Category: Due Diligence

By Taofik Salako, Deputy Group Business Editor

 

Red Star Express Plc suffered a 16 percent decline in turnover and posted a loss by the end of last year as the courier and logistics company continued to struggle with the adverse impact of the coronavirus (COVID-19) pandemic and operational headwinds.

Latest operational results for the third quarter ended December 31, 2020 showed that turnover dropped by 15.9 per cent. Profit before tax slumped by 97.5 per cent, with tax estimate of N16.5 million throwing the net bottom-line into negative, with net loss after tax of N2.44 million by the close of last year.

The nine-month results provided update on the previous due diligence analysis on full-year results for the period ended March 31, 2020. The third quarter report showed that turnover dropped to N6.60 billion by December 31, 2020 as against N7.84 billion recorded in the comparable period of 2019. Profit before tax declined from N555.18 million in December 2019 to N14.05 million in December 2020. Tax provisions, expectedly, also dropped from N177.66 million in December 2019 to N16.49 million in December 2020. After taxes, the company closed 2020 with net loss of N2.44 million as against net profit of N377.52 million recorded in December 2019.

Audited report and accounts of Red Star Express for the year ended March 31, 2020 had shown that sales rose by 4.8 per cent while cost of sales rose by about eight per cent, leaving the bottom-line almost flat.

 

Financing structure

Red Star Express Group’s total assets rose by 32.1 per cent to N7.33 billion in March 2020 from N5.55 billion in March 2019. Non-current assets had increased by 27.8 per cent from N1.53 billion to N1.95 billion while current assets grew by 33.7 per cent from N4.02 billion to N5.38 billion. Total liabilities stood at N2.95 billion, 6.0 per cent above N2.79 billion recorded in March 2019. With the rights issue during the year, paid up share capital rose by 57 per cent from N295 million in 2019 to N463 million in 2020. Shareholders’ funds thus rose by 58.4 per cent from N2.76 billion to N4.38 billion.

The underlying financing position of the group improved during the period, with higher financing capacity. The proportion of equity funds to total assets improved from 49.8 per cent to 59.7 per cent while the current liabilities/total assets ratio improved from 45.6 per cent to 36.1 per cent. The gearing ratio was almost zero.

 

Efficiency

The company struggled to maintain improved productivity and cost efficiency during the period, but top-line costs impinged on efficiency. Average number of employees reduced from 1,970 in 2019 to 1,876 in 2020.

Staff costs also declined from N607.40 million in 2019 to N569.32 million in 2020. Average staff cost per employee dropped from N0.31 million in March 2019 to N0.30 million in March 2020. However, average pre-tax profit per employee improved marginally from N0.38 million to N0.40 million. With the cost of sales and operating expenses outpacing sales growth, the total cost of business, excluding finance charges, amounted to 95 per cent of total sales in 2020 compared with 93.6 per cent in 2019.

 

Profitability

The nine-month results showed a worsened profitability compared with the previous period. Pre-tax profit margin dropped to 0.21 per cent by December 2020 as against 7.08 per cent in December 2019. It had closed the full-year ended March 31, 2020 at 7.1 per cent.

The full-year analysis had shown a mixed performance during the period with modest growths in actual figures amid declining ratios. Total turnover rose from N10.07 billion in 2019 to N10.55 billion in 2020. Cost of sales grew by 7.9 per cent from N7.29 billion to N7.86 billion. Gross profit thus dropped from N2.78 billion to N2.69 billion. Pre-tax profit was almost flat at N750 million in 2020 as against N744 million in 2019. After taxes, net profit stood at N469 million in 2020 as against N466 million in 2019. The company paid 35 kobo per share dividend for the 2020 business year, 18.6 per cent drop from 43 kobo per share paid for the 2019 business year.

Gross profit margin dropped from 27.6 per cent in 2019 to 25.5 per cent in 2020. Average profit before tax margin slipped from 7.4 per cent to 7.1 per cent. Return on total assets dropped from 13.4 per cent to 10.2 per cent while return on equity declined from 16.9 per cent to 10.7 per cent. Dividend cover meanwhile improved from 1.8 times to 2.0 times.

 

Liquidity

The liquidity position of the group improved considerably, with better financial coverage for emerging liabilities and adequate working capital. Current ratio, which essentially measures the capacity of the balance sheet to meet emerging financing obligations, improved from1.6 times in 2019 to two times in 2020. The proportion of working capital to total sales increased to 25.9 per cent in 2020 as against 14.8 per cent in 2019. Debtors/creditors ratio stood at 285.8 per cent last year compared with 361.5 per cent the previous year.

 

Governance & structures

Red Star Express was incorporated as a private limited liability company in 1992. It became a public limited liability company and was quoted in 2007. Owned by Nigerian institutional and individual investors, the major core investor in Red Star Express is Dr. Mohammed Koguna. Koguna, through direct and indirect holdings, holds some 33.61 per cent equity stake. In all, Red Star Express has 4,467 shareholders.

Red Star Express Group includes three subsidiaries; Red Star Logistics Limited, Red Star Freight Limited and Red Star Support Services Limited.

Red Star Express complied with all relevant codes of corporate governance. Alhaji Suleiman Barau, a former Deputy Governor of Central Bank of Nigeria (CBN) is the Chairman the board while Mr. Olusola Obabori leads the executive management team as Group Managing Director.

Red Star Express operates defined charity programmes, including the Red Star Foundation, which receives 0.5 per cent of net earnings yearly for scholarships in public secondary schools.

 

Analyst’s opinion

The latest third quarter results further underscored the need for Red Star Express to consolidate its diversification strategy and break new market to drive growth and improve bottom-line. While the analyst had noted the negative impact of COVID-19 pandemic on the company’s first quarter results for the period ended June 30, 2020, the third quarter results drove home the pain points. The three-month ended June 30, 2020 had shown that sales dropped from N2.53 billion in June 2019 to N1.42 billion in June 2020. The group posted pre and post tax losses of N217.86 million and N224.96 million in 2020 as against pre and post tax profits of N198.24 million and N134.80 million in 2019.

The need for the company to increase sales substantially to provide headroom for profit growth cannot be overemphasised. While expecting the deployment of the net proceeds of the 2020 recapitalisation to strengthen operational base, the latest results reinforce analyst’s position on the need for a long-term strategic diversification to stay ahead of the declining curves.

By Taofik Salako, Deputy Group Business Editor

 

Vitafoam Nigeria Plc drew on increasing cost efficiency to optimise modest sales growth into significant improvement in profitability, enabling the company to increase cash payouts by about 67 per cent while providing four-fold assurance on dividend sustainability. With the exception of a tint of increased gearing, the foam-manufacturing group recorded a well-rounded performance with considerable improvements in sales, profitability, returns and balance sheet strength.

Audited report and accounts of Vitafoam Nigeria for the year ended September 30, 2020 showed that total sales rose by 5.2 per cent while 8.1 per cent drop in cost of sales and 11.4 per cent reduction in finance cost boosted the overall bottom-line performance. With 8.4 percentage points added to underlying profit margin, the board of directors increased dividend payout by 67 per cent, putting the company’s yield considerably above current rates in the fixed-income markets. At N7.25, the net assets per share provided a base for possible further re-pricing of the company’s shares at the stock market.

 

Financing structure

Group total balance sheet size grew by 56.5 per cent from N13.82 billion in 2019 to N21.64 billion in 2020. Total assets growth was driven by significant increases in current and non-current assets. Total liabilities also rose by 60.4 per cent from N7.85 billion in 2019 to N12.6 billion in 2020. While the paid up share capital remained unchanged, total equity funds rose by 51.4 per cent from N5.97 billion to N9.04 billion. With 35 per cent increase in bank loans, the group’s financing structure showed slight increase in leverage, though the internal financing structure remained considerably high. The proportion of equity funds to total assets dropped from 43.2 per cent in 2019 to 41.8 per cent in 2020. Long-term liabilities/total assets ratio declined from 56.8 per cent in 2019 to 58.2 per cent in 2020. Current liabilities also increased to 39.8 per cent of total assets in 2020 as against 37.3 per cent in 2019. Debt-to-equity ratio declined to 46.3 per cent in 2020, as against 35.9 per cent recorded in 2019.

 

Efficiency

Staff productivity and cost efficiency improved considerably during the year, providing the headroom for increased profitability and returns to shareholders. Total number of employees increased from 607 persons in 2019 to 652 persons in 2020. Total staff costs also improved from N1.92 billion to N2.05 billion. Average contribution of each employee to pre-tax profit rose from N5.76 million in 2019 to N8.66 million in 2020. Average staff cost per head however slipped marginally from N3.16 million in 2019 to N3.14 million in 2020. Total cost of business, excluding finance charges, in relations to sales improved from 81.8 per cent in 2019 to 75.1 per cent in 2020.

 

Profitability

Vitafoam recorded well-rounded profitability with modest sales growth, despite the adverse impact of COVID-19 pandemic. Turnover rose by 5.2 per cent from N22.28 billion to N23.44 billion. Cost of sales dropped by 8.1 per cent from N13.52 billion to N12.43 billion. Gross profit thus rose by 25.7 per cent from N8.76 billion to N11.01 billion. Administrative and marketing expenses increased by 10 per cent to N5.18 billion in 2020 as against N4.71 billion in 2019. Non-core business income rose by 52 per cent from N491 million to N745 million. Interest expenses reduced by 11.4 per cent from N1.05 billion to N930 million. With these, profit before tax rose by 61.5 per cent from N3.5 billion to N5.6 billion. After taxes, net profit also jumped by 72 per cent from N2.39 billion to N4.11 billion. Basic earnings per share thus increased from N1.82 to N3.05. Net assets per share rode on the back of high retained earnings to N7.25 in 2020, 54.3 per cent above N4.70 recorded in 2019.

With the expansive growth in the bottom-line, the board of the company has recommended distribution of N979.4 million as cash dividends for 2020, 64.5 per cent above N595.4 million paid for the 2019 business year. This implied a dividend per share of 70 kobo for 2020 as against 42 kobo paid in 2019.

Underlying ratios showed similar positive outlook. Gross profit margin increased from 39.3 per cent to 47 per cent. Pre-tax profit margin- which measures average profit per unit of sales and serves as a major indicator of profitability, leapt to 24.1 per cent in 2020 as against 15.7 per cent in 2019. Return on total assets improved from 25.3 per cent to 26.1 per cent. Return on equity also increased from 40 per cent to 45.4 per cent. Even with the increase in dividend payout, the sustainability improved with a dividend cover of 4.36 times in 2020 as against 4.33 times in 2019.

 

Liquidity

The liquidity position of the company improved considerably during the period with better financial coverage and working capital. Current ratio, which relates easily available finances to similar liabilities, increased from 1.6 times in 2019 to 1.8 times in 2020. The proportion of working capital to total sales improved from 12.8 per cent to 30.8 per cent. Debtors/creditors ratio stood at 111.1 per cent in 2020 compared with 245.5 per cent in 2019.

Governance and structures

Vitafoam Nigeria is Nigeria’s leading foam-manufacturing group. Incorporated on August 4, 1962 and listed on the Nigerian Stock Exchange (NSE) in November 1978, Vitafoam is a wholly Nigerian-owned company with highly diversified shareholding structure. Vitafoam engages in manufacturing and distribution of flexible, reconstituted and rigid foams, all in various forms and designs that make the group a one-stop cushion supermarket. It had recently integrated a wide range of furniture designs and related products, providing the group a lifelong value chain of birth, education, work and leisure. With subsidiaries in Ghana and Sierra Leone, other subsidiaries in Nigeria include Vita Blom, Vita Visco and Vitapur.

There were no changes in the board and management of the company. Mr. Bamidele Makanjuola remains the chairman while Mr Taiwo Adeniyi still leads the executive management as group managing director. The company broadly complies with the extant code of corporate governance for public companies.

 

Analyst’s opinion

The latest audited report showed resilience and underscored the focused investments and expansions in value-adding businesses. In the increasingly competitive and constraining business landscape, companies with diversified products and long-established cost management structure stand greater chance of winning the headwinds. There is considerable untapped potential in the group’s emerging protective and insulation businesses while the foam, bedding and furniture businesses are in strong market-leading positions. Expected boost in intra-Africa trade should further open up opportunities to scale up market share. Overall, the outlook is positive.

 

 

By Taofik Salako, Deputy Group Business Editor

 

Cutix Plc suffered decline in sales and profitability in 2020 as rising loans compounded tough operating environment to cut the bottom-line by double digits. Both actual figures and underlying profitability ratios showed a generally negative performance while the balance sheet indicated increasing financial leverage.

Audited report and accounts of Cutix for the year ended April 30, 2020 showed 7.5 per cent decline in sales while profit dropped by about 18 per cent. A general decline in underlying returns belied the retention of dividend payout rate, despite the decline in actual net profit. However, the liquidity position of the cables and wire company improved during the period.

Financing structure

Total assets rose by 26.8 per cent to N3.63 billion in 2020 as against N2.86 billion in 2019. This was driven mainly by 40 per cent growth in current assets from N1.98 billion to N2.77 billion. Long-term assets had dropped by 2.1 per cent to N862.4 million in 2020 as against N880.4 million in 2019. Fixed assets had declined by 7.0 per cent from N874.2 million to N813.2 million. Meanwhile, total liabilities rose by 46 per cent from N1.25 billion to N1.82 billion. Current liabilities had increased from N1.03 billion to N1.31 billion while long-term liabilities increased by 136 per cent from N215.75 million to N508.5 million. While paid up share capital remained unchanged at N880.66 million, paid up share capital rose by 12 per cent from N1.61 billion to N1.81 billion.

The overall financing position of the company weakened during the year with less equity coverage and higher debt. The proportion of debt to equity declined from 40.7 per cent in 2019 to 43.0 per cent in 2020. Equity funds amounted to 49.8 per cent of total assets in 2020 as against 56.4 per cent in 2019. Liabilities also increased as a percentage of total assets.

Efficiency

Average contribution of employees to the bottom-line declined in 2020 while operating cost efficiency also dropped during the period. Total number of employees increased from 249 persons to 255 persons. Total staff costs however dropped from N397.44 million to N372.42 million. Average staff cost per employee thus dropped from N1.60 million in 2019 to N1.46 million in 2020. Average pre-tax profit per employee however declined from N2.73 million to N2.30 million. Total cost of business, excluding financing cost, rose marginally to 86.1 per cent of total sales in 2020 as against 85.8 per cent in 2019. Total liabilities/earnings before interest and taxes ratio stood at 246.8 per cent in 2020 as against 158.7 per cent in 2019.

Profitability

A 28 per cent decline in armoured cable sales in 2020 overshadowed the top-line while a 42 per cent increase in interest expense mitigated other cost reductions, leaving the bottom-line negative. Total turnover dropped by 7.5 per cent from N5.43 billion in 2019 to N5.03 billion in 2020. The main business segment of cables and wires had improved marginally by 2.6 per cent from N3.64 billion to N3.74 billion. Armoured cable sales however dropped from N1.79 billion to N1.28 billion. Cost of sales meanwhile dropped by 5.4 per cent from N3.79 billion in 2019 to N3.58 billion in 2020. Gross profit thus dropped by 12.5 per cent to N1.44 billion as against N1.65 billion. Operating expenses declined by 14.6 per cent from N872.2 million to N744.9 million, achieved through general reduction in overheads, including staff salaries. Interest and other incomes rose by 106 per cent from n13.9 million to N41.1 million. The major drag for the account was however 42.4 per cent increase in interest expense from N107.2 million to N152.7 million. With these, profit before tax dropped by 14 per cent from N679.3 million to N585.5 million. Profit after tax also dropped by 18 per cent to N393.1 million in 2020 as against N477.1 million in 2019. Expectedly, basic earnings per share dropped by 18 per cent from 27.09 kobo to 22.32 kobo.

 

While the company retained its dividend payout of N220.2 million, a dividend per share of 12.5 kobo, dividend cover reduced from 2.17 times to 1.79 times. Underlying returns were also generally lower. Return on total assets dropped from 23.7 per cent in 2019 to 16.1 per cent in 2020. Return on equity also declined from 29.6 per cent to 21.8 per cent. Gross profit margin had dropped from 30.3 per cent to 28.7 per cent while pre-tax profit margin dipped to 11.6 per cent in 2020 as against 12.5 per cent in 2019.

Liquidity

The liquidity position of the company improved in 2020 with more working capital and ability to meet emerging financing needs. Current ratio, which measures the ability of the current assets to meet relevant current liabilities, improved from 1.9 times to 2.1 times. The proportion of working capital to total sales improved from 17.5 per cent to 28.9 per cent. Debtors/ creditor ratio stood at 496.3 per cent in 2020 as against 319.2 per cent in 2019.

Governance and structure

Incorporated in 1982, Cutix is an indigenous company wholly owned by Nigerians, the first private manufacturing company East of the Niger to be publicly quoted at the stock market. It had gradually transformed from a private limited liability company formed and owned by friends and family members to become a publicly quoted company, with commendable succession generations of owners and managers. Ambassador Okwudili Nwosu remains the chairman of board of directors while Mrs Ijeoma Oduonye leads the executive management as chief executive officer. While the founder, Dr Ajulu Uzodike obviously still holds considerable influence, the company has continuously made progressive changes to deepen corporate governance and best practices, including recent appointment of independent and non-executive directors.

With more than 7,500 shareholders, there are six major shareholders holding a total of 39.09 per cent equity stake. Cutix is a widely traded stock with more than 56 per cent free float, as against minimum required float of 20 per cent for the main board at the Nigerian Stock Exchange (NSE). The company has largely complied with extant code of corporate governance and best practices.

Analyst’s opinion

The Nigerian cables and wires industry faces major challenge of fake products, poor domestic regulation and global dumping. These compound the generally tough macroeconomic environment, denoted by high costs of operations. Inflation, foreign exchange crisis and decline in purchasing power, on the individual side, and decline in government revenue, have reduced the intensity of activities in the capital projects segment, where companies like Cutix operate. However, Cutix’s performance was also adversely affected by increasing financial leverage and the resultant costs. Recent diversification of product base, including production of solar cables; acquisition of Adswitch and cost containment measures are expected to support performance in the period ahead. There is still reasonable ground to be optimistic about a recovery in the period ahead.

 

By Taofik Salako Deputy Group Business Editor

 

University Press (UP) Plc recorded decline in sales but improved cost and internal operating efficiency supported the bottom-line, enabling the printing and publishing company to sustain dividend payout.

Audited report and accounts of UP for the year ended March 31, this year showed that sales dropped by 10.8 per cent during the period. However, cost of sales and operating expenses also reduced considerably, with a zero-leveraged balance sheet supporting the profit and loss accounts to overall positive performance outlook.

Underlying profitability and returns ratios were generally positive, with four percentage growth in gross profit margin.

The board of the company has recommended distribution of N64.71billion to shareholders as cash dividend for the business year, representing a dividend per share of 15 kobo.

 

Financing structure

Total assets dropped marginally from N3.49 billion in 2019 to N3.47 billion in 2020. The decline was due to 5.9 per cent drop in non-current assets from N1.55 billion to N1.46 billion. Current assets had risen by 3.7 per cent from N1.94 billion to N2.01 billion. Total liabilities also declined by 9.2 per cent from N876 million to N795 million. Long-term liabilities had dropped by 18.2 per cent from N134 million to N109 million while current liabilities declined by 7.6 per cent from N741.9 million to N685.4 million. While paid up share capital remained unchanged at N215.71 million, shareholders’ funds rose by 2.4 per cent from N2.61 billion to N2.67 billion.

The underlying financing structure improved during the period. Equity funds/total assets ratio improved from 74.9 per cent to 77.1 per cent. With zero gearing ratio, current liabilities/total assets ratio improved from 21.3 per cent to 19.8 per cent.

 

Efficiency

Total number of employees increased from 272 persons in 2019 to 281 persons in 2020. Staff costs however dropped from N541.7 million in 2019 to N448.8 million in 2020. Staff cost per employee thus dropped from N1.99 million to N1.60 million. Average pre-tax profit per employee meanwhile improved from N0.61 million to N0.63 million. Total costs of business reduced to 93.5 per cent of total sales in 2020 as against 95.7 per cent in 2019, providing greater margins for profitability.

Profitability

Underlying profitability ratios were generally positive, underlining the advantage of internal and cost efficiency in a sluggish market. Gross profit margin improved from 54.8 per cent in 2019 to 59.1 per cent in 2020. Average pre-tax profit margin- which measures the profit-making capability of the company, increased from 7.1 per cent to 8.6 per cent. Return on total assets rose from 4.7 per cent to 5.1 per cent. Return on total equity inched up from 4.2 per cent to 4.8 per cent.

Basic earnings per share increased from 25.27 kobo in 2019 to 29.48 kobo in 2020. Net assets per share also rose marginally from N6.05 in 2019 to N6.19 in 2020.The board of the company has recommended payment of N64.71 million to shareholders as cash dividend for the 2020 business year, the same amount paid for 2019.

After approval at the Annual General Meeting (AGM), shareholders will receive a dividend per share of 15 kobo, the same rate like the previous year. Meanwhile, dividend cover improved from 1.69 times to 1.97 times.

Total turnover had dropped by 10.8 per cent from N2.32 billion in 2019 to N2.07 billion in 2020. Cost of sales meanwhile declined by 19.2 per cent from N1.05 billion to N845 million. Gross profit reduced by 3.9 per cent from N1.27 billion to N1.22 billion. Operating expenses dropped by 7.2 per cent from N1.17 billion to N1.09 billion. Non-core business income declined by 35 per cent from N66.1 million to N43.2 million. Profit before tax rose by 7.6 per cent from N165.5 million to N178.1 million. After taxes, net profit rose by 16.7 per cent from N109 million to N127.2 million.

 

Liquidity

UP remains a considerably liquid company with sufficient capacity to meet its operational financing needs, without recourse to creditors. Current ratio- which measures the sufficiency of current assets against current liability, improved from 2.6 times in 2019 to 2.9 times in 2020. Working capital/sales ratio increased to 64 per cent in 2020 as against 51.6 per cent in 2019. Debtors/creditors ratio stood at 216.4 per cent in 2020 compared with 439.2 per cent last year.

 

Governance and structures

Incorporated in August 1978, UP commenced operations in Nigeria as a branch of Oxford University Press in 1949. The principal activity of the company is mainly publishing, sales and distribution of educational books and materials. With 11,635 shareholders, UP is quoted on the main board of the Nigerian Stock Exchange (NSE). Shareholding analysis indicated that Oxford University Press UK holds 14.10 per cent equity stake while Nigerian investors hold the remaining 85.90 per cent equity stake. The largest Nigerian shareholdings are held by Awhua Resources Limited, 9.31 per cent and former chairman of the company, Dr Lalekan Are, 6.28 per cent.

The 10-man Board of Directors is chaired by Mr. Obafunso Ogunkeye while Mr. Samuel Kolawole remains the Managing Director. Mr. Ganiyu Adebayo is Executive Director for Finance while Mrs. Folakemi Bademosi serves as Executive Director for Publishing. The company complies generally with extant codes of corporate governance and global best practices.

Analyst’s opinion

The printing and publishing industry is facing tough operating environment. Piracy, dumping of substandard materials, declining consumer purchasing power, unstable educational system and insufficient educational budgets across the many tiers of government and lack of fiscal incentives painted a challenging operating environment. This is compounded by fast-paced technological changes that are taking educational books and materials from their traditional commoditised form to global apps and e-forms. First quarter results for the period ended June 30, 2020 showed that sales dropped from N95.94 million in 2019 to N32.01 million. It posted loss of N108.03 million in 2020 as against loss of N144.5 million in 2019. Meanwhile, earnings forecasts for the third quarter ending December 31, 2020 indicated turnover off N1.70 billion, gross profit of N954.59 million, profit before tax of N221.9 million and profit after tax of N151.18 million. These indicate that the company may sustain its bottom-line performance, in spite of the sluggish top-line. UP needs to quickly leverage its existing franchise and foreign interest to take a leading position in the electronic books and education segment, especially in the area of tamper-proof assessment systems.

 

By Taofik Salako, Deputy Group Business Editor

Four years of continuous losses, declining sales and huge indebtedness, UACN Property Development Company (UPDC) Plc appeared to have hit the bottom, but a far-reaching restructuring of the businesses and balance sheet of the real estate company appeared to offer a glimpse of hope.

Audited report and accounts of UPDC for the year ended December 31, 2019 showed a net loss of N15.9 billion with net assets per share depreciating to a low of 80 kobo per share. The external auditors, Ernst & Young, noted the precarious position and the high degree of uncertainty around the company in its latest audit report. But UPDC is pulling down the structure and recasting its foundation. From equity recapitalisation to planned divestment from unprofitable non-core hospitality business and sale of majority equity stake to a new core investor, UPDC has taken major measures to restore its balance.

Financing structure

Total assets dropped by 37.7 per cent from N46.5 billion in 2018 to N28.9 billion in 2019. Total liabilities, however, dropped marginally by 5.8 per cent from N28.4 billion to N26.8 billion. While the paid up share capital remained unchanged at N1.30 billion, total equity funds declined by 88 per cent from N18.1 billion to N2.17 billion. Bank loans increased 35.3 per cent from N14.3 billion to N16.5 billion.

Current liabilities continued to override current assets. Current assets stood at N11.14 billion against current liabilities of N21.6 billion in 2019 compared with N13.8 billion and N23.3 billion respectively in 2018. The underlying financing structure showed a highly geared company with less financing capacity to meet its obligations without its creditors.

The proportion of equity funds to total assets dropped from 39 per cent in 2018 to 7.5 per cent in 2019. Debt-to-equity ratio spiraled to 761.6 per cent in 2019 as against 79.2 per cent in 2018. Current liabilities amounted to three-quarters of total assets in 2019 compared with two-quarters the previous month.

 

Efficiency

Total staff costs reduced to N345.53 million in 2019 as against N395.83 million in 2018. Average number of employees had dropped from 299 persons to 258 persons. Average staff cost per employee thus stood at N1.34 million in 2019 as against N1.32 million in 2018. The reduction in number of employees was mainly due to 41 per cent decrease in management staff.

Fees and emoluments of directors dropped from N130.06 million to N57.63 million. Average staff productivity declined considerably during the period with pre-tax loss per employee rising from N44.3 million in 2018 to N62.8 million in 2019.Total cost of business-excluding financing charges in relation to sales improved, driven mainly by significant reduction in administrative expenses.

 

Profitability

Total turnover dropped by 6.3 per cent from N2.30 billion to N2.16 billion, the third consecutive decline in top-line. The decline was driven largely by reduction in property sales and rental income and management. Cost of sales outstripped turnover, leaving gross loss higher at N878 million in 2019 as against N862 million in 2018. This set the stage for the fourth consecutive negative bottom-line. While operating expenses and interest expenses reduced considerably, the sluggish top-line saw pre-tax loss rising by 22.3 per cent from N13.24 billion to N16.20 billion. After taxes, net loss rose marginally by 5.5 per cent from N15.06 million to N15.88 million. Loss per share stood at N6.12 in 2019 as against N5.79 in 2018. Net assets per share slumped to 80 kobo in 2019 as against N6.90 in 2018. Underlying profitability ratios worsened during the period.

Gross profit margin compressed further from -37.4 per cent in 2018 to -40.7 per cent in 2019. Pre-tax profit margin stood at negative -750.4 per cent in 2019 as against -575.1 per cent in 2018.

Expectedly, returns were negative, showing continuing erosion of shareholders’ value. Return on total assets stood at -56.0 per cent in 2019 as against -28.5 per cent in 2018. Return on equity worsened from -83.4 per cent to -731.3 per cent.

Liquidity

The liquidity position of the real estate company weakened further during the period. Current ratio, which broadly indicates ability of the company to meet emerging financing needs, dropped to 0.5 times in 2019 as against 0.6 times in 2018. The proportion of working capital to total sales remained negative, rising from -414.2 per cent in 2018 to -485.7 per cent in 2019. Debtors/creditors ratio stood at 51.9 per cent in 2019 as against 76.5 per cent in 2018.

 

Governance and structures

UPDC, the flagship real estate development company quoted on the Nigerian Stock Exchange (NSE), was spun off from UAC of Nigeria in 1997 and subsequently listed on the NSE. UACN holds 64.16 per cent majority equity stake while FBN Quest Trustees Limited holds the second single largest stake of 5.72 per cent.

Other corporate bodies hold some 15.86 per cent while individual shareholders hold remaining 14.25 per cent equity stakes.

Meanwhile, as part of the restructuring of the company, UACN has commenced the sale of 51 per cent majority equity stake in UPDC to Custodian Investment Plc, an insurance-led investment group quoted on the NSE. UPDC has also commenced the process to sell its hospitality business, in its bid to focus mainly on real estate development and facilities management.

Group Managing Director of UACN, Mr Fola Aiyesimoju, also presides over UPDC as Chief Executive Officer. Mr Babatunde Kasali remains the chairman of the eight-man board of directors.

 

Analyst’s opinion

The overall outlook remains uncertain, although extensive and focused restructuring initiatives by the board and management raise optimism. By the first quarter of the year, turnover had dropped from N507.75 million in first quarter 2019 to N239.74 million in first quarter 2020.

Loss before tax however reduced from N967.72 million in first quarter 2019 to N780.68 million in first quarter 2020. In its latest report and accounts, for the half year ended June 30, 2020, turnover slumped to N346.54 million in first half 2020 as against N1.49 billion in first half 2019. Loss before tax doubled from N1.03 billion in 2019 to N2.04 billion in 2020.

The board of directors is implementing a four-point corporate strategy to restructure and redevelop the company. These strategic initiatives include growing operating income, capital structure and cash flow management, cost optimisation and development of new projects. UPDC last week announced the transfer of its facility management business to a new stand-alone subsidiary. The overall outlook for the real estate industry is a bitter-sweet scenario, with large housing gap encumbered by declining purchasing power, poor mortgage system and unsustainable financial structure. The linchpin in UPDC’s strategy appears to be amenable finance, suitable long-term capital that allows the company to scale up in both the exquisite and mass market, while providing affordable options for customers.