, the base salary of Jordi Borrut Bel, the Man- aging Director and CEO of Nigerian Breweries since January 2018, rose 40.23 per cent to N379.39 million. CEO salary had dropped considerably by -44.01 per cent in 2018 from N340.2 million in 2017 to N190.47 million.
In July, Jordi Borrut Bel has handed over to Hans Essaadias the MD/ CEO of the company. In 2020, the CEO of Guinness Nigeria Plc, Baker Magunda, earned N255 million as basic salary, which was 32.12 per cent higher than that of the preceding year.
Baker Magunda, who has served as the CEO of Guinness Nigeria Plc since July 2018, ranks as the eighth highest paid CEO of listed companies in Nigeria when appraising basic pay only. In the past three years, Guinness Nigeria paid an average of N247.47 million as CEO salaries. CEO salary had seen a rise of about 147.85 per cent from N186 million in 2017 to N461 million in 2018 only to plummet in the following year by -58.13 per cent to N193 million in 2019 Carl Cruz, CEO of Unilever Nigeria Plc since February 2020, earned a basic pay of N245 million in the year 2020. Cruz’s predecessor at Unilever Nigeria, Yaw Nsarkoh, had ranked as the highest paid chief executive in the consumer goods sector in 2019.
Between 2016 and 2020, Unilever paid an average of N259 million as CEO salary, although CEO basic pay had risen by 50 per cent from N220 million in 2017 to N330 million in 2018, it decreased by -8.33 per cent in 2019 and subsequently by -19.01 per cent in 2020. The CEO salary is benchmarked with the Euros as the parent company of Unilever Nigeria Plc is Unilever Plc, a British multinational consumer goods company headquartered in London, England.
The multinational revenue as at year 2020 stood at €50.724 billion. As of 2019 when Mauricio Alarcon was the CEO of Nestlé Nigeria Plc, official earnings report showed that he took home a total of N218 million as annual remuneration.
This figure is believed to either be the same or even higher for Wassim El-Husseini, who is the current CEO of Nestlé Nigeria Plc.
Nestle Nigeria is a subsidiary of Nestlé S.A., a Swiss multinational food and drink processing conglomerate corporation headquartered in Vevey, Vaud, Switzerland. The home currency is Swiss Frano (CHF); therefore, the CEO fee is subject to parent company’s currency, which is CHF. As attention is being drawn to directors’ remuneration in the face of the harsh economic downturn that has been impacting negatively on company’s financials, some companies have made it clear that the perceived increase was as a result of foreign exchange variation as most expatriates are paid in their home country currency.
In a statement, Nigerian Breweries noted that its directors did not get a big pay boost amid COVID-19 as portrayed and neither was the basic salary of the Managing Director increased in 2020.
“Like most expatriates working in Nigerian multinationals, our Managing Director’s salary and emoluments are benchmarked in his home country currency, in this case Euros,” the firm said. “As such, the appreciation in the naira value of his salary is largely due to the devaluation of the naira against the Euro in 2020, a factor over which we have no control.”
Shareholders, however, seem unperturbed by the amount paid to directors, which, of course, is subject to shareholders’ approval during a company’s Annual General Meeting (AGM) or any other meeting as appropriate. For the shareholders, in as much as the company is well positioned to pay the directors fee’ without any hassle, and the board of the company is alive to its responsibilities, then the shareholders are rest assured that fee paid meets with the value given.
According to Bisi Bakare of the Pragmatic Shareholders Association, shareholders are not against the payment of salaries to CEOs of companies but such must be done within the ambit of industry practices, organisation emolument structure and must be commensurate to their revenue performance.
“It is inhuman for executive to be paid huge salaries when revenue is going down, cost is rising and stakeholders are not getting returns on their investment. Hence organisations must ensure that executive salaries are tied to performance, standard but not cast in stone,” she said.
Some analysts believe that emolument of directors is subject to the contracts between the company and the subject, which in often times is binding, while noting that paying expatriates in their home currency is a global practice as there are laws that protect expatriates from being shortchanged.
According to David Adonri, an economist and financial expert, since an agreement has been reached to pay CEOs in their home country currency, any attempt to change the contract will amount to a breach.
“The only option would be for the employer and employee to sit down and renegotiate the terms of the contract. If the renegotiated terms are agreeable to the expatriates, there will be changes but if it is not acceptable, there will be no deviance,” he said.
Speaking on the foreign exchange variation which makes the remuneration of the directors to be perceived to be on the increase as a result of the naira devaluation, Adonri noted that this should not in any way affect the fees.
“I don’t think the currency crises that Nigeria is currently facing can be enough reason for the employers to deviate from terms of agreement. Only a renegotiation with the expatriate can solve the problem.”
He however noted that it is only when there is a bilateral agreement between the home country of the expatriate and the country in which they work that the expatriate can accept the local currency, citing an example of the currency swap agreement between Nigeria and China.
Mr Boniface Chizea, an expert from BIC Consultancy, explained that since the companies are quoted on the Nigerian Exchange, they have to run by market given principles, that means that the companies have to pay the agreed fees irrespective of the financial strength of the company at that moment.
He noted that in a case where the company records a decline in profit or loss, since a contract has been signed, the director’s fee is fixed. However, the company can appeal to the director for renegotiation.
“Since it’s in the contract, all that can be done is to appeal to the directors that ‘since we are not doing so well, please, review your salary’.”
Chizea said it is an anomaly for a company not to make profit and be increasing salaries, while adding that the payout of the company must be reflective of the status and performance of the company
Author: Kehinde Adeseinde
