The Nation Newspaper

Category: Due Diligence

  • CCNN: Improved performance

    CCNN: Improved performance

    Cement Company of Northern Nigeria (CCNN) Plc rode on the back of improved productivity and efficiency to strengthen its overall performance outlook. Audited and emerging earnings reports indicated significant improvements in actual and underlying returns of the cement-manufacturing company. Audited report and accounts of CCNN for the year ended December 31, 2013 showed that a more efficient cost management and appreciable growth in sales underpinned substantial growth in profit and returns to shareholders. Gross and pre-tax profit margins improved from 28.1 per cent and 10.9 per cent in 2012 to 31.8 per cent and 12.5 per cent respectively in 2013.

    With 19 per cent increase in profit after tax, the company has earmarked N880 million as cash dividends to shareholders for the 2013 business. While sales had grown by 4.4 per cent, declines in cost of sales and finance expenses as well as containment of the operating expenses impacted positively on the bottom-line.

    Besides, the report also showed considerable improvements in financing structure and liquidity, providing a positive balance sheet support that enabled top-line performance to trickle down into substantial earnings to shareholders. The company halved its gearing ratio and further increased equity funding just as liquidity improved to a new high.

     

    Financing structure

    CCNN restructured its balance sheet in 2013 with significant reduction in bank loans and other liabilities. With about 46 per cent decline in bank loans, current liabilities dropped by about 19 per cent. This reduced the total liabilities by 9.2 per cent.

    The financing position showed low financial leverage and significant improvement in equity funding. The company’s debt-to-equity ratio dropped from 15.9 per cent in 2012 to 7.5 per cent in 2013 while the proportion of equity funds to total assets increased to 60.2 per cent in 2013 as against 53.6 per cent in 2012. Current liabilities/total assets ratio improved from 36.5 per cent to 28.1 per cent while long-term liabilities/total assets stood at about 40 per cent per cent in 2013 as against 46.4 per cent in 2012.

    CCNN’s total assets had increased by 5.7 per cent from N14.24 billion in 2012 to N15.06 billion in 2013. Permanent assets had improved by 9.2 per cent from N6.50 billion to N7.10 billion while current assets inched up from N7.74 billion to N7.96 billion. Meanwhile, total liabilities dropped from N6.60 billion to N6 billion. The paid up share capital remained unchanged at N628 million while shareholders’ funds grew by 18.6 per cent to N9.06 billion as against N7.64 billion in previous year.

     

    Efficiency

    The company’s performance outlook showed dual benefits of improved productivity and cost efficiency. The company optimized modest increase in average cost into substantial improvement in average productivity, resulting in wider margin for value creation. Total costs of business, excluding financing charges, reduced to 91.3 per cent of total sales in 2013 as against 94.4 per cent in previous year. While average cost per staff increased from N4.33 million to N5.11 million, average contribution of each employee to pre-tax profit also trended upward from N4.32 million to N5.20 million. Average number of employees stood at 379 persons in 2013 as against 383 persons in 2012. Aggregate staff cost also dropped correspondingly from N220.44 million in 2014 to N175.9 million.

    The profit outlook of the company improved appreciably during the year with both actual and underlying profitability ratios showing corresponding performance. Underlying profitability indices showed a generally positive outlook. Gross profit margin improved from 28.1 per cent in 2012 to 31.8 per cent in 2013. Average pre-tax profit per every unit of sales increased from about 10.9 per cent to 12.5 per cent. Return on total assets improved from 11.6 per cent to 13.1 per cent. Return on equity was steady at 15.7 per cent.

    The underlying performance reflected the improvements in the operations and productivity of the company as well as increase in its cost management. Total sales reached a new high at N15.8 billion in 2013 compared with N15 billion in 2012. Cost of sales meanwhile slipped marginally from N10.88 billion to N10.77 billion. Gross profit thus rose by 18 per cent from N4.24 billion to N5.02 billion. Operating expense was curtailed at N3.64 billion in 2013 as against N3.40 billion in 2012. While non-core business income dropped by 22 per cent from N958 million to N743 million, the reduction in interest expenses counterbalanced the negative effect. Finance expenses dropped to N147 million as against N152.

    With all these, profit before tax rose by 19.2 per cent to N1.97 billion in 2013 as against N1.65 billion in 2012. Profit after tax also grew by 19.1 per cent to N1.42 billion compared with N1.20 billion in the previous year. Basic earnings per share thus improved from 95 kobo to N1.13. The board of the company has recommended distribution of N880 million as cash dividends, implying a dividend per share of 70 kobo. It did not pay any dividend in the previous year. The dividend outlook remained substantially high at 1.61 times.

     

    Liquidity

    The liquidity position of the company improved substantially during the period with better coverage for emerging liabilities and increased working capital relative to operations. Current ratio, which indicates ability of the company to meet emerging financing needs by relating current assets with relevant liabilities, improved from 1.49 times in 2012 to 1.88 times in 2013. The proportion of working capital to total sales also improved from 16.8 per cent in 2012 to 23.6 per cent in 2013. Debtors/creditors ratio stood at 3.8 per cent in 2013 as against 1.3 per cent in 2012.

    Governance and structures

    Incorporated in August 1962, CCNN commenced business operations in 1967. A wholly-owned Nigerian company with more than 35,000 shareholders, CCNN’s shares were listed on the Nigerian Stock Exchange (NSE) in October 1993.

    BUA International Limited-through its wholly-owned subsidiary-Damnaz Cement Company, holds 50.72 per cent majority equity stake. Nasdal Bap Nigeria Limited holds the second largest equity stake of 11.48 per cent.

    There were no major changes on the board and management of the company. Alhaji Abdulsamad Rabiu, the president of BUA International, chairs l the board of directors while Mr. Alf Karlsen remains the managing director and chief executive. CNN has signed on to the code of corporate governance. Broadly, the company complied with relevant provisions of the code.

    Analyst’s opinion

    Against the background of the difficult operating environment characterized by the lingering insurgency in the Northern market and the epileptic power supply, the performance of CCNN shows a reassuring outlook. Latest reports have underlined the success of sustained growth initiatives and reassured on the prospects of the company in the years ahead. In 2013, CCNN had successfully reintroduced biomass as a supplementary kiln fuel, which helped in reducing energy costs. The company has also jump-started its capacity expansion programme while simultaneously working to convert existing production line to solid fuels like coal.

    Already, emerging earnings reports for the current business year have shown a stronger upward growth trajectory. Interim report and accounts of CCNN for the six-month period ended June 30, 2014 showed that sales rose by seven per cent in first half 2014 to N9.39 billion as against N8.81 billion recorded in corresponding period of 2013. Profit before tax almost doubled from N1.22 billion to N2.34 billion. Profit after tax showed similar performance, rising from N832.1 million in first half 2013 to N1.59 billion in first half 2014.

    With the growth initiatives by CCNN and the positive industry outlook of the cement industry, there is reasonable basis to assume that CCNN would sustain improved performance in the years ahead.

     

     

     

  • UACN: Improved returns

    UACN: Improved returns

    UAC of Nigeria (UACN) Plc, Nigeria’s largest conglomerate, is on a stronger footing as it continued to reap from recent business restructuring and acquisitions. Audited report and accounts of UACN for the year ended December 31, 2013 underlined the benefit of the conglomerate’s focus on the food business, which served as a catalyst for overall performance. The 20 per cent growth in sales from the food and beverages business segment moderated decline in revenue from real estate and disposal of the motor vehicle business. Group sales rose by 13 per cent to create headroom for pre and post tax profits, which rose by 30.4 per cent and 39.4 per cent respectively.

    Intrinsic profit and loss items showed a generally positive outlook. With almost three percentage points increase in pre-tax profit margin, actual and underlying returns were all on the upside. The improvement in profitability reflected on actual dividends to shareholders as the company increased cash distribution from N2.56 billion in 2012 to N3.36 billion in 2013. Returns on total assets rose from 8.7 per cent to 11.2 per cent while return on equity increased from 11.7 per cent to 13.9 per cent.

    The balance sheet position of the conglomerate remained stable with increased equity funding for assets. However, the company’s liquidity and financing structure were still tepid.

     

    Financing structure

     

    UACN’s paid up share capital increased by 20 per cent from N800 million in 2012 to N960.4 million in 2013. The increase was due to a bonus issue of one for five shares distributed in 2013. Group’s shareholders’ funds rose by about 18 per cent from N60.60 billion in 2012 to N71.32 billion in 2013. Total assets increased marginally to N125.02 billion in 2013 as against N122.98 billion in 2012. Total liabilities meanwhile declined by about 14 per cent from N62.38 billion to N53.70 billion in 2013.

    The financing outlook of the conglomerate was stable. The modest increase in gearing ratio was subdued by considerable improvement in equity funding. The proportion of equity funds to total assets increased from 49 per cent in 2012 to 57 per cent in 2013. Debt-to-equity ratio however rose from 25.2 per cent to 28.4 per cent. Long-term liabilities/total assets ratio stood at 43 per cent in 2013 as against 51 per cent in 2012. Current liabilities/total assets ratio was stable at 34 per cent in 2013 as against 35.7 per cent in 2012.

     

    Efficiency

     

    UACN right-sized its workforce during the year, a realignment that impacted positively on productivity.  Average number of employees decreased to 2,197 persons in 2013 as against 2,269 persons in 2012. Total staff costs meanwhile increased from N5.54 billion to N6.50 billion, implying an average cost per head of N2.96 million in 2013 as against N2.44 million in 2012. Average contribution of each employee to pre-tax profit meanwhile improved from N4.74 million to N6.38 million. Total cost of business, excluding interest expense, declined to about 88 per cent in 2013 as against 84 per cent in 2012.

     

    Profitability

     

    UACN showed considerable improvements in actual profit and loss items and underlying profitability indices. Group turnover rose by 13 per cent from N69.63 billion to N78.71 billion. The top-line performance was driven by strong growth in the main food and beverage business and modest growths across many other segments. Turnover in the food and beverages segment stood at N55.84 billion in 2013 as against N46.41 billion in 2012. The paints business recorded a turnover of N7.54 billion in 2013 compared with N5.23 billion in 2012. The other ancillary businesses altogether turned in N455.8 million in 2013 as against N446.8 million in 2012. However, the Logistics business slowed down at N3.77 billion as against N4.05 billion while the real estate business turned in N11.11 billion in 2013 compared with N12.08 billion in 2012.

    Total cost of sales rose by 18 per cent from N50.58 billion to N59.88 billion. Consequently, gross profit slipped from N19.05 billion to N18.84 billion. Total operating expenses rose by 20 per cent from N7.7 billion to N9.24 billion. Selling and distribution expenses had increased from N1.51 billion to N1.85 billion while administrative expenses rose from N6.19 billion to N7.39 billion. The midline meanwhile was boosted by 285 per cent increase in interest and other non-core business incomes, which rose from N1.92 billion in 2012 to N7.41 billion in 2013. The large non-core business income was due to gains on restructured and disposed assets during the year.  This counterbalanced finance expenses, which rose by 18 per cent from N2.53 billion to N2.99 billion. With these, profit before tax rose by 30 per cent from N10.75 billion to N14.01 billion. Profit after tax also leapt by 39 per cent from N7.10 billion to N9.90 billion.

    Beyond the surface, the intrinsic profit-making capacity of the company improved in 2013. While gross profit margin dipped from 27 per cent to 24 per cent, pre-tax profit margin rose from 15.4 per cent to 17.8 per cent. Underlying returns were also better with return on total assets of 11.2 per cent in 2013 as against 8.7 per cent in 2012. Return on equity also rose from 11.7 per cent to 13.9 per cent.

    On Per share basis, basic earnings per share improved by 14.4 per cent from N2.57 to N2.94. The company increased cash dividends to N3.36 billion for the 2013 business year compared with N2.56 billion distributed for the 2012 business year. This implied a dividend per share of N1.75 in 2013 as against N1.60 in 2012. Against the background of 20 per cent increase in outstanding shares due to a one-for-five bonus in 2013, the adjusted earnings were higher and underlined the substantial increase in shareholders’ returns.  Notwithstanding the increase in cash payout, dividend cover increased from 1.61 times to 1.68 times. Net assets per share meanwhile stood at N37.13 in 2013 as against N37.85 in 2012.

     

    Liquidity

     

    The conglomerate continued to struggle with declining liquidity, although its average ratios remained within the acceptable range. Current ratio, which relates current assets to current liabilities, slipped from 1.22 times to 1.16 times. The proportion of working capital to total sales declined from 14 per cent to 8.7 per cent. Debtor/creditor ratio closed 2013 at 124.3 per cent compared with 117.2 per cent in 2012.

     

    Governance and

    structures

     

    Nigeria’s oldest surviving business, UACN started business in Nigeria in 1879, well ahead of the 1914 amalgamation that created the current Nigerian nation. A large group of several active companies spreading through manufacturing, services, logistics and real estate sectors of the Nigerian economy, the UACN Group includes four quoted subsidiaries-CAP Plc, UACN Property Development Company (UPDC) Plc, Livestock Feeds and Portland Paints and Products Nigeria Plc; in addition to the parent company, UACN. It acquired Livestock Feeds and Portland Paints in 2013. Other members of the group included UAC Foods Limited, MDS Logistics Limited, Warm Spring Waters Nigeria Limited, Grand Cereals Limited, and Unico CPFA Limited.

    Listed in 1974, UACN is owned by some 186,000 shareholders. The board and management of the conglomerate remained stable. Senator Udoma Udoma still chairs the board of director while Mr. Larry Ettah leads the group executive management. UACN is a well-structured group with long-established corporate best practices in compliance with local statutes and rules and global standards.

     

    Analyst’s opinion

     

    The overall performance outlook of UACN continued to reflect the success of the conglomerate’s restructuring, including divestments, reinvestments, new acquisitions and streamlining of businesses. The group has continued to implement key initiatives of its growth activation programme, with a view to driving efficiency and improving turnover. In 2013, it acquired two other quoted companies- Livestock Feeds and Portland Paints and Products Nigeria Plc, to further consolidate its market share in agriculture and building industry. The conglomerate also signed on to strategic international partnerships to drive its logistics and food and restaurant businesses.

    With a large portfolio of market-leading companies and highly competitive brands, there is reasonable basis to assume that UACN possesses the inherent strengths to cope with emerging challenges and sustain appreciable returns.

  • CAP: Better colours

    CAP: Better colours

    Chemical and Allied Products (CAP) Plc recorded a well-rounded performance in the immediate past business year with improved bottom-line and stronger balance sheet. With double-digit growths in sales and profit, the paints-manufacturing company sustained its zero financial leverage and further improved on its liquidity and financing structure. The improved bottom-line impacted positively on immediate and underlying returns to shareholders.  In spite of 25 per cent increase in outstanding shares due to a bonus issue of one for four shares during the year, the company increased cash dividend by 15 per cent while equity funds rose by 13 per cent.

    Audited report and accounts of CAP for the year ended December 31, 2013 showed that sales rose by 18 per cent while pre and post tax profits grew by 26 per cent and 27 per cent respectively. Nearly all financing, profitability, efficiency and liquidity ratios underlined improved performance.

    Financing structure

     CAP’s total balance sheet size increased slightly by 5.5 per cent from N2.88 billion in 2012 to N3.04 billion in 2013. Non-current assets had increased by 6.3 per cent to N480 million in 2013 as against N452 million in 2012. Current assets also improved slightly from N2.42 billion to N2.56 billion. Total liabilities was almost flat at N1.767 billion in 2013 as against N1.757 billion in 2012. The paid up capital had increased by 25 per cent from N280 million to N350 million. Shareholders’ funds also improved from N1.12 billion to N1.27 billion.

    Underlying financing ratios showed a stronger financing position.  With zero gearing ratio, the proportion of equity funds to total assets improved from about 39 per cent in 2012 to 42 per cent in 2013. Long-term liabilities/total assets stood at 58.2 per cent as against 61.1 per cent while current liabilities/total assets closed 2013 at 55.5 per cent as against 58.5 per cent in previous year.

    Efficiency

     Average cost efficiency improved during the year as the company reined in relative cost of sales while improving employee productivity. Average cost of sale per unit of sale decreased in 2013, providing early headroom for profit growth. Overall outlook suggests improved productivity alongside the improvement in cost efficiency. Total cost of business, excluding finance charges, dropped from about 72 per cent in 2012 to 69.2 per cent in 2013.

    Average number of employees stood at 213 persons in 2013, a marginal increase on 210 persons in the previous year. Meanwhile, total staff cost increased from N375.13 million to N449.32 million. This implied average staff cost per employee of N2.11 million in 2013 as against N1.79 million in 2012. Correspondingly, average contribution of each employee to pre-tax profit increased from N7.91 million to N9.80 million.

    Profitability

    CAP recorded appreciable improvements in both underlying and actual profit and loss items. Substantial growths in sales and profit translated into equally significant increase in cash distributions to shareholders. The congruence between outward profit and loss items and key indices indicated sustained uptrend for the company.

    Total turnover rose by 18.4 per cent from N5.23 billion to N6.20 billion. Cost of sales was moderated at N3.04 billion in 2013 as against N2.63 billion, representing an increase of 15.5 per cent. Gross profit thus rose by 21 per cent from N2.60 billion to N3.16 billion. Total operating expenses rose by 11 per cent from N1.12 billion to N1.25 billion. The absence of financing charges counterbalanced the marginal decline in non-core business income, which dropped from N184 million to N177 million. Consequently, profit before tax rose by 25.6 per cent from N1.66 billion to N2.09 billion. After taxes, net profit increased by 27 per cent from N1.12 billion to N1.42 billion.

    Unadjusted earnings per share stood at N2.02 in 2013, representing an increase of 1.5 per cent on N1.99 recorded in 2012. However, adjusted for the 25 per cent increase in outstanding shares due to a bonus issue of one for four shares in 2013, earnings per share actually increased by 27 per cent from N1.59 in 2012 to N2.02 in 2013. Gross dividend increased by 44 per cent from N1.09 billion for 2012 to N1.56 billion for 2013, representing total dividend per share of N2.25 for 2013 as against N1.95 distributed for 2012. However, net assets per share declined by 9.5 per cent from N2 in 2012 to close at N1.81 in 2013.

    Beyond the surface, underlying profitability indices improved considerably. Gross profit margin increased from 49.7 per cent to 50.9 per cent. Profit before tax margin also improved from 31.8 per cent to 33.7 per cent. Return on total assets stood at about 69 per cent in 2013 as against 58 per cent in 2012. Return on equity also increased from 99.7 per cent to 111.8 per cent. However, the large increase in shares dimmed the sustainable dividend outlook with a dividend cover of 0.90 times in 2013 as against 1.02 times in 2012.

    Liquidity

     CAP emerged with stronger liquidity, signposted by positive working capital and stable financial coverage for immediate liabilities. Current ratio, which measures the financial agility of a company by relating current assets to relative liabilities, improved from 1.44 times in 2012 to 1.52 times in 2013. Working capital/turnover ratio stood at 14 per cent in 2013 as against 14.2 per cent in 2012. Debtors/creditors ratio stood at 38.8 per cent in 2013 compared with 47.9 per cent in 2012.

    Governance and structures

    CAP is a member of the UACN Group, Nigeria’s largest conglomerate. CAP evolved from the British multinational, Imperial Chemical Industries Plc, which formalized its Nigerian operations in 1957 under ICI Exports Limited. In 1992, UACN acquired 35.7 per cent equity stake from ICI Nigeria to become the major shareholder in CAP. UACN currently holds 50.09 per cent equity stake in the company. CAP, the leading paints company, produces wide range of paints, with its flagship brand, Dulux, as a market leader in several categories.

    The board and management of the company remain unchanged. Mr. Larry Ettah, the group managing director of UACN, still chairs the board while Mrs Omolara Elemide leads the executive management team as managing director. The company generally complies will extant code of corporate governance and post-listing rules.

    Analyst’s opinion

     The performance of CAP is commendable. Recent expansions have continued to stimulate the top-line while increasingly efficient cost management strategy appeared to be providing additional impetus. The company appears to have found the right mix. Stable cost management strategy, deleveraged balance sheet and aggressive sales growth strategy should provide further impetus for future growth. It had during the year expanded its network with the opening of eight new Dulux colour shops in Umuahia, Dopemu, Akure, Jigawa, Abuja, Katsina, Aba and Ughelli while it also successfully executed the Dulux Mobile Room Makeover, an innovative marketing campaign in the Nigerian clime, to the delight of our teeming consumers. Besides, CAP commenced ink jet coding of its product packages, making adulteration of the product more difficult. The company should also be able to harness synergies from recent acquisition of Portland Paints and Products Nigeria by the UACN Group. Overall, there is reasonable basis to assume that the company would sustain its positive performance outlook.

     

     

  • Livestock Feeds: Improving yields

    Livestock Feeds: Improving yields

    Livestock Feeds Plc recorded impressive performance in the immediate past year as the animal nutritional-products company optimized appreciable growth in sales to deliver substantial returns. The profit and loss accounts and the balance sheet underscored a well-rounded performance, which highlighted early gains of the company’s membership of the UAC of Nigeria (UACN) Group.

    Audited report and accounts of Livestock Feeds for the year ended December 31, 2013 showed that 12.5 per cent growth in sales magnified progressively into 18 per cent increase in gross profit, 28 per cent growth in profit before tax and 46 per cent increase in net profit after tax. The positive profit outlook of the company was strengthened by improved underlying profitability indices as well as considerable improvements in financing structure and liquidity. A lower financial leverage, better equity funding and larger working capital underpinned a major balance sheet restructuring, putting the company in better stead to further drive its profit and loss performance.

    However, Livestock Feeds remained substantially leveraged, especially for an agricultural sector that faces relatively more unpredictable variables. It also needs to further unlock its intrinsic value to justify its current share pricing.

     Financing structure

    Livestock Feeds’ paid up share capital increased by about 67 per cent from N600 million in 2012 to N1 billion in 2013. This implied an increase in number of issued and outstanding shares from 1.2 billion ordinary shares of 50 kobo each in 2012 to some 2.0 billion ordinary shares of 50 kobo each, representing additional 800 million ordinary shares of 50 kobo each. Shareholders’ funds jumped by 173 per cent from N633 million to N1.73 billion. Total assets rose by 77 per cent to N3.67 billion as against N2.07 billion. The assets base was driven by 94 per cent increase in current assets from N1.51 billion to N2.93 billion and 32 per cent growth in long-term assets from N560 million to N740 million. Total liabilities stood at N1.94 billion in 2013 as against N1.44 billion in 2012.

    The financing structure became stronger in 2013 with improved equity funding and financial leverage. The proportion of equity funds to total assets increased from 31 per cent in 2012 to 47 per cent in 2013. Debt-to-equity ratio improved to 50 per cent in 2013 compared with about 147 per cent in 2012. Long-term liabilities/total assets ratio stood at 53 per cent in 2013 as against about 70 per cent in 2012 while current liabilities/total assets ratio improved from 67 per cent to 52 per cent.

     Efficiency

     The performance outlook showed dual benefits of improved productivity and cost efficiency. The company optimized modest increase in average cost into substantial improvement in average productivity, resulting in wider margin for value creation. Total costs of business, excluding financing charges, reduced to 94.2 per cent of total sales in 2013 as against about 95 per cent in previous year. While average cost per staff increased from N1.34 million to N1.66 million, average contribution of each employee to pre-tax profit also trended upward from N2.15 million to N2.60 million.

    The company had increased its workforce marginally from 103 persons in 2012 to 109 persons in 2013. Aggregate staff cost meanwhile increased from N138.38 million to N180.94 million.

     Profitability

     Livestock Feeds recorded considerable improvement in profitability in 2013 with double digits growths in sales and the bottom-line. Livestock Feeds single business line is production and marketing of animal feeds, with operations in the four regions of the country-Aba, Ikeja, Benin and Kaduna. Total sales rose by 12.5 per cent from N5.43 billion in 2012 to N6.11 billion in 2013. The top-line growth was driven by increased sales across the four principal locations. Sales in Aba increased from N1.80 billion to N1.91 billion. Ikeja remained the largest sales point with its segmental turnover rising from N1.88 billion to N2.29 billion. Benin witnessed modest growth with N1.38 billion in 2013 as against N1.36 billion in 2012. Sales within the Kaduna division improved from N402.43 million to N536.83 million. Total cost of sales rose by about 12 per cent from N4.85 billion to N5.42 billion. Gross profit thus increased by 18 per cent to N690 million in 2013 as against N585 million in 2012. Marketing and distribution expenses rose from N185.6 million to N190.9 million while administrative expenses increased from N124.6 million to N146.3 million. Total operating expenses indicated marginal increase of 8.7 per cent at N337 million in 2013 as against N310 million in 2012. While interest and other incomes rose by 47 per cent from N86 million to N127 million, finance expenses increased by 41 per cent from N140 million to N196 million.

    Profit before tax rose by 28 per cent to N283 million in 2013 as against N221 million in 2012. Profit after tax grew by 46 per cent to N211 million compared with N144 million in previous year. Basic earnings per share remained almost flat at 12 kobo but net assets per share increased by 64 per cent from 53 kobo to 87 kobo. However, the company did not declare any dividend, deciding to plough all its net earnings into its operations.

    Besides, underlying profitability indices showed a largely positive outlook. Gross profit margin increased from 10.8 per cent to 11.3 per cent. Pre-tax profit margin also inched up from 4.1 per cent to 4.6 per cent. However, with the larger growths in assets and capital base, return on total assets dipped to 7.7 per cent as against 10.7 per cent. Return on equity also slipped from 22.8 per cent to 12.2 per cent.

     Liquidity

    The liquidity position of the company improved substantially during the period with better coverage for emerging liabilities and increased working capital relative to operations. Current ratio, which indicates the potential ability of the company to meet emerging liabilities, improved to 1.54 times in 2013 as against 1.09 times in 2012. The proportion of working capital to sales improved from 2.4 per cent to 16.9 per cent while debtors/creditors ratio stood at 55.5 per cent in 2013 as against 22.6 per cent in 2012.

     Governance and structures

    Incorporated as a limited liability company in March 1963, Livestock Feeds converted to a public limited liability company and was quoted on the Nigerian Stock Exchange (NSE) in 1978. UACN completed the acquisition of majority equity stake in Livestock Feeds in 2013, thus bringing the company in as a subsidiary of the conglomerate. Current shareholding analysis showed that UACN holds 51.01 per cent equity stake. First Capital Trust Limited holds the second largest equity stake of 8.02 per cent while Cashcraft Asset Management Limited holds the third largest stake with 5.06 per cent. Sundry minority shareholders hold the balance of 35.9 per cent equity stake. The change in shareholding structure in 2013 led to significant reconstitution of the board of directors. Mr Larry Ettah, the group managing director of UACN, was appointed the chairman of Livestock Feeds in 2013 while Mrs Modupe Asanmo remained the managing director. Three other non-executive directors were appointed while two directors resigned. On the basis of available information, Livestock Feeds complied with the extant code of corporate governance and best practices.

     Analyst’s opinion

     The performance of the company shows a reassuring outlook. With growing top-line and improving bottom-line, Livestock Feeds appears to be on a promising growth trajectory, which could become more prominent in the years ahead. The livestock feed industry is estimated to have significant headroom for growth. With ongoing initiatives to boost its revenue and diversify its earnings, Livestock Feeds appears on a steady growth path. It is launching its own fish feed while the installation of the 12 metric tonnes per hour feed milling machine in its Ikeja Mill is planned for completion this year. The synergies from the membership of UACN-including shared services such as warehousing, haulage and finances, would further impact the performance going forward.

     

     

     

  • Vitafoam Nigeria: Still tough

    Vitafoam Nigeria: Still tough

    Vitafoam Nigeria Plc remains under cost pressures on many fronts as the foam-manufacturing company struggles with high financial leverage and tight top-line. While the turnover witnessed modest growth and the company held tightly to operating expenses, finance expenses continued to undermine the bottom-line, depressing the bottom-line to another low. For the fourth consecutive period, the company held on to its dividend payout rate of 30 kobo and it still has substantial headroom to pay as much in the years ahead, but the future probability of similar dividend is on the decline.

    Audited report and accounts of Vitafoam Nigeria for the year ended September 30, 2013 indicated that sales rose by 12.8 per cent but pre and post tax profits dropped by 22.5 per cent and 18.2 per cent respectively. The largest growth on the profit and loss accounts remains finance expenses, which rose by about 40 per cent. With basic earnings per share dropping from 61 kobo to 50 kobo, the retention of the 30 kobo dividend payout cut dividend cover from 2.03 times to 1.67 times. This downtrend is also evident in the underlying returns and profitability of the company.

    Meanwhile, the company’s balance sheet improved slightly, although the gearing ratio remained high. Marginal increase in equity funding in relation to total assets, similar decline in debt-to-equity ratio and improved liquidity showed modest improvement in balance sheet.

     

    Financing structure

    Vitafoam’s total assets declined marginally by 2.9 per cent from N10.26 billion in 2012 to N9.96 billion in 2013. Current assets had dropped by 10 per cent from N6.94 billion to N6.22 billion as against 13 per cent increase in long-term assets from 3.32 billion to N3.74 billion. However, total liabilities also declined by 6.8 per cent from N7.35 billion to N6.85 billion. This was driven largely by decline in current liabilities from N6.54 billion to N5.75 billion. While the paid up share capital remained unchanged at N410 million, shareholders’ funds inched up by 6.8 per cent from N2.91 billion to N3.11 billion.

    The financing structure improved slightly in 2013, although it remained precarious and unhelpful. The proportion of debt to equity stood at 97.1 per cent in 2013 as against 111.4 per cent in 2012. Equity funds/total assets ratio improved from 28.4 per cent to 31.2 per cent. Current liabilities/total assets ratio also improved from 64 per cent to 58 per cent while long-term liabilities/total assets ratio firmed up to 11 per cent in 2013 as against 7.8 per cent.

     

    Efficiency

    Available extracts showed decline in cost efficiency and productivity, although there were not enough details to determine productivity and average employee performance. With16.4 per cent increase in cost of sales and almost 10 per cent rise in operating expenses, the proportion of non-interest expenses to sales increased during the period, underlining the decline in profit margins and returns during the period. Total cost of business, excluding finance charges, rose to 93.1 per cent in 2013 as against 91.8 per cent in 2012.

     

    Profitability

    The midline remained the Achilles’ heel of Vitafoam’s profit and loss accounts. While top-line sustained modest growth and the company struggled to curtail non-interest costs, interest expenses stifled overall performance and turned the bottom-line into negative. Both actual and underlying profit and loss items showed indicated decline, although the net bottom-line remained positive.

    Group’s total sales closed 2013 at N16.34 billion compared with N14.48 billion recorded in 2012. Cost of sales however rose by 16.4 per cent from N9.34 billion to N10.87 billion. Gross profit thus inched up by 6.3 per cent from N5.14 billion to N5.47 billion. Total operating expenses rose by 9.8 per cent to N4.34 billion as against N3.95 billion in previous year. Distribution cost had increased from N945.19 million in 2012 to N955.83 million in 2013 while administrative expenses rose from N3.0 billion to N3.38 billion. Non-core business income increased by 13 per cent from N146 million to N165 million. However, finance expenses jumped by 39.7 per cent to N661 million as against N473 million in previous year. With these, profit before tax dropped by 22.5 per cent from N813 million to N630 million. After taxes, net profit dropped by 18.2 per cent to N410 million in 2013 compared with N502 million in 2012.

    Notwithstanding the decline in net profit, the board of the company has recommended distribution of N246 million as cash dividends for 2013, the same amount distributed annually over the past three years. This implied a dividend per share of 30 kobo. Earnings per share had dropped from 61 kobo in 2012 to 50 kobo in 2013. Meanwhile, net assets per share improved slightly from N3.56 to N3.80.

    Underlying ratios showed similar outlook. Gross profit margin dropped to 33.5 per cent as against 35.5 per cent in 2012. Profit before tax margin also dipped to 3.9 per cent compared with 5.6 per cent in previous year. Average return on total assets declined from 7.9 per cent to 6.3 per cent while average return on equity dropped from 17.2 per cent to 13.2 per cent.

     

    Liquidity

    The liquidity position of the company improved marginally during the period with better financial coverage and working capital. Current ratio, which relates easily available finances to similar liabilities, inched up to 1.08 times in 2013 as against 1.06 times in 2012. The proportion of working capital to total sales notched 2.9 per cent as against 2.8 per cent. Debtors/creditors ratio stood at 74.6 per cent in 2013 compared with 54.4 per cent in 2012.

     

    Governance and structures

    Incorporated on August 4, 1962 and listed on the Nigerian Stock Exchange (NSE) in November 1978, Vitafoam Nigeria is Nigeria’s leading foam-manufacturing group. Now a wholly Nigerian-owned company with a 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. With subsidiaries in Ghana and Sierra Leone, Vitafoam Group includes four other subsidiaries in Nigeria including Vita Blom, Vita Visco, Vitapur and Vono Products Plc. Like Vitafoam, Vono is also quoted on the NSE and was Vitafoam’s long-standing competitor until Vitafoam bought the controlling equity stake.

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

     

    Analyst’s opinion

    The latest audited report further underlined the need for Vitafoam to restructure its balance sheet in order to ensure that the gains of its commendable focus on growth and expansion in recent years trickle down to the shareholders. The apparent financial mismatch, orchestrated by the banking crisis and the capital market meltdown, is evidently a limiting factor in the overall performance of the group. While its modest sales growth is commendable, the interest-dominated midline remained a major hurdle.

    Directors and other major shareholders in Vitafoam need to summon the courage to conclude the N4 billion new capital issue, which the shareholders of the company approved in the third quarter of last year. No doubt, recent capital investments and expansionary drives have created huge growth potential, which could further insulate the company from extreme shock from a market segment, but the gains of such investments are being stifled by the high financial leverage and resultant interest expense. Given its historic performance and steady fundamentals, Vitafoam stands a good chance of raising additional equity funds either from existing shareholders or other new investors. And an equity issue to shareholders, even at huge discount, will still be better than the continuing suffocation from financing charges. It’s time Vitafoam addresses the midline discomfort.

     

  • Transcorp: A new dawn?

    Transcorp: A new dawn?

    Transnational Corporation of Nigeria (Transcorp) Plc is breaking new ground with its first-ever dividend payment. With 42 per cent growth in turnover and 129 per cent growth in pre-tax profit, the latest audited report and accounts appears to signal a new threshold for the conglomerate. Coming on the heels of the group’s new investments in power and hotel, Capital Market Editor, Taofik Salako, reports that Transcorp appears to be gaining momentum in operations and investors’ confidence

    Transnational Corporation of Nigeria (Transcorp) Plc was one of the most active stocks at the Nigerian stock market last week. With about 11 per cent of aggregate turnover, transactions on the conglomerate underlined the upbeat interplay of demand and supply for its shares. The momentum at the stock market was spurred by the announcement of the conglomerate’s audited report and accounts for the year ended December 31, 2013; including its first-ever dividend recommendation.

    The 2013 business year marked a new phase for Transcorp, fundamentally and technically. With a full-year capital appreciation of 314.29 per cent in 2013, its share price trend at the Nigerian Stock Exchange (NSE) underscored the optimism as the conglomerate moved from one growth initiative to another. These initiatives, many analysts had posited, should reflect positively on the fundamentals of the conglomerate. The audited report appears to justify the bullishness.

    Both profit and loss accounts and balance sheet showed a stronger, more efficient and profitable group with almost a double in average profit on each unit of transaction. Turnover rose by 42 per cent to N18.8 billion in 2013 as against N13.2 billion recorded in 2012. Gross profit also grew by 47 per cent from N9.77 billion to N14.37 billion. After operating deducting expenses, operating profit jumped by 172.6 per cent to N10.25 billion in 2013 as against N3.76 billion in 2012. Profit before tax doubled by 129 per cent from N3.95 billion to N9.03 billion. After taxes, net profit for 2013 rose by 175 per cent to N6.96 billion compared with N2.53 billion in 2012.

    Underlying fundamental indices showed a generally positive outlook. Gross profit margin had increased from about 74 per cent in 2012 to 76.3 per cent in 2013. Operating profit margin almost doubled at 54.4 per cent in 2013 as against 28.4 per cent in 2012. Profit before tax margin, which is globally regarded as a main index for profitability, leapt from 29.8 per cent in 2012 to 47.96 per cent in 2013.

    Total assets expanded to N149.46 billion in 2013 compared with N99.56 billion in 2012. Shareholders’ funds also leapt from N64.1 billion to N86.7 billion. Total liabilities stood at N62.79 billion as against N35.46 billion.

    With the empathic top-down profitability, the board of directors of Transcorp has recommended distribution of N1.9 billion as cash dividends to shareholders, the first time the conglomerate will be making such payment since incorporation. The breakdown of the dividend recommendation showed that shareholders would receive a dividend per share of 5.0 kobo. The dividend will be paid on Tuesday, April 1, 2014 to all shareholders in the book of the conglomerate as at Friday, March 7, 2014.

    Most analysts have commended the performance of the conglomerate. Renaissance Capital said the numbers were impressive and encouraging, waging a stake that Transcorp’s current market consideration is an understatement of its potential. Vice president, Africa equity sales, equities / African equity product distribution, Renaissance Capital, Akinbamidele Akintola said the performance of Transcorp reflected the additional power business acquired in 2013, which would further impact the overall performance going forward.

    “We find the numbers very impressive. We are pleasantly surprised that Transcorp decided to pay dividend for the first time at all, especially as they are entering into a growth period. We are optimistic that there would be a dramatic change in their numbers going into 2014 as the transformation process continues,” Akintola stated.

     

    Building the power base

     

    Transcorp’s 2013 results included early gains from the acquisition of the Ugheli Power Plant in 2013. Transcorp, through its subsidiary, Transcorp Ugheli Power Limited (TUPL), had in 2013 acquired Ugheli Power Plant for $300 million from the Federal Government of Nigeria. With installed capacity of 972 megawatts, current generating capacity of 360 megawatts and potential output of 1070 megawatts, the Ugheli power plant thickened the basket of the conglomerate’s businesses in strategic sectors including Transcorp Hilton Hotel, Abuja; Transcorp Hotels, Calabar; Teragro Commodities Limited and Transcorp Energy Limited, operator of OPL 281. Power, upstream oil, hospitality and agriculture; the combination of businesses and sectors makes for a robust outlook, given the synergies in these fastest growing and dominant sectors of the Nigerian economy. Often cited in relation to the boom in the telecommunications sector, most analysts perceive the power firms as cash cows that would not only generate power but significant returns for investors. The monopolistic nature of the system and centrality of the success of the privatization to government’s transformation agenda confer enormous advantages on the power companies.

    Transcorp Ughelli Power Ltd (TUPL) early this year signed a capacity-expansion agreement with General Electric to expand the Ughelli power plant by 1000 megawatts over the next three to five years. Transcorp and GE also signed a separate agreement to rehabilitate the damaged GT 15 turbine at the Ughelli plant, which will add 115 megawatts to the plant’s output. Currently, the Transcorp Ughelli power plant generates 360 megawatts, up from 160 megawatts on November 1, 2013 when Transcorp took ownership of the plant. With the additional 115 megawatts, as well as other rehabilitation works planned at the plant, the company projects that output at Ughelli will increase to 700 megawatts by December 2014. The Ughelli power plant is Nigeria’s largest gas-fired electricity generation asset.

    Both Transcorp and GE believed the partnership would drive new momentum in the power industry. Chairman, Transnational Corporation of Nigeria (Transcorp), Mr. Tony Elumelu and Global Chairman, General Electric, Jeffrey Immelt, who signed the agreements were enthusiastic about the potential of the conglomerate. Elumelu noted that GE would bring its proven global leadership in power technology development to bear on the Ughelli plant expansion project.

    “With this, we’ve taken a bold step in fulfilling our promise to Transcorp’s stakeholders and the people of Nigeria. In a very short period of time, we have achieved significant impact – power production has more than doubled, and with this agreement, we will see increased output before the end of this year. We are confident that this partnership with GE will further accelerate the achievement of our goals in the power sector,” Elumelu said.

    Immelt affirmed the readiness of GE to support Nigeria’s power development programme. “GE fully appreciates the confidence expressed by Transcorp. We are happy to bring the considerable resources of GE to support Transcorp’s audacious vision for Nigeria’s Power industry. This partnership with Transcorp underlines GE’s deep commitment to developing the Nigerian power sector,” Immelt said.

    More luxuries

    The Ugheli power plant agreement came on the back similar deal by the conglomerate with Hilton Worldwide to build a new premier hotel in the up-market suburb of Ikoyi, Lagos. The proposed Transcorp Hilton Lagos, a full service, 350-room hotel on Glover Road, Ikoyi, will be the Hilton Group’s second hotel in Nigeria by Transcorp, following the award-winning Transcorp Hilton Hotel Abuja, which is one of the leaders in Hilton’s global network. The new hotel will be jointly owned by Transnational Hotels and Tourism Services Ltd, the hospitality subsidiary of Transcorp and Heirs Holdings.

    Elumelu outlined that the Ikoyi development, along with the extensive refurbishment and upgrade of the group’s existing hotels in Calabar and Abuja, demonstrated the group’s commitment to driving growth in real estate and hospitality, a strategic sector for Nigeria’s economic development.

    According to him, the new Transcorp Hilton Lagos will not only present an additional world-class venue for the increasing numbers of investors, businessmen and tourists to Nigeria, but is creating much-needed jobs for citizens, enabling their social and economic development.

    Managing Director, Transnational Hotels and Tourism Services Limited, Valentine Ozigbo said the Transcorp Hilton Lagos will grant the many Hilton Honors customers their desire to see a world-class establishment under their preferred brand in the Lagos. He said the hotel will boast of full conference facilities, meeting rooms, gym and spa, and a swimming pool in an iconic design that will certainly add verve to the Lagos landscape.

    Besides, Transcorp has recently undertaken several strategic initiatives to enable stable growth. In 2013, it raised N12.91 billion through a rights issue of 12.91 billion ordinary shares of 50 kobo each at N1 per share. The net proceeds of the rights issue estimated at N12.52 billion was scheduled mainly to refinance the loan taken to acquire the Ugheli power plant. About 79 per cent of the net proceeds amounting to N9.84 billion would be used to refinance Ugheli Power. The conglomerate would use N1.63 billion, 13 per cent of net proceeds, for exploration and development of its oil block, Oil Prospecting Licence (OPL) 281. It had revised the terms of partnership in the OPL 281 to fully take responsibility for the operation of the block in its bid to become a leading Nigerian indigenous oil and gas upstream company with production. The balance of N1.05 billion, representing 8.0 per cent of net proceeds, would be used to develop new hotels Port Harcourt and Lagos; in order to boost the conglomerate’s hospitality business in the South-South and South-West of Nigeria.

     

    Looking forward

     

    Directors of Transcorp are confident the conglomerate has built a strong foundation to sustain its upwardly performance. President and group chief executive officer, Transnational Corporation of Nigeria (Transcorp) Plc, Mr. Obinna Ufudo said that the 2013 performance reflected the conglomerate’s commitment to its long term strategic plan of strong and sustainable growth.

    “We are excited about the achievements we recorded across our businesses within the past year. Our entry into the power sector has been a significant driver and we are already running ahead of our 2014 estimates. We expect significantly better results this year, as our diversification and growth strategies continue to gain momentum,” Ufudo said.

    According to him, the strong balance sheet, substantial liquidity, diversified earnings and robust cash flow and the returns to shareholders are consistent with the group’s priorities and they are important signals of its confidence in the growth plans for a continuing profitable future.

    “We expect significantly better results this year as our diversification and growth strategies take firmer roots,” Ufudo said, raising the stakes for 2014.

    Already hailed as a turnaround manager by several shareholders, Elumelu, whose Heirs Holdings became strategic shareholder in Transcorp in 2013, said it was pleasing to be recommending a dividend to shareholders for the first time in the company’s history. The modest dividend, according to him, is the beginning of a very bright future for all the patient and loyal shareholders.

    “With the tremendous progress we have already recorded in our power business – taking the Ughelli plant’s power output from 160mw when we took over on November 1, 2013 to 360mw within three months, 2014 promises to be a very rewarding year for the company and our 300,000 shareholders,” Elumelu said.

    While its troubled past may linger and continue to moderate immediate share consideration, the fundamental outlook and ongoing initiatives suggest a major break for the conglomerate, a more promising future than the past. This is the kernel of demand for the shares of the conglomerate.

     

     

  • Forte Oil: Rewarding performance

    Forte Oil: Rewarding performance

    Forte Oil Plc consolidated its recovery last year with impressive growth in turnover and profitability as the downstream oil-marketing company intensified its diversification into the allied power and energy sector.

    For the first time in five years, shareholders of Forte Oil will receive dividend and also lock back substantial values in reassurance that the payment could continue in the years ahead.

    Audited report and accounts of Forte Oil for the year ended December 31, 2013 showed that turnover rose by about 41 per cent while pre and post tax profits jumped by 467 per cent and 396 per cent. With 292 per cent increase in pre-tax profit margin and a double in return on total assets, the underlying improvement in profitability and return in 2013 was underpinned by the diversification of income stream and improvement in its core downstream business.

    Total balance sheet size doubled by 146 per cent while total equity funds leapt by about 459 per cent. Besides, the balance sheet structure became more supportive and stable in 2013. With significant reduction in financial leverage, increased equity funding, improved liquidity and positive working capital, the balance sheet structure was evidently in a better stead.

    As earnings per share rose from 93 kobo to N4.32, the board of directors has recommended distribution of a dividend per share of N4 to shareholders, totaling N4.32 billion. Besides, net assets per share increased by 458 per cent from N7.03 to N39.25.

    However, the performance of the core downstream business was still tepid. With negative operating profit, the midline performance was buoyed largely by the impetus from the new power business and efficient financial management. This was evident in the decline in gross margin and the increase in cost of business relative to turnover.

     

    Financing structure

    Forte Oil’s group paid up share capital remained unchanged at N539 million. Total equity funds meanwhile rose from N7.58 billion in 2012 to N42.35 billion. The improvement in equity funds was due to increase in primary equity funds attributable to shareholders of the company, which rose from N7.58 billion to N13.04 billion, and special equity funds of N29.31 billion. Total assets rose from N42.51 billion to N104.68 billion while total liabilities increased from N34.93 billion to N62.33 billion.

    The financing structure was generally positive. The proportion of equity funds to total assets increased from about 18 per cent in 2012 to about 41 per cent in 2013. The rooftop gearing ratio of 130 per cent in 2012 dropped to 12 per cent in 2013 as immediate bank loans halved from N9.9 billion to N4.9 billion. Current liabilities/total assets ratio improved from 77 per cent to 44.6 per cent while long-term liabilities/total assets ratio was relatively better at 15 per cent in 2013 as against 5.1 per cent in 2012.

     

    Efficiency

    Average cost efficiency declined during the year underlining the low margin in the downstream business and notable increase in administrative expenses. Average cost of sale per unit of sale increased in 2013 and this was compounded by substantial increase in operating expenses. Total cost of business, excluding finance charges, inched up to 100.1 per cent in 2013 as against 97.5 per cent in 2012. However, there were no data to determine actual productivity level in relation to average cost per human capital.

     

    Profitability

    Both outward and underlying performance indices showed impressive outlook in 2013 as Forte Oil mitigated initial top-line cost with efficient midline cost management. Group turnover rose from N90.98 billion in 2012 to N128.03 billion in 2013. Cost of sales however rose by 43 per cent to N115.4 billion as against N80.84 billion. Gross profit thus increased by 24.5 per cent from N10.15 billion to N12.63 billion. Total operating expenses stood at N12.77 billion in 2013, about 62 per cent above N7.89 billion in 2012. Administrative expenses had jumped from N5.01 billion to N9.81 billion while distribution expenses increased from N2.87 billion to N2.94 billion. Non-core business incomes-including finance incomes; however leapt by 1,055 per cent from N738 million to N8.52 billion. Finance expense was moderated at N1.88 billion in 2013 compared with N1.85 billion in 2012. These boosted the bottom-line with pre-tax profit rising from N1.15 billion to N6.53 billion. Profit after tax also quadrupled from N1.01 billion in 2012 to N5.0 billion in 2013. With these, basic earnings per share increased from 93 kobo to N4.32. The board of the company has recommended payment of nearly the entire net earnings to shareholders at a ratio of N4 per share.

    Beyond the surface, underlying indices showed improvements in profitability and returns. While gross profit margin decreased from 11.2 per cent in 2012 to 9.9 per cent, average pre-tax profit margin increased substantially from 1.3 per cent in 2012 to 5.1 per cent in 2013. Return on total assets doubled from 2.7 per cent to 6.2 per cent while dividend cover stood at 1.08 times. However, return on equity declined marginally from 13.3 per cent to 11.8 per cent.

     

    Liquidity

    Forte Oil’s liquidity position improved significantly during the period with positive working capital and increased financial agility. Current ratio, which measures the financial readiness of a company by relating current assets to relative liabilities, crossed the thresholds to 1.06 times in 2013 as against 0.75 times. Working capital/turnover ratio improved from -8.9 per cent in 2012 to positive 2.1 per cent in 2013. Debtors/creditors ratio closed 2013 at 87 per cent compared with 60.6 per cent in 2012.

     

    Governance and structures

    Forte Oil, formerly known as African Petroleum (AP), is a major downstream company quoted on the Nigerian Stock Exchange (NSE). The Forte Oil Group includes a foreign subsidiary, AP Oil and Gas Ghana Limited (APOG), which operates some eight retail outlets in Ghana; an indigenous upstream services company, AP Oilfields Services Limited (APOS) and its new power plant subsidiary, which owns the 414-megawatts Geregu Power Plant.

    Forte Oil has more than 500 retail outlets spread across the country, a fuel storage facility at Apapa and aviation joint users hydrant in Ikeja, Lagos. It also operates another large storage depot at Onne, Rivers State as well as joint aviation depots in Abuja, Port Harcourt and Kano. With 1.08 billion ordinary shares of 50 kobo each, Forte Oil currently has market capitalisation of N110.42 billion, ranking as the 22nd most capitalised company on the NSE.

    The board and management of the company remain stable. Mr Olufemi Otedola, the core investor in the company, chairs the group’s Board of Directors while Mr Akin Akinfemiwa leads the executive management team as Group Chief Executive Officer. On the basis of available information, the company has largely complied with extant codes of corporate governance and best practices.

     

    Analyst’s opinion

    The overall performance outlook of Forte Oil reassures on the continuing success of its business development programme, especially the landmark diversification into the electric power business. Two years into its three-year strategic business transformation initiative which started in 2012, immediate past year further evidenced the continuing solidification of the business.

    With the steady success of the immediate initiative, the company can transit into its medium-to-long term corporate plans, which entails expansion into the upstream oil and gas sectors. Obviously, the new power business will continue to be a major driver for group performance in the years ahead.

    Notwithstanding, Forte Oil needs to strengthen its capital base to support its business expansion. It also needs to strengthen its downstream marketing business to increase its complement to the group performance.

     

  • IHS Nigeria: Sinking to a new low

    IHS Nigeria’s fundamental outlook worsened last year as significant declines in profitability and balance sheet position raised concerns about the mounting losses over the past three years. While it grew the top-line commendably by 18.6 per cent, high operating costs and roof-top financial leverage substantially undermined the bottom-line and wiped off considerable equity capital. With net loss per share of N1.50 in 2013 as against 86 kobo in 2012 and decline in net assets per share from N1.69 in 2012 to 14 kobo in 2013, the latest audited report indicated a new low for investors who have not received any dividend since the telecommunication infrastructure company became a quoted company.

    Audited report and accounts of IHS Nigeria for the year ended April 30, 2013 showed a generally negative performance outlook, which was highlighted by declining liquidity and productive efficiency, lower margins and returns and precarious financing structure. However, the company witnessed a strong recovery in its top-line position with higher sales and improved top-line profit.

    Meanwhile, the unaudited first quarter report for the period ended July 31, 2013 showed a modest recovery. While the company operationally remained in loss position, tax write-back left a modest net profit of N135.68 million. The improvement also reflected in the net capital position, which increased to N1.12 billion.

     

    Financing structure

     

    The financing position of the group worsened considerably in 2013 with less equity coverage and worrisome debt level. The proportion of debt to equity jumped to 2,839 per cent in 2013 as the group’s short-term loan ballooned to N17.1 billion. Also, while about 16 per cent of total assets were covered by equity funds in 2012, the proportion of equity funds to total assets dropped to a low of 1.1 per cent in 2013. Current liabilities/total assets ratio worsened from 11.2 per cent to about 60 per cent while long-term liabilities/total assets ratio declined from 73.2 per cent to 39.3 per cent.

    IHS Group’s total assets rose by 16 per cent from N47.46 billion to N55.18 billion. Current assets had dropped by 48.5 per cent from N16.34 billion to N8.41 billion while non-current assets had ridden on the back of 50 per cent increase in fixed assets to N46.77 billion in 2013 as against N31.11 billion in 2012. Total liabilities meanwhile grew by 36 per cent from N40.04 billion to NN54.58 billion. Current liabilities had skyrocketed by 520 per cent to N32.9 billion in 2013 as against N5.31 billion in 2012. While the paid up share capital remained unchanged at N2.2 billion, total equity fund dropped by 92 per cent from N7.41 billion in 2012 to N602 million in 2013.

     

    Efficiency

     

    The telecommunication-infrastructure group witnessed considerable decline in productivity and efficiency during the period. In spite of notable staff reduction, the top-heavy personnel cost increased while average pre-tax profit per head declined. The ratio of total costs of business-excluding interest expenses, in relation to sales worsened to 121.3 per cent in 2013 compared with 114.3 per cent recorded in 2012. Average number of staff in the group dropped from 1,056 persons in 2012 to 844 persons in 2013. Gross staff cost also dropped marginally from N1.31 billion to N1.25 billion, indicating average staff cost per employee of N1.48 million and N1.24 million for 2013 and 2012 respectively. However, average pre-tax profit per employee dwindled from –N.63 million in 2012 to –N8.90 million in 2013.

     

    Profitability

    Both outward and underlying profit and loss items showed a generally negative performance in 2013. Midline operating expenses and interest costs eroded modest top-line gain, pushing the group’s balance sheet to a more precarious position. For the fourth consecutive year, IHS Group suffered a major decline in profitability and built on a losing streak that had seen pre-tax loss rising from N1.84 billion in 2011 to N4.89 billion in 2012 and N7.51 billion in 2013. After taxes, net loss increased by 82 per cent from N3.62 billion in 2012 to N6.60 billion in 2013. Average pre-tax profit margin had worsened from -35 per cent in 2012 to -45.5 per cent in 2013, implying that while the group made a loss of N35 on every N100 unit of sales in 2012, this worsened to about N46 on similar unit in 2013.

    The bottom-line performance overshadowed appreciable improvement in turnover. Group turnover improved by 19 per cent from N13.92 billion in 2012 to N16.50 billion in 2013. With marginal decline in cost of sales from N11.47 billion to N11.24 billion, gross profit doubled from N2.45 billion to N5.26 billion. The improved top-line profitability also reflected in the gross margin, which increased from 18 per cent to 32 per cent. However, total operating expenses-including provisions for impairments, doubled from N4.44 billion to N8.79 billion. While non-core business incomes dropped by 21 per cent from N285 million in 2012 to N225 million in 2013, a 32 per cent increase in finance expenses from N3.19 billion to N4.22 billion further compounded the bottom-line.

    Investors’ returns were negative. Basic loss per share rose from 86 kobo to N1.50 while net assets per share declined from 169 kobo to 14 kobo. Return on equity worsened from -48.9 per cent to -1,096 per cent. Return on total assets also declined from -10.3 per cent to -13.6 per cent.

     

    Liquidity

     

    The liquidity position of the group became worrisome last year with the least coverage for emerging liabilities against increasingly negative working capital. Current ratio, which broadly indicates ability of the company to meet emerging financing needs by relating current assets to relative liabilities, dropped to a low of 0.26 times as against 3.08 times in previous year. The proportion of working capital to total sales turned negative from 79 per cent in 2012 to -148 per cent in 2013. Debtors/creditors ratio stood at 23.4 per cent in 2013 as against 367.4 per cent in 2012.

    Governance and structures

    IHS Nigeria Plc was incorporated as a private limited liability company on April 10, 2001. It converted to a public limited liability company on July 10, 2008 and was subsequently listed on the Nigerian Stock Exchange (NSE) on January 27, 2009. The IHS Group included IHS Nigeria, the parent company; PCT Sudan and PCT South Sudan, where the group holds 51 per cent controlling equity stake in each company; and the wholly-owned IHS Mauritius. It had sold its equity stakes in its Ghana and Dubai operations in 2013. The principal operations of IHS involve provision of telecommunications infrastructure including collocation sites and telecom towers.

    The board and management of the company remained stable and firmly under the direction of the founding directors. Engr. Bashir El-Rufai still chairs the board of directors. Meanwhile, Issam Darwish, returned as the chief executive officer, replacing Rajiv Jaitly, who has left the board of the company. In terms of board composition, committees, statutory requirements and best practices, the company largely complied with extant laws and code of corporate governance.

     

    Analyst’s opinion

     

    The performance of IHS Nigeria underlines the need for a more thorough review of its operational strategy, with clear focus on delivering value for shareholders. The latest report particularly raised concerns about the going concern status of the company, although both the auditors and the board did not qualify their opinion in this regard. IHS is virtually surviving on the grace of its creditors and another worse performance can effectively put the balance sheet in the red. It needs to justify the effective utilisation of recent investment.

    The unaudited first quarter performance for the three-month period ended July 31, 2013 showed some level of optimism with sustained growth in sales and improved bottom-line. Group turnover for the period stood t N3.92 billion as against N3.88 billion in comparable period of 2012. Gross profit increased from N1.01 billion to N1.89 billion. Loss before tax also dropped from N937.18 million to N168.5 million. With tax write back of N304.2 million, net profit bounced back to M135.68 million in 2013 as against net loss of N556.4 million in corresponding period of 2012. IHS needs to consolidate this start. Besides, it needs to outline a working turnaround and growth plan to key stakeholders with key parameters that the board and management can be held accountable for. Overall, the decisiveness and sustainability of its turnaround plan will determine the future outlook of the telecoms-infrastructure group.

  • Seven-Up: Improved performance

    Seven-Up: Improved performance

    Seven-Up Bottling Company (7-Up) Plc witnessed improved performance in the year as the company rode on the back of improved cost efficiency and substantial reduction in gearing level to optimise profitability. While sales growth remained in single digit, increased cost efficiency optimised the bottom-line performance with double-digit growth in pre and post tax profits. Audited report and accounts of the soft-drink company for the year ended March 31, 2013 showed that sales increased by 7.1 per cent but higher margins pushed profit before tax up by 27.5 per cent. Profit after tax rose by 70.3 per cent, underlining the increase in basic earnings per share from N2.62 in 2012 to N4.46 in 2013.

    The improved bottom-line performance enabled the company to increase cash payout by 10 per cent just as its net assets value rose by 22 per cent. The prospects for future dividend payment was stronger with a dividend cover of 2.0 times in 2013 as against 1.3 times in 2012. Both actual and underlying profit and loss indicators showed appreciable improvement in the profitability of the company.

    The company’s profit and loss performance was also congruent with improvement in its balance sheet. With larger equity funds, lower financial leverage and increased liquidity, the balance sheet was stronger in 2013 compared with the previous year.

    However, the company’s financing structure and general balance sheet position remained susceptible. While the debt-to-equity ratio improved by 51 percentage points, it remains substantially high at about 118 per cent. The company still wriggles with negative working capital and vulnerable liquidity coverage.

    Interim report for the six-month period ended on September 30, showing considerable improvement in actual and underlying profitability. Average pre-tax profit margin improved to 8.23 per cent as against 3.02 per cent recorded in comparable period of 2012. Turnover rose by 22.7 per cent from N27.57 billion to N33.83 billion. Gross profit grew by 25.5 per cent to N12.65 billion as against N10.08 billion in corresponding period of 2012. Profit before tax jumped by 234.6 per cent from N832.30 million to N2.78 billion. After taxes, net profit rose by 200 per cent from N719.4 million to N2.16billion.

     

    Financing structure

    Total assets had inched up by 5.9 per cent from N48.49 billion to N51.37 billion. Current assets stood at N15.50 billion, 3.3 per cent above N15.01 billion recorded in 2012. Long-term assets had increased by 7.2 per cent from N33.48 billion to N35.87 billion. Total liabilities closed almost flat at N38.79 billion as against N38.18 billion. Bank loans dropped by about 15 per cent from N17.41 billion to N14.82 billion. While the paid up capital remained unchanged at N320 million, shareholders’ funds rose by 22 per cent from N10.31 billion to N12.58 billion.

    Seven-Up’s financing structure improved in 2013. The proportion of equity funds to total assets improved from 21.3 per cent in 2012 to 24.5 per cent in 2013. The company’s debt-to-equity ratio also reduced from 168.9 per cent in 2012 to 117.8 per cent in 2013. Long-term liabilities/total assets ratio improved from 17.5 per cent to 21.3 per cent while the proportion of current liabilities to total assets stood at 54.2 per cent in 2013 as against 61.2 per cent in 2012.

     

    Efficiency

     

    Average number of employees increased to 3,701 persons in 2013 as against 3,643 persons in 2012. Total staff costs meanwhile increased from N7.437 billion to N8.388 billion, implying an average cost per head of N2.27 billion in 2013 as against N2.04 billion in 2012. Average contribution of each employee to pre-tax profit improved from N0.70 million to N0.88 million. The wide disparity between average cost per head and average pre-tax profit per head underlined the top-heavy nature of the staff costs structure, where nearly half of the employees earn around N1 million per annum. The company reined in costs and increased staff productivity, creating modest margin that further improved profitability. Total cost of business, excluding interest expense, improved marginally to 91.3 per cent in 2013 as against 92.1 per cent in 2012.

     

    Profitability

     

    The intrinsic profit-making capacity of the company improved in 2013. While gross profit margin inched up from 35.6 per cent to 35.7 per cent, the improvement was evident in pre-tax profit margin which rose from 4.3 per cent to 5.1 per cent. Underlying returns were also better with return on total assets of 6.4 per cent in 2013 as against 5.3 per cent in 2012. Return on equity also rose from 16.3 per cent to 22.7 per cent.

    Group turnover rose by 7.1 per cent from N59.86 billion to N64.09 billion. Cost of sales moderated at N41.12 billion as against N38.54 billion. Gross profit rose by 7.3 per cent from N21.333 billion to N22.89 billion. Total operating expenses stood at N17.41 billion, 5.0 per cent above N16.58 billion recorded in the previous year. While non-core business income rose by about 25 per cent from N57 million to N72 million, interest expense was almost flat at N2.29 billion in 2013 as against N2.25 billion in 2012. With these, profit before tax increased by 27.5 per cent from N2.56 billion to N3.26 billion. With about 54 per cent reduction in tax expenses, profit after tax jumped by 70 per cent from N1.68 billion to N2.86 billion.

    Also, basic earnings per share improved from N2.62 to N4.46. The company paid cash dividends of N1.41 billion for the 2013 business year compared with N1.28 billion distributed for the 2012 business year. This implies a dividend per share of N2.20 in 2013 as against N2 in 2012. Notwithstanding the increase in cash payout, dividend cover increased from 1.3 times to 2.0 times. Net assets per share also increased by 22 per cent from N16.09 to N19.63.

     

    Liquidity

     

    Seven-Up’s liquidity position improved during the period, although it generally remained weak and susceptible. Current ratio, which relates current assets to current liabilities, improved from 0.51 times to 0.56 times. While working capital remained negative, the quantum improved during the period. The proportion of working capital to total sales stood at -19.3 per cent in 2013 as against -24.5 per cent in 2012. Debtor/creditor ratio closed 2013 at 8.9 per cent compared with 6.6 per cent in 2012.

     

    Governance and structures

     

    A leading fast moving consumer good (FMCG) company, 7-Up is the manufacturer and Nigerian franchise holder for several global soft drinks including Pepsi and Mirinda. Incorporated in 1959, 7-Up derived its name from its unique flagship brand-7-Up soft drink. Its other popular brands include Teem Lemon, Mountain Dew and aquafina. Its shares were listed on the Nigerian Stock Exchange (NSE) in 1959. It stands alone as the only publicly quoted soft-drink company in Nigeria. Affelka S A is the majority core investor in 7-Up with total equity stake of 72.97 per cent.

    The board and management remained unchanged during the year. Faysal El-Khalil still chairs the board while Mr Sunil Sawhney leads the executive management team as managing director and chief executive. The company broadly complies with extant codes of corporate governance and best practices.

     

    Analyst’s opinion

     

    The performance of 7-Up in 2013 is commendable. It has managed its constrained top-line efficiently. The emerging balance sheet restructuring, though still tenuous, supports the overall performance outlook. However, it needs to further enliven the top-line and create wider room for profitability, there is a limit to the extent it can use cost management to manage slow sales without adversely affecting the long-term performance of the company. Besides, 7-Up needs to aggressively improve on its balance sheet restructuring.

    The emerging outlook is impressive; 7-Up needs to sustain the momentum; growing the top-line while optimising the midline cost management to deliver better returns to shareholders.

  • What premium for Transcorp?

    What premium for Transcorp?

    Transnational Corporation of Nigeria (Transcorp) Plc has sustained impressive uptrend as the most active and fastest rising stock at the stock market in recent weeks. Now with the second highest average year-to-date return at the stock market, Capital Market Editor, Taofik Salako reports that while demand suggests strong prospects of further appreciation, the next earnings period may be decisive for the conglomerate.

    Transnational Corporation of Nigeria (Transcorp) Plc appears to be the toast of investors at the stock market. With the largest volume of activities and the highest capital appreciation week-on-week, it has sustained enviable position atop the activity chart at the stock market. Average year-to-date return at the stock market, as measured by the All Share Index (ASI) of the Nigerian Stock Exchange (NSE), opens today at 39.77 per cent. Transcorp meanwhile opens with a year-to-date return of 459.05 per cent, trailing behind the Forte Oil, which opens with average year-to-date return of 1,321.22 per cent. Forte Oil, previously the fastest rising stock, had been slowed down in recent weeks by profit-taking transactions, with investors taking profit and relocking their gains into other stocks.

    For Transcorp, the recent share price rally and scramble started with the confirmation and, subsequently, the handover of its new acquisition- a power plant. As news made the round that Transcorp, alongside other bidders, had completed the acquisition of unbundled power plants, investors rushed shares of Transcorp, the only quoted company and publicly available window to participate in the privatisation of the power sector. Transcorp, through its subsidiary, Transcorp Ugheli Power Limited (TUPL), had in August completed acquisition of Ugheli power plant with the payment of $225 million to complete the $300 million bid price for the power plant. Transcorp had earlier made initial payment of $75 million, being required 25 per cent initial payment by bid winner. Transcorp then started a gradual rise, which fervour has continued to increase with the passing of every week. From a share price range of N1.33 in late August, Transcorp’s share price opens today t year-to-date high of N5.87 per share. This represents an increase of 341.4 per cent in the past three months.

    A rush for power

     

    Transcorp is the anchor company in the Transcorp consortium, which included companies such as Wood Rock; Symbion Power LLC, USA; Medea Development; PSL Engineering and Control and Thomassen Services and Contracting Company. With installed capacity of 972 megawatts, current generating capacity of 300 megawatts and potential output of 1070 megawatts, the Ugheli power plant thickens the basket of the conglomerate’s businesses in strategic sectors including Transcorp Hilton Hotel, Abuja; Transcorp Hotels, Calabar; Teragro Commodities Limited and Transcorp Energy Limited, operator of OPL 281. Power, upstream oil, hospitality and agriculture; the combination of businesses and sectors appear to make for a robust outlook, given the synergies in these fastest growing and dominant sectors of the Nigerian economy. Often cited in relation to the boom in the telecommunications sector, most analysts perceive the power firms as cash cows that would not only generate power but significant returns for investors. The monopolistic nature of the system and centrality of the success of the privatization to government’s transformation agenda confer enormous advantages on the power companies.  But such enthusiasm is not reflecting on the market consideration of the conglomerate at the stock market, the best indicator to gauge public perception. This is more evident given that Transcorp holds the distinction as the only publicly quoted company with a pie of the power sector.

     

    Growing conglomerate

    Besides the acquisition of the Ugheli power plant, Transcorp has recently undertaken several strategic initiatives to enable stable growth. Transcorp recently concluded a rights issue of 12.91 billion ordinary shares of 50 kobo each at N1 per share. The net proceeds of the rights issue estimated at N12.52 billion was scheduled mainly to refinance the loan taken to acquire the Ughelli power plant. About 79 per cent of the net proceeds amounting to N9.84 billion would be used to refinance Ughelli Power. The conglomerate would use N1.63 billion, 13 per cent of net proceeds, for exploration and development of its oil block, Oil Prospecting Licence (OPL) 281. The balance of N1.05 billion, representing 8.0 per cent of net proceeds, would be used to develop new hotels Port Harcourt and Lagos; in order to boost the conglomerate’s hospitality business in the South-South and South-West of Nigeria.

    Transcorp is also pushing for growth on other frontiers. It had revised the terms of partnership in its Oil Processing License 281 (OPL 281) in Nigeria. The revised terms were said to be as a result of a change of control in Transcorp as the conglomerate sought to fully take responsibility for the operation of the block in its bid to become a leading Nigerian indigenous oil and gas upstream company with production. It recently signed a new deal with Hilton Worldwide to build a new premier hotel in the up-market suburb of Ikoyi, Lagos. The proposed Transcorp Hilton Lagos, a full service, 350-room hotel on Glover Road, Ikoyi, will be the Hilton Group’s second hotel in Nigeria by Transcorp, following the award-winning Transcorp Hilton Hotel Abuja, which is one of the leaders in Hilton’s global network. The new hotel will be jointly owned by Transnational Hotels and Tourism Services Ltd, the hospitality subsidiary of Transcorp and Tony Elumelu’s Heirs Holdings.

    Speaking at the official signing of the management contract, Chairman, Transnational Corporation of Nigeria, Mr. Tony Elumelu said the agreement marked another milestone in the long-standing partnership with Hilton Worldwide.  According to him, the Ikoyi development, along with the extensive refurbishment and upgrade of the group’s existing hotels in Calabar and Abuja, demonstrated the conglomerate’s commitment to driving growth in real estate and hospitality, a strategic sector for Nigeria’s economic development.

    “The new Transcorp Hilton Lagos will not only present an additional world-class venue for the increasing numbers of investors, businessmen and tourists to Nigeria, but is creating much-needed jobs for our citizens, enabling their social and economic development,” Elumelu, who doubles as chairman of Heirs Holdings, said.

    Managing Director, Transnational Hotels and Tourism Services Limited, Valentine Ozigbo said the Transcorp Hilton Lagos will grant the many Hilton Honors customers their desire to see a world-class establishment under their preferred brand in the Lagos.

    He said the full construction works for the new hotel will commence early 2014 pointing out that the hotel will boast of full conference facilities, meeting rooms, gym and spa, and a swimming pool in an iconic design that will certainly add verve to the Lagos landscape.

    For the board of Transcorp, its expanding business lines will deliver both shareholders’ values and social values. According to Elumelu, the conglomerate’s power business would create long-term social and economic values for all stakeholders as it would leverage on the successful acquisition of Ugheli to consolidate its growth strategy in Nigeria’s power sector.

    “We can now embark fully on our strategy to contribute to the development of Nigeria’s power sector, whilst creating long term economic and social value for our stakeholders and the greater community. We fully expect our engagement on this world-class project to improve the living standards of all Nigerians as well as impact positively on our country’s GDP,” Elumelu said.

    President, Transnational Corporation of Nigeria (Transcorp) Plc, Mr. Obinna Ufudo said TUPL has extensive worldwide power sector experience in Africa, Europe and the Middle East which underscores its unquestionable capacity to effectively manage the plant profitably in line with international standards.

    According to him, the conglomerate plans to increase the power generation of the plant from 300 megawatts to more than 1070 megawatts over the next five years. Chief executive officer, Transcorp Ughelli Power Limited (TUPL), Adeoye Fadeyibi added that the company plans to deliver on capacity targets and sustain the momentum using highly efficient people and resources to achieve operational excellence.

    Obviously, Transcorp is riding on the momentum of the power business and the new hotel deals. Besides, investors appear to see a more coordinated and determined approach to the growth of the conglomerate. But beyond the immediate enthusiasm, emerging corporate earnings of the conglomerate and steadiness of its business development strategy will determine the medium to long-term relativity of the share pricing trend. With its troubled background still casting doubts in the minds of several investors, Transcorp needs to deliver tangible and demonstrable returns to sustain growing investors’ confidence.