Firms Cut Administrative Expenses to Survive Tough operating times

Faced by the rising inflation and other costs of operations, quoted companies have resorted to cutting administrative and personnel costs to maintain healthy bottom-line for the half year ended June 30, 2016.

Companies have been contending with challenging operating environment characterized by weak infrastructure, energy crisis and inadequate Forex. These factors have driven inflation to record high, hitting 16.5 per cent at the end of June.

Ordinarily, this development ought to have further driven up the operating costs of companies. However, THISDAY checks showed that the companies that have so far released their results for the H1, adopted cost cutting strategies in order to remain profitable. One area of their focus in the cost cutting is administrative and personnel expenses.

For instance, leading brewing firm, Nigerian Breweries Plc reduced its administrative expenses by 5.9 per cent from N11.533 billion in H1 of 2015 to N10.849 billion in 2016. United Capital Plc reduced its personnel expenses by 7.5 per cent from N359 million in 2015 to N332 million in 2016. Also, Chams Plc’s administrative expenses fell by 25 per cent from N764 million in 2015 to N566 million, while Pharma Deko Plc reduced its administrative expenses by 6.3 per cent to N330 million to N309 million.

The National Bureau of Statistics (NBS) said headline inflation rose to 16.5 per cent at the end of June 2016, from 15.60 in May. According to the NBS, most divisions that contribute to the headline index increased at a faster pace with slower increases in the recreation & culture, restaurant & hotels, and miscellaneous goods & services divisions.

The steep rise in other energy products (PMS, gas and diesel) where also said to be the primary sources of inflationary pressure and to the upsurge in general prices.

The highest price increases in the month were recorded in the housing water, electricity & utilities and the imported food sub-division which rose by 24 and 20 per cent, respectively.

“Month on month inflation eased by 110 bps, an indicator of the fact that the recent forex liberalisation and ensuing 45 per cent Naira depreciation at the interbank market had little impact on prices as many product prices already reflect higher parallel market exchange rate,”   analysts at WSTC Financial Services Limited, said.

They added that YoY change in general prices is expected to remain high in the months ahead as the underlying inflationary factors continue to run their full course.

“We expect the high inflation rate and uptrend to be of key concern and to drive policy discourse at the forthcoming monetary policy committee meeting scheduled to hold on July 25 & 26, 2016. 

Clearly, rising inflation amid weak economic performance presents a conundrum for the CBN. Thus, given the growth concerns and cost-push inflationary trend, we do not expect the CBN to address rising inflation through an increase in interest rate,” they said.

Culled from thisday