The Nation Newspaper

Category: Due Diligence

  • UP: Steady performance

    UP: Steady performance

    University Press (UP) Plc maintained a steady performance in 2013 with modest improvements in sales and profitability. The printing and publishing company grew sales by 11 per cent and reined in initial high costs of sales to retain modest improvement in the bottom-line. The steady profit outlook enabled the company to retain its dividend per share of 35 kobo while growing net assets per share by 17 per cent.

    Audited report and accounts of the printing and publishing company for the year ended March 31, 2013 showed average pre-tax profit margin improved marginally from 16.5 per cent in 2012 to 17 per cent in 2013 after the company fell on midline cost management to moderate the gross margin, which had dropped from 52.1 per cent to 50.8 per cent. The improved underlying bottom-line reflected in the actual pre and post tax profit, which grew by about 15 per cent each.

    While the overall cost of business was slightly higher, the balance sheet position of the company was stronger with better financing structure and liquidity. Its zero financial leverage remained a stabilising factor while adequate financing coverage provides reassurance on the cash flow of the company.

     

    Financing structure

    UP’s total assets inched up by 3.9 per cent from N2.68 billion to N2.79 billion. Non-current assets had increased by about 28 per cent from N1.02 billion to N1.30 billion while current assets dropped by 10.6 per cent from N1.66 billion to N1.49 billion. Total liabilities meanwhile dropped by 25.3 per cent to N623 million in 2013 as against N834 million in 2012. Current liabilities had dropped by 34 per cent from N772 million to N512 million. Long-term liabilities rose by 79 per cent from N62 million to N111 million. Shareholders’ funds increased by 17.1 per cent to N2.17 billion in 2013 as against N1.85 billion in 2012. The paid up share capital of the company remained unchanged at N216 million.

    The underlying financing position was stronger with better equity financing and less pressures from current liabilities. The proportion of equity funds to total assets improved from 68.9 per cent in 2012 to 77.7 per cent in 2013. Current liabilities/total assets ratio dropped from 28.8 per cent to 18.4 per cent while long-term liabilities/total assets ratio stood at 4.0 per cent in 2013 as against 2.3 per cent in 2012. The company maintained zero gearing ratio with no outstanding indebtedness to banks.

     

    Efficiency

    The company managed to balance costs and productivity, harnessing its improving midline cost management to mitigate top-line costs. Average number of employees reduced from 301 persons in 2012 to 293 persons in 2013. Total staff costs meanwhile increased from N293.12 million to N339.43 million, representing average staff cost per head of N1.16 million in 2013 as against N0.974 million in 2012. Average contribution of each employee to the pre-tax profit improved correspondingly from N1.14 million to N1.34 million. Total cost of business, excluding financing charges, inched up to 84.5 per cent of total incomes in 2013 as against 84 per cent recorded in 2012.

     

    Profitability

    UP sustained a modest profit outlook; with both actual profit and loss figures and underlying profitability ratios showing appreciable improvements. Total turnover grew by 11 per cent from N2.08 billion in 2012 to N2.31 billion in 2013. The company’s only business line remained sales of printed books. The top-line performance reflected modest growth in sales in the western and northern regions as well as impressive increase in emerging export sales. UP divided its domestic market into three zones-western, northern and eastern zones. Turnover in the western zone increased by 12.5 per cent from N702.10 million to N789.54 million. Sales within the northern zone also improved by 12 per cent to N985.15 million as against N877.04 million in previous year. However, sales within the eastern zone was almost flat at N500.64 million in 2013 as against N500.3 million in 2012. Export sales jumped from N2.67 million in 2012 to N37.38 million in 2013.

    Cost of sales, however, rose by 14 per cent from N998 million to N1.14 billion. This moderated gross profit growth to 8.4 per cent at N1.18 billion in 2013 compared with N1.08 billion in 2012. Total operating expenses grew by 8.9 per cent from N751 million to N818 million. Non-core business income rose by 146 per cent to N48 million as against N19 million. Finance charges increased by 29 per cent from N9 million to N12 million. With these, profit before tax improved by 14.5 per cent to N393 million in 2013 as against N344 million in 2012. After taxes, net profit stood at N261 million as against N227 million, indicating an increase of 14.6 per cent.

    Earnings per share increased by 14.6 per cent from 53 kobo in 2012 to 60 kobo in 2013. The company distributed N151 million as cash dividends to shareholders, representing a dividend per share of 35 kobo, the same rate paid for the previous year. Net assets per share meanwhile improved from N4.29 to N5.02.

    Underlying performance ratios were mostly on the upward. While gross profit margin slipped from 52.1 per cent to 50.8 per cent, pre-tax profit margin improved from 16.5 per cent to 17 per cent. Return on total assets increased from 12.8 per cent to 14.1 per cent while dividend cover firmed up to 1.73 times as against 1.51 times in previous year. However, return on equity slipped from 12.3 per cent to 12 per cent.

     

    Liquidity

    The liquidity position of the company remained stable. Current ratio, which relates probable current liabilities with similar assets, improved from 2.15 times in 2012 to 2.90 times in 2013. The proportion of working capital to total sales was steady at 42.1 per cent in 2013 compared with 42.7 per cent in 2012. Debtors/creditors ratio stood at 1,594 per cent in 2013 as against 32.2 per cent in 2012.

     

    Governance & structures

    Incorporated in 1949, UP is one of the oldest surviving companies in Nigeria. It became a public limited liability company and listed its shares in 1978. University Press is owned by about 11,000 shareholders with three major investors holding 23.77 per cent. Oxford University Press, United Kingdom, the foreign partner, holds 9.80 per cent equity stake. Cashcraft Asset Management Limited, a Nigerian investment firm, holds 7.71 per cent while Dr. Lekan Are, who chairs the Board of Directors, holds the largest individual equity stake of 6.26 per cent.

    The board and management remain stable. Mr Samuel Kolawole still leads corporate growth as managing director. UP broadly complies with code of corporate governance and best practices with appropriate committees, checks and controls to ensure independence and integrity of the decision-making and accounting processes.

     

    Analyst’s opinion

    University Press has shown appreciable resilience and stability. However, it needs to retool its sales strategy to unlock new domestic and international markets. There is a limit to the use of cost management in sustaining profit in the face of sluggish sales. As noted earlier, a large top-line growth will provide more room to manage costs and deliver a healthier bottom-line. UP needs to explore new product development. Besides, it needs to find new high-margin ways of selling traditional products. While building on its public sector patronage, the company also has to break new grounds in the domestic and international private education businesses. It has started this with the increase in export sales.

    The expected recapitalisation of the company would provide additional capital to further support growth and steady it against operating challenges. Overall, there is a reasonable basis to assume that UP will sustain steady performance in the years ahead.

  • Total Nigeria: Declining margins

    Total Nigeria Plc is struggling with low sales growth amidst increasing financing challenge, a delicate mix that threatens to constrict the bottom-line and returns to investors. Emerging operational report of the downstream company showed marginal growth in sales but the minimal top-line performance was overwhelmed by astronomical increase in financing charges. The latest report, for the first half ended June 30, 2013, fell into the pattern of performance in the previous year. The audited report had indicated that while the company witnessed significant growth in sales, declining underlying fundamentals showed a less efficient and increasingly susceptible performance.

    First-half report showed that sales rose by about 7.0 per cent to N117.29 billion by June 2013 as against N109.84 billion recorded in comparable period of 2012. Gross profit rose from N12.91 billion to N15.56 billion. Profit before tax meanwhile dropped by 7.0 per cent from N4.81 billion to N4.47 billion. Profit after tax also declined by 9.0 per cent from N3.27 billion to N2.98 billion. The decline in earnings per share from N8.61 in 2012 to N7.10 in 2013 outlined possible drop in returns to shareholders.

    The first-half performance was coloured by the sharp rise in interest expenses. While non-core business income dropped from N579.95 million to N267.90 million, interest expenses jumped from N21.99 million in 2012 to N596.6 million in 2013. Profit before tax margin slipped to 3.81 per cent in first half 2013 as against 4.38 per cent in comparable period of 2012. The weak bottom-line evidenced the negative impact of the interest burden. Gross profit margin had improved from 11.75 per cent to 13.27 per cent.

    Audited report and accounts of Total Nigeria for the year ended December 31, 2012 had shown substantial outward growths in profit and loss items with 25 per cent and 23 per cent growth in sales and profit after tax respectively. The obvious improvement in the bottom-line enabled the company to increase dividends to shareholders by 22 per cent. But beyond the surface, Total Nigeria’s profit-making capacity was relatively lower and its balance sheet support weakened considerably. With high financial leverage and negative working capital, the overall balance sheet was unsteady.

     

    Financing structure

    The underlying financing structure was evidently weaker with debt-to-equity ratio spiraling to a high of 129 per cent as against 32 per cent in previous year. The proportion of equity fund to total balance sheet size declined from 17 per cent to 14.9 per cent while current liabilities now amounted to 81 per cent of total assets as against 78 per cent in previous year.

    Total assets rose by 29.5 per cent from N58.72 billion in 2011 to N76.07 billion in 2012. Non-current assets had grown by 11 per cent from N18.29 billion to N20.33 billion while current assets grew by 38 per cent from N40.43 billion to N55.74 billion. Total liabilities stood at N64.77 billion in 2012, 33 per cent above N48.69 billion recorded in 2011. Bank loans jumped by 357 per cent from N3.19 billion to N14.56 billion. With the paid up capital unchanged at N169.8 million, shareholders’ funds rode on the back of retained earnings to N11.30 billion in 2012, 13 per cent above N10.03 billion posted in 2011.

     

    Efficiency

    Total Nigeria was straddled between declining top, mid and bottom-line margins. Average margin was flat, although average productivity improved. Average number of employees increased by two persons from 472 persons to 474 persons. Total staff cost increased from N4.72 billion in 2011 to N5.23 billion in 2012. Average cost per staff thus increased from N10 million to N11 million. Average pre-tax profit per employee meanwhile improved from N12.41 million to N15 million. Total cost of business, excluding financing charges, was flat at 96.5 per cent.

     

    Profitability

    Total Nigeria recorded a mixed grill with declining margins counterbalancing outward growths. Turnover rose by 25 per cent from N173.95 billion to N217.84 billion. The top-line was driven mainly by impressive 27 per cent growth in the main petroleum products business segment, which rose by 27 per cent from N153.93 billion to N196.07 billion. Cost of sales outpaced total sales’ growth with 26.5 per cent increase from N1151.53 billion to N191.63 billion. Gross profit thus rose by 17 per cent to N26.21 billion in 2012 as against N22.42 billion. Total operating expenses increased by 13 per cent from N16.37 billion to N18.56 billion. Non-core business income grew by 49 per cent from N687 million to N1.02 billion. Interest expense jumped by 80 per cent from N875 million to N1.57 billion. With these, profit before tax rose by 21 per cent from N5.86 billion to N7.1 billion. Profit after tax also grew by 22.5 per cent from N3.81 billion to N4.67 billion.

    Earnings per share thus increased from N11.23 in 2011 to N13.76 in 2012. The company increased gross dividend by similar margin from N3.06 billion to N3.74 billion, indicating earnings per share of N11 for 2012 as against N9 in 2011. Dividend cover was however flat at 1.25 times. Net assets per share stood at N33.29 in 2012 compared with N29.53 in 2011.

    Beyond the surface, underlying profitability ratios were generally negative. Gross profit margin dropped from 12.9 per cent to 12 per cent while profit before tax margin slipped from 3.4 per cent to 3.3 per cent. Return on total assets dropped from 10 per cent to 9.3 per cent. Return on equity was however higher at 41.3 per cent as against 38 per cent in previous year.

     

    Liquidity

    The liquidity position of the company remained tepid with marginal improvement in current ratio counteracted by negative working capital. Current ratio, which broadly indicates ability of the company to meet emerging financing needs by relating current assets to relative liabilities, improved slightly from 0.88 times in 2011 to 0.90 times. The proportion of working capital to total sales stood at -2.9 per cent in 2012 as against -3.2 per cent in 2011. Debtors/creditors ratio stood at 31.6 per cent in 2012 as against 35.7 per cent in 2011.

     

    Governance and structures

    Total Nigeria was incorporated in 1956 as a private limited liability company and became a public limited liability company in 1978. Total Nigeria is a subsidiary of French multinational and Europe-leading oil company-Total S. A. There were some changes on the board and management of the company. Mr Momar Nguer became the chairman of board of directors. Mr Francois Boussagol meanwhile remains the managing director. Total Nigeria broadly complied with extant codes of corporate governance and best practices.

     

    Analyst’s opinion

    The latest audited report and interim report of Total Nigeria underlined the need for a careful consideration of the business strategy of the company. While sales growth is commendable, and should be sustained, the company needs to realign its costs to optimise sales into tangible returns to shareholders. Besides, the company faces a looming challenge of financial mismatch with expanding loan book gradually eroding the bottom-line. The first half report for 2013 clearly illustrated this. With 2,613 per cent increase in interest expense from N21.99 million in first half of 2012 to N596.60 million in first half 2013, both actual and underlying profit measures turned negative. Profit before tax dropped from N4.81 billion to N4.47 billion while profit after tax declined from N3.27 billion to N2.98 billion. Average profit before tax margin dwindled from 4.38 per cent in first half 2012 to 3.81 per cent in first half 2013. The company needs to address the disconnect between the top-line and the bottom-line.

  • What intrinsic values for Berger Paints?

    Berger Paints holds the distinctive records of being the first paints factory in Nigeria and the first paints and chemical company to be quoted on the stock market. It has since sustained its preeminent position as a leader in the paints industry. Capital Market Editor, Taofik Salako, reports that ongoing recapitalisation will create opportunities for future growths and returns

     

     

    The Nigeria Stock Exchange (NSE) Industrial Index indicates the robustness of the industrial goods sector, largely made up of two subgroups-cement manufacturing and paints and chemical companies.

    The NSE Industrial Index opens today with a year-to-date return of 55.13 per cent, almost a double of the average return at the stock market. The All Share Index (ASI), the common value-based index that serves as benchmark for all equities on the Exchange and doubles as country index for Nigeria, opens today with year-to-date return of 29.65 per cent. Unlike the ASI which tracks all equities on the NSE, the NSE Industrial Index is a representative index with selected active stocks forming the benchmark for the entire sector.

    The NSE Industrial Index thus consists of 10 stocks while there are 26 stocks under the industrial goods sectors at the NSE. The index-making stocks included four paints and chemical companies, four cement manufacturing companies, a packaging company and an electrical and electronic company. The paints companies are Berger Paints, CAP, Paints & Coatings Manufacturing Company and Portland Paints and Products Plc. Other stocks in the index are Ashaka Cement, Cement Company of Northern Nigeria, Dangote Cement and Lafarge Cement Wapco Nigeria, Beta Glass and Cutix Plc.

    Besides the significance of the industrial goods sector’s return over the average overall market return, returns by other sectors are significantly below industrial stocks. The NSE Banking Index starts trading today with a year-to-date return of 14.67 per cent. The NSE Oil and Gas Index opens with 24.27 per cent. The NSE Insurance Index has average return of 17.45 per cent. The NSE Consumer Goods Index places a return on board of 21.31 per cent while the NSE 30 Index, which tracks the 30 most capitalised stocks at the stock market, indicates average return of 27.07 per cent. The above-average return of the NSE Industrial Index illustrates both the intrinsic strengths of the constituent stocks as well as the overall industry outlook for the building and construction industry.

     

    Industry outlook

    The building and construction industry is regarded a growth industry with immense potential for operators. With the government focus on infrastructure and private sector initiatives in housing and infrastructure, Nigeria is a large expanse of building and construction projects. The largest country in Africa, with more than 170 million population and in critical need of development of infrastructure, the need for capital projects especially in housing and roads has continued to grow year-on-year. Nigeria’s stable Gross Domestic Products (GDP) growth has also enhanced the outlook for the building and construction industry, given that it is generally accepted that the level of GDP per capita positively correlates with the level of building and construction activity. The continued optimisation of existing production capacity and planned installation of a new production line to increase production capacity by several companies in the sector underline the robust future outlook for the building and construction and allied sector. Besides being a major part of the building and construction sector, the chemical and paints subsector stands to benefit from Nigeria’s burgeoning oil and gas as well as transportation sectors.

    In all these, Berger Paints holds substantial stake as a pioneer and leader in the paints and chemical subsector. Incorporated in Nigeria on January 9, 1959 as British Paints (W.A.) Limited, Berger Paints derived its legacy name from Lewis Berger, the German colour chemist who founded the Berger Paints’ dynasty of London in 1760. It commenced business in 1961 by importing paints from its principal partner in the United Kingdom in March 1962. It subsequently commissioned its factory in Lagos, which made history as the first paint factory in Nigeria. It added another first when it became the first paints manufacturing company to be quoted on the NSE. Over the years, Berger Paints has developed a large portfolio of decorative and industrial paints, marine and protective coatings, automotive and vehicle refinishes and allied products. In many instances, it pioneered the product range that set the new trend for industry growth. These products included Berger Fire Retardant Texcote, a textured finish that it pioneered and which its short-code, Texcote, became the generic name for textured paints.

     

    Growing the margin

    In a bid to enhance its competitive edge in the paints and allied products industry, Berger Paints has been initiated several strategic plans to strengthen its manufacturing, marketing and delivery processes. One of the key thrusts of these initiatives is the ongoing recapitalisation of the company, being led by the core investors and directors. Berger Paints is offering about 72.46 million ordinary shares of 50 kobo each to existing shareholders at N7.50. The offer price implies a discount of some 16 per cent on the company’s market price of N8.70 at the stock market. While shareholders have opportunity to request for additional allotment subject to availability of renounced shares, shareholders can also alternatively trade their renounced shares at the NSE. Application list for the rights issue opened on August 20, 2013 and the rights are being offered on the basis of one new ordinary share for every three ordinary shares held as at May 31, 2013. The net proceeds of the offer amounting to N521.71 million will be used primarily for the modernisation of the company’s manufacturing operations. According to the breakdown of utilisation of net proceeds approved by the Securities and Exchange Commission and the NSE, the net proceeds would be used primarily to purchase and install water-based plant and solvent-based plants from Spain. Besides, the company plans to invest additional N150 million out of its operating cash flow in support of the modernisation.

    Chairman, Berger Paints Nigeria Plc, Mr. Clement Olowokande said the modernisation was the main thrust of a strategic plan to ensure that the company continues to operate at the forefront of paint technology by replacing its aging manufacturing infrastructure.

    According to him, the modernisation of the company’s factory operations would lead to improved efficiency that will positively impact on turnover and profitability.

    He noted that Berger Paints has always been the standard-setter in the industry with enviable records of pioneering wide range of popular special products.

    Olowokande said the company has taken several initiatives and entered new partnership that would greatly enhance its products and services in the paint and coating industry in the period ahead.

    He expressed confident that the company would record significant growth and improvements in its operations in the years ahead in order to create better value for shareholders.

    Besides, the company also plans to commit substantial investments on major improvements of its distribution channels. Berger Paints also recently entered into partnership agreement with KCC Corporation of South Korea, one of the largest paints and chemical manufacturing companies in the world, a new partnership that expectedly will enhance its products and services. Under the arrangement, both companies will jointly serve the Nigerian paint and coating market in the first instance and thereafter, the broader business community of West African States. Berger Paints will provide KCC with ease of access it requires to operate in Nigeria as well as a strong platform to access the growing marine and protective coating market in Nigeria while KCC Corporation will contribute advanced technology, technical and training support as well as research and development. Already, KCC products are internationally certified and qualified to operate in the Nigerian oil and gas industry.

    Managing Director, Berger Paints Plc, Mr. Tor Nygard, said the company decided to partner with KCC Corporation, the largest coatings manufacturer in Asia, to offer the growing maritime market superior products that are comparable to competition.

    According to him, the introduction of KCC brands was a demonstration of Berger Paints’ commitment to providing customers with real choice and widest range of marine and heavy duty coatings that meet the specific needs of their vessels, ship, fleets, offshore and mainstream operations.

    While diversifying its products base, the company has also been investing in allied assets that could provide diversified revenue stream. It recently commissioned a N650 million building materials and related products shopping complex in Abuja, as part of its diversification strategy. The complex, which is located in the Central Business District (Wuse II District) of the Federal Capital Territory (FCT, is expected to have great impact on the company’s income from this year onward.

    Financial mismatch has been the main weakness of several companies that had embarked on expansionary initiatives. Several companies that had resorted to short-term bank loans to finance their business development plans often ended up with interest burden, which neutralises earnings and stifles value-creation potential of the expansion to the ordinary shareholders. In most instances, shareholders will then be called upon to refinance the short-term loans with equity funds, in order to give the company a breather from mounting interest expense and in some instances, loan-induced losses. This is one of the strategic benefits of the decision by shareholders of Berger Paints to finance the next strategic investment of the company with equity funds. Why wait until the interest expense becomes a drag? Although it is the second most capitalised chemical and paints company, Berger Paints has the second lowest outstanding shares in the subsector. With 217.37 million ordinary shares currently outstanding, the addition of 72.46 million shares will increase post-offer outstanding shares to 289.82 million shares, still the second lowest issued shares in the subsector. Higher earnings and relatively low issued shares will translate into high basic earnings per share, which will enable the company to declare above-average dividends and still build up reserves, which it can return to shareholders later in form of bonus shares. Most analysts also see high net basic earnings per share as a driver of share price appreciation.

    Besides, the rights issue option underlines the confidence of the directors and key shareholders in the prospects of the company. CAB (Overseas Holdings) Limited, United Kingdom, holds 11.26 per cent equity stake in Berger Paints while directors and key Nigerian shareholders hold the largest stakes. In a strong demonstration of firm opinion on the fairness of the offer price, the lead issuing house has underwritten 30 per cent of the rights issue on a stand-by basis. In effect, the lead issuing house will come up with 30 per cent of the offer value where the shareholders failed to pick up such shares. No discerning investor will fail to notice the significance of the preparedness of the directors and key shareholders as well as the lead issuing house to lead the fund raising. It points to the current discounted value of the share as well as the future earnings.

     

    Forecasting the earnings

    On the basis of the expected new equity funds and the outlined modernisation project, directors of Berger Paints estimate that average dividend yield would be 11.73 per cent over the next five years. The company is expected to sustain stable and substantial dividend payout over the years. With profit after tax projected to rise steadily to N328.4 million, N429.18 million, N478.17 million, N541.7 million and N597.1 million in 2013, 2014, 2015, 2016 and 2017, earnings per share is expected to follow the uptrend at N1.13, N1.48, N1.65, N1.87 and N2.06. Shareholders will receive dividend per share of 70 kobo each for 2013 and 2014 and thereafter N1 per share yearly from 2015 to 2017. These show substantial returns at current offer price. Dividend yield is expected to be 9.33 per cent in 2013 and 2014 while this will rise to 13.33 per cent annually from 2015 to 2017. Substantial returns will also be locked into the reserves for the shareholders with earnings yield expected to rise steadily from 15.67 per cent in 2013 to 19.73 per cent, 22 per cent, 24.9 per cent and 27.47 per cent in 2014, 2015, 2016 and 2017.

    According to the forecasts, turnover is expected to increase to N3.46 billion in 2013 and subsequently to N4.08 billion, N4.56 billion, N5.08 billion and N5.64 billion in 2014, 2015, 2016 and 2017 . Profit before tax is estimated at N482.94 million for 2013 and thereafter at N631.14 million, N703.19 million, N796.67 million and N878.09 million in 2014, 2015, 2016 and 2017.

    An average yearly dividend yield of 11.73 per cent will expectedly drive share price appreciation, creating additional values for investors through capital gains. For investors seeking to hedge against possible stock market downtrend and hoping to lock in stable stream of incomes, Berger Paints’ projections offer exciting opportunities.

     

  • Unilever Nigeria: Still tight

    Unilever Nigeria Plc continues to walk the path of narrow sales growth and muted margins. Earnings reports in recent periods show striking similarities-relatively low sales growth amidst tight margins. Earnings report for the six-month period ended June 30, 2013 showed top-line growth of 10.2 per cent but net earnings after tax dropped by 3.2 per cent, underlining the decline in average pre-tax profit margin from 14.19 per cent to 13.35 per cent. With these, basic earnings per share slipped to 72 kobo by June 2013 as against 75 kobo recorded in comparable period of 2012.

    Audited report and accounts of the fast moving consumer goods company for the year ended December 31, 2012 had shown almost a standstill position as the conglomerate struggled with slowdown in sales and rising interest expenses. While it ostensibly leveraged on large-scale global purchasing power to reduce relative cost of sales and create larger top-line profit, a double in financing charges sapped the midline, leaving the conglomerate with almost flat bottom-line.

    With negligible 1.5 per cent increase in profit after tax and just difference of 8.0 kobo between distributable earnings per share and previous dividend payout, the company was constrained to retain dividend payout at N1.40 per share. The constraints also reflected in underlying returns, which slipped to lower levels in 2012. The2013 half-year bottom-line suggests possibility of a flat dividend payout again this year.

     

    Financing structure

    The audited report for 2012 showed that total assets increased by 13 per cent from N32.25 billion in 2011 to N36.50 billion in 2012. Current assets had dropped by 8.4 per cent from N16.13 billion to N14.78 billion. Total long-term assets meanwhile improved significantly from N16.12 billion to N21.72 billion. Total liabilities however grew by 17 per cent to N26.46 billion in 2012 as against N22.62 billion in 2011. Liabilities had grown on the back of 18 per cent increase in current liabilities from N18.9 billion to N22.33 billion and 11 per cent rise in long-term liabilities from N3.72 billion to N4.12 billion. While paid up share capital remained unchanged at N1.89 billion, shareholders’ funds inched up from N9.64 billion to N10.04 billion. The underlying financing structure weakened in 2012 with debt-to-equity ratio of 43 per cent as against a zero immediate bank loans in 2011. The proportion of equity funds to total assets also slipped from about 30 per cent to 28 per cent while current liabilities increased to 61 per cent of total balance sheet size as against about 59 per cent in 2011. Long-term liabilities amounted to 11.3 per cent of total assets in 2012 compared with 11.5 per cent in 2011.

    However, the disproportionate growth in assets and liabilities in first half of 2013 impinged on the equity base of the company. Shareholders’ funds dropped to N7.49 billion by June 2013 as against N10.04 billion recorded by December 2012. Total assets had increased slightly from N36.50 billion in December 2012 to N38.13 billion by June 2013. Total liabilities rose from N26.45 billion in December 2012 to N30.64 billion by the end of June 2013.

     

    Efficiency

    Tight cost management and stable productivity underpinned a relative efficiency outlook. Total cost of business, excluding financing charges, was 84 per cent of total sales in 2012 as against 84.9 per cent in 2011. It had in the previous year achieved considerable improvements in employee productivity and cost management with average contribution of each employee to the bottom-line improving appreciably from N6.19 million in 2010 to N7.46 million in 2011.

     

    Profitability

    In 2012, Unilever Nigeria’s profitability outlook was coloured by the almost standstill in its market share. The profit and loss accounts showed spirited efforts by the management to cushion the adverse impact of the top-line slowdown on the bottom-line, holding tightly to costs. In the immediate, the cost management strategy helped to stabilize both actual and underlying profitability measures. Turnover stood at N55.55 billion in 2012, a marginal improvement on N54.73 billion recorded in 2011. Cost of sales meanwhile dropped by 2.4 percent from N34.72 billion to N33.90 billion. Lower cost of sales nudged gross profit to N21.65 billion in 2012 compared with N20 billion in 2011, indicating an increase of 8.2 per cent. Total operating expenses-including administration and distribution expenses; rose by 8.3 per cent to N12.74 billion as against N11.77 billion in previous year. While non-core business income was steadied between N215 million in 2012 and N209 million in 2011, a 119 per cent increase in finance charges from N428 million to N935 million impacted negatively on the bottom-line. Profit before tax thereafter closed 2012 at N8.19 billion as against N8.02 billion in 2011. Profit after tax was also almost flat with negligible increase of 1.5 per cent from N5.52 billion to N5.60 billion.

    Underlying profit-making indices also showed similar top-down stiffness. While gross profit margin improved from 36.6 per cent in 2011 to 39 per cent in 2012, average pre-tax profit per unit of sale was stunted at 14.7 per cent. Return on total assets slipped from about 25 per cent to 22.4 per cent while return on equity dropped slightly from 57 per cent to about 56 per cent.

    Further earnings analysis showed earnings per share of N1.48 in 2012 compared with N1.46 in 2011, a difference of 2.0 kobo. The bottom-line obviously provided no headroom for dividend increase, no matter the consideration of the directors. The board of directors thus reasonably decided to retain dividend payout at the same rate. Gross dividend and dividend per share remained unchanged at N5.30 billion and N1.40 respectively. Unless it unlocks new opportunities, there is little room for any future dividend increase with dividend cover at 1.06 times and 1.04 times in 2012 and 2011 respectively.

    Latest earnings report also showed similar outlook. Turnover rose by 10.2 per cent during the six-month period ended June 30, 2013 to N29.67 billion as against N26.92 billion recorded in corresponding period of 2012. Gross profit fared better with 11.3 per cent growth from N9.76 billion to N10.86 billion. Operating profit however pared down with an increase of 8.8 per cent to N4.34 billion as against N3.99 billion in comparable period of 2012. The bottom-line was further constrained by interest expense, with profit before tax rising by 3.7 per cent from N3.82 billion to N3.96 billion. After taxes, net profit dropped by 3.2 per cent to N2.74 billion compared with N2.83 billion. The underlying margins showed decline in the underlining profit-making capacity. While gross profit margin increased slightly from 36.26 per cent to 36.6 per cent, operating profit margin slipped from 14.82 per cent to 14.63 per cent. Profit before tax margin declined to 13.35 per cent as against 14.19 per cent in comparable period of 2012.

     

    Liquidity

    The liquidity position of the conglomerate weakened further in 2012. Current ratio, which generally relates easily available assets to similar potential liabilities, declined to a low of 0.66 times in 2012 as against 0.85 times and 0.99 times in 2011 and 2010 respectively. The negative working capital further built up to approximately 14 per cent of total sales in 2012 compared with 5.1 per cent and 0.4 per cent in 2011 and 2010. Debtors/creditors ratio closed 2012 at 38 per cent as against 34 per cent in 2011.

     

    Governance and structures

    Unilever Nigeria is the earliest publicly quoted conglomerate. With some 100,000 shareholders, it has one of the largest diversified shareholders base. Incorporated in 1923, it was listed on the stock exchange in 1973. Individual and institutional Nigerian shareholders currently hold 49.96 percent equity stake in the conglomerate while Unilever Group holds 50.04 per cent majority equity stake through Unilever Overseas Holdings B.V.

    There were no notable changes on the board of the company during the year. His Majesty Nnaemeka Achebe still chairs the board of directors while Mr Thabo Mabe still leads the executive management team as managing director.

    Unilever Nigeria complies with international best practices and codes of good corporate governance. It is one of the predictable companies in terms of voluntary compliance with extant rules and regulations.

     

    Analyst’s opinion

    The performance of Unilever Nigeria shows that the conglomerate needs to open up new market opportunities to stimulate the top-line while sustaining efficient cost management strategy. While cost management strategy can help to stabilize both actual and underlying profitability measures in the immediate period, the sustainability of such in the absence of top-line breakthrough is doubtful and precarious. Besides, it had been noted that though its low liquidity position might not pose a serious drawback given its overall credit worthiness and global group, Unilever Nigeria needs to back-up its rapid expansion and ambitious target of doubling its business size with appropriate financial mix, especially equity funds that can provide the much-needed linchpin for long-term growth. The rising gearing ratio and declining liquidity underline the urgency of financial rebalancing.

     

     

     

  • Julius Berger Nigeria: Improving performance

    Julius Berger Nigeria: Improving performance

    Julius Berger Nigeria Plc sustained its positive performance outlook with the latest audited and interim earnings reports showing improved cost and resource efficiency. Both actual and underlying profitability measures indicated improvement in outward profit figures and intrinsic profit-making capacity of the company.

    Interim report for the first half ended June 30, 2013 showed that modest improvements in all margins supported actual profit figures. Gross profit margin stood at 18.3 per cent in first half 2013 as against 17.88 per cent in comparable period of 2012. With considerable decline in marketing expenses, operating profit margin improved from 5.65 per cent to 6.44 per cent. Profit before tax margin inched up to 5.49 per cent in 2013 as against 5.13 per cent in corresponding period of 2012.

    Audited report and accounts of Julius Berger Nigeria for the year ended December 31, 2012 had shown that turnover increased by 19 per cent while profits before and after tax grew by 24 per cent and 82 per cent. The improvement in the underlying profit-making capacity and returns of the company was underlined by increases in all profit-making indices.

    With the retention of about 63 per cent of net profit for the year, the decision to retain much earnings substantially increased the underlying value of the company as net assets per share rose by 55 per cent. Besides, returns on equity and assets were higher at 53 per cent and 6.9 per cent in 2012 as against 45 per cent and 5.8 per cent in 2011.

    Financing structure

    The underlying financing position was stronger with equity funds accounting for 8.5 per cent of total assets in 2012 as against 5.7 per cent in 2011. Both reduction in loans and increase in equity funds substantially deleveraged the balance sheet with debt-to-equity ratio of 54.2 per cent in 2012 as against 164.6 per cent in 2011.

    Group total assets inched up by 3.9 per cent from N172.25 billion to N179.03 billion. Balance sheet size was driven mainly by long-term assets which rose by 35 per cent from N71.40 billion to N96.65 billion as against 18 per cent reduction in current assets from N100.84 billion to N82.39 billion. Total liabilities was almost flat at N163.89 billion in 2012 as against N162.50 billion in 2011. Bank loans had dropped by 49 per cent from N16.04 billion to N8.21 billion. Paid up share capital remained unchanged at N600 million, consisting of 1.2 billion ordinary shares of 50 kobo each. Equity funds however rode on the back of retained earnings to N15.14 billion in 2012 compared with N9.75 billion in 2011, indicating an increase of 55.4 per cent.

     

    Efficiency

    Fundamentally, the company was more efficient and relatively productive during the year. While average contribution of each employee to the bottom-line improved from N0.532 million to N0.642 million, total cost of business, excluding financing charges, dropped marginally from 93.7 per cent to 93.6 per cent of total turnover. Average number of employees increased from 18,670 persons to 19,234 persons. The staff structure however remained almost the same with wide gap between senior staff and junior staff as well as senior and management cadre. Some 95.3 per cent of employees were categorized as junior staff while 4.04 per cent and 0.63 per cent fell under senior and management staff respectively. Although average cost per employee improved from N2.32 million to N2.57 million, the staff structure counterbalanced such robustness, especially in the absence of a breakdown of staff costs across the cadres. Total staff costs had increased from N43.23 billion to N49.44 billion.

     

    Profitability

    The company sustained growths in turnover and profit, setting a stable performance trend that transcended the previous audited report to emerging earnings reports. Turnover rose by 15 per cent to N96.57 billion in first half 2013 as against N83.96 billion in comparable period of 2012. Gross profit was faster at 18 per cent from N15.01 billion to N17.68 billion. Operating profit was boosted by a more efficient midline cost management. Operating profit rose by 31 per cent from N4.74 billion to N6.22 billion. Profit before tax stood at N5.30 billion in 2013 compared with N4.31 billion, an increase of 23 per cent. Profit after tax grew by 13.5 per cent to N2.70 billion as against N2.38 billion. With these, earnings per share closed first half 2013 at N2.25 compared with N1.99 recorded in corresponding period of 2012.

    In the latest audited full-year report, Julius Berger had grown turnover by 19 per cent from N169.41 billion in 2011 to N201.57 billion in 2012. Cost of sales increased by 15 per cent to N156.73 billion compared with N135.79 billion. Gross profit leapt on higher margin to N44.84 billion, 33.4 per cent above N33.62 billion recorded in previous year. Total operating expenses increased by 39 per cent from N22.92 billion to N31.86 billion. About 80 per cent increase in non-core business incomes mitigated 39 per cent increase in interest expenses, leaving pre-tax profit with an increase of 24 per cent. Interest and other incomes increased from N1.17 billion to N2.07 billion while interest expenses rose from N1.95 billion to N2.71 billion.

    Both the civil and building works maintained considerable profitability during the period. Profit before tax stood at N12.34 billion in 2012 as against N9.93 billion in 2011. After taxes, profit for the year jumped by 82 per cent from N4.41 billion to N8.01 billion. Basic earnings per share stood at N6.83 in 2012 as against N3.68 in 2011. The company distributed N3 billion on the basis of N2.50 per share as dividends for the 2012 business year, a modest increase of 4.2 per cent on N2.88 billion paid out on the basis of N2.40 per share for the 2011 business year. With large retained earnings, net assets per share increased from N8.12 to N12.62.

    Beyond the surface, the group’s underlying profitability improved during the period, indicating that the outward profit and loss growths were driven by fundamental strengths. Gross profit margin improved from 19.8 per cent to 22.2 per cent. Pre-tax profit margin also increased from 5.9 per cent to 6.1 per cent. Return on total assets stood at 6.9 per cent in 2012 as against 5.8 per cent in 2011. Return on equity leapt to 52.9 per cent compared with 45.3 per cent. Dividend cover almost doubled at 2.73 times as against 1.53 times in previous year.

     

    Liquidity

    The liquidity position of the company declined during the period. Current ratio, which measures the relationship between current assets and relevant liabilities, declined from 1.60 times in 2011 to1.20 times in 2012. The proportion of working capital to turnover dropped from 22.4 per cent to 6.7 per cent. Debtors/creditor ratio stood at 158.5 per cent in 2012 as against 451.8 per cent in 2011.

     

    Governance and structures

    Julius Berger Nigeria is the leading construction company in Nigeria. Incorporated in 1970, it became a publicly quoted company in 1991 and now has 1.2 billion shares in the hands of more than 10,000 shareholders. There were no major changes in the ownership, group structures, board and management of the company during the period under review.

    Bilfinger Berger SE, remained the majority core investor in Julius Berger Nigeria Plc, with 39.87 per cent equity stake. Watertown Energy Limited holds 10 per cent equity stake, the second largest by a single shareholder. Other substantial shareholders include the Lagos State and Benue State, which hold 5.50 per cent and 5.21 per cent respectively through their investment companies. Julius Berger Nigeria Group includes four wholly owned subsidiaries and two largely-owned subsidiaries.

    There were no major changes on the board and management of the company. AVM. Mohammed Nurudeen Imam (rtd) still chairs the board of directors while Wolfgang Goetsch remains the managing director. Julius Berger Nigeria generally complies with code of corporate governance and the scope and presentation of its report were adequate.

     

    Analyst’s opinion

    Julius Berger Nigeria’s top-line performance remains relatively assured given Nigeria’s infrastructural requirements and the leading position of Julius Berger Nigeria in the building and construction industry. The performance trends in recent periods underscored a commendable growth strategy, driving top-line while reducing the inefficiencies and drags-such as huge borrowings, which stifle returns to shareholders. A stronger balance sheet and sustained internal efficiency will ensure increased profitability. Overall, there is reasonable basis to assume that the company will sustain its positive outlook.

     

  • DN Meyer: Not yet a ‘breakeven’

    DN Meyer Plc is still in the red, with earnings falling below expectations and weakening balance sheet highlighting new challenges to the recovery process. With marginal single-digit growth in sales and substantial increase in cost of sales, DN Meyer has been unable to muster the headroom to consolidate its appreciable midline cost management and for the first time in several years, make a modicum of return to shareholders. Latest audited earnings reports showed the limitation imposed by sluggish top-line, which could compound the threats of continuing decline in equity funds and increase in gearing ratio.

    Audited report and accounts of DN Meyer for the year ended December 31, 2012 indicated that while sales rose by 9.1 per cent, a larger increase of 12 per cent in cost of sales undermined the top-line profit margin. The company fell on internal cost management, holding down total operating expenses to 4.4 per cent growth and reducing interest expenses by 5.8 per cent. It ended with a net loss of N27 million and 4.3 decline in net assets, a significant improvement on net loss of N54 million in the previous year. but to loss-weary shareholders, it may be another disappointment for a company that had became the most speculative and fastest growing, in terms of share price, at the stock market; in expectation of its final turnaround.

    The balance sheet structure of the chemical and paints company also showed warning signals with about 13 percentage points increase in financial leverage, negative working capital and lower liquidity.

     

    Financing structure

    DN Meyer’s group total assets dropped by 5.4 per cent from N2.73 billion in 2011 to N2.58 billion in 2012. This underlined declines in both current and non-current assets. Current assets had dropped by about 11 per cent from N696 million to N621 million. Long-term assets slipped from N2.03 billion to N1.96 billion. Meanwhile, total liabilities also dropped by 5.8 per cent, largely due to decrease in trade creditors and long-term liabilities. Total liabilities stood at N1.93 billion in 2012 as against N2.05 billion in 2011. Current liabilities had dropped from N859 million to N802 million while non-current liabilities had declined to N1.13 billion as against N1.19 billion in previous year. While the paid up shares capital remained unchanged at N162.5 million-325 million ordinary shares of 50 kobo each, shareholders’ funds dropped from N679 million to N650 million.

    With 40 per cent increase in short-term bank loans, the debt-to-equity ratio rose to 39.5 per cent in 2012 compared with 26.9 per cent in 2011. The proportion of equity funds to total assets, however, inched up to 25.2 per cent in 2012 as against 24.9 per cent in 2011. Current liabilities/total assets ratio almost remained flat at 31 per cent, the same scenario for long-term liabilities.

     

    Efficiency

    The company struck a commendable balance in the management of its high cost of sales and modest operating expenses. Although there were no available data to track per unit productivity and efficiency, there was an indication of improvement. Total costs of business-excluding interest expenses, in relation to sales inched downward to 98.5 per cent in 2012 as against 98.7 per cent in 2011. However, a cost range of almost 99 per cent is considerably high in relations to the turnover.

     

    Profitability

    DN Meyer witnessed improvements in its actual and underlying profitability. Although it remains in the negative, the quantum and degree of loss-making reduced considerably during the period. These, expectedly, reduced the built-in losses for shareholders. Group turnover rose by 9.1 per cent from N1.36 billion to N1.49 billion. Cost of sales outpaced sales with increase of 11.8 per cent to N922 million in 2012 as against N825 million recorded in 2011. Consequently, gross profit increased slightly by 5.1 per cent from N538 million to N566 million.

    Total operating expenses stood at N543 million, 4.4 per cent above N521 million recorded in previous year. Non-core business incomes boosted the midline with an increase of 159 per cent from N25 million to N64 million. This, and 5.8 reduction in interest expenses from N123 million to N116 million, moderated the negative bottom-line, reducing pre-tax loss from N80 million to N29 million. After tax gains, net loss reduced from N54 million to N27 million.

    While it was unable to declare any dividend, just as in the previous three years, shareholders recorded intrinsic loss per share of 8.0 kobo, albeit a better position than 17 kobo recorded in 2011. Net assets per share also declined by 4.3 per cent from N2.09 to N2.

    The underlying fundamentals of the company remained negative, though considerably better than the previous year. while gross profit margin dropped from 39.5 per cent to 38 per cent, pre-tax profit margin improved from -5.9 per cent to -1.9 per cent. Return on total assets stood at -1.1 per cent in 2012 as against -2.9 per cent in 2011‘ while return on equity was better at -4.1 per cent compared with -8.0 per cent.

     

    Liquidity

    The liquidity position of the company worsened considerably in 2012 with negative working capital and lower coverage for possible immediate liabilities. Current ratio, which broadly indicates ability of the company to meet emerging financing needs by relating current assets to relative liabilities, dropped from below-standard position of 0.81 times in 2011 to 0.77 times in 2012. The proportion of negative working capital to total sales stood at -12.2 per cent in 2012 as against 12 per cent in 2011. Debtors/creditors ratio stood at 22.2 per cent in 2012 as against 9.5 per cent in 2011.

     

    Governance and structures

    One of the legacy companies, DN Meyer has history of more than seven decades and was an iconic brand in its industry. Before its incorporation in 1960, it had operated for two decades. It converted to public limited liability and listed its shares on the Nigerian Stock Exchange (NSE) in 1979. In 1994, the then Dunlop Nigeria acquired majority equity stake of 68 per cent in the company and thus changed its name from Hagemeyer Nigerian Plc to DN Meyer Plc. In 2003, DN Meyer acquired the flooring and adhesives business of Dunlop Nigeria, thus extending its business operations from manufacturing and marketing of paints to adhesives and floor tiles. Since then, it ran through series of acquisitions, mirroring the chequered history of its parent company.

    DN Meyer is owned by some 8,000 shareholders.Recent shareholding analysis showed that three shareholders held the largest stakes-Citiprops Limited held the largest 30 per cent equity stake, Bosworth Limited held 10.95 per cent while Mr Osa Osunde held 9.26 per cent. The board and management of the company remain stable. Sir Remi Omotoso still chairs the board while Mr Adeola Omosebi is the Managing Director. DN Meyer largely complies with code of corporate governance. The timeliness of its earnings report however falls short of the generally acceptable standards.

     

    Analyst’s opinion

    The performance of DN Meyer shows the need for the company to increase the momentum of its restructuring. While it had significantly benefitted from soft loans from government’s fiscal supports, DN Meyer has yet to show the expected quantum leap. The company is far away from its turnover and profit before tax targets of N25 billion and N3.75 billion by 2016.

    While it must be acknowledged that difficult operating environment, characterised by high cost of business, dumping of substandard and fake products, poor power supply and financial constraint, undermine corporate growth, DN Meyer needs to further look inward to reduce expenses and jumpstart sales. The time appears to be appropriate now for the planned recapitalisation of the company with a view to creating a more solid balance sheet that could support future growth. Slow sales and increasing gearing ratio are surely wrong mix for corporate growth.

     

  • Japaul: Dwindling profit

    Rising incomes, steeply declining profit; Japaul Oil & Maritime Services Plc’s fundamental paradox appears to be worsening with every earnings report.

    Audited report and accounts of Japaul for the year ended December 31, last year showed a similar pattern of performance that had seen average profit before tax margin dropped consistently from a high of about 26 per cent in 2008 to a low of 4.2 per cent in 2012. First quarter report for the this business year has also indicated the same performance outlook for the current business year with average pre-tax profit margin dropping by 63 per cent within comparable three months o f operations.

    The unimpressive bottom-line has correspondingly affected returns, especially dividends to shareholders. While it had paid a paltry 2.0 kobo in previous year, Japaul could not declare any dividend for the 2012 business year as it struggled with rising financial leverage.

    Audited report of the oil and gas services company showed that while sales rose by about 20 per cent in 2012, declining cost efficiency undermined the top-down impact of the larger top-line. With 32 per cent increase in cost of sales, 29 per cent rise in total operating expenses and 560 per cent jump in interest expenses, pre and post tax profits contracted by 62 per cent and 70 per cent respectively. Besides, adjustments made in line with provisions of the International Financial Reporting Standards (IFRS) shaved 24 per cent off the intrinsic net assets value of the company.

    The balance sheet of the company underlined emerging concerns for performance outlook with the combination of negative working capital, declining liquidity, worsening indebtedness and generally weak financing structure.

     

    Financing structure

    Japaul’s shareholders’ funds dropped by 24.3 per cent from N22.56 billion in 2011 to N17.08 billion in 2012. While the paid up share capital had remained unchanged at N3.13 billion or 6.26 billion ordinary shares of 50 kobo each, re-examination of previously retained earnings left the company with negative reserves of N2.49 billion, which adversely affected the net assets base of the company. Total assets rose by 20 per cent from N27.27 billion to N32.66 billion. Current assets had declined by 24 per cent from N5.01 billion to N3.79 billion but it was counterbalanced by 30 per cent growth in long-term assets from N22.26 billion to N28.87 billion. Total liabilities however jumped by 230 per cent from N4.72 billion to N15.58 billion. Current liabilities had risen by 42 per cent from N3.41 billion to N4.83 billion while long-term liabilities leapt by 723 per cent from N1.31 billion to N10.75 billion.

    The financing structure of the company was generally weak. Debt-to-equity ratio stood at 17.4 per cent in 2012 as against 5.4 per cent in 2011. The proportion of equity funds to total assets dropped considerably from 83 per cent in 2011 to 52 per cent in 2012.

     

    Efficiency

    There were evident declines in underlying productivity and cost efficiency during the period under review. While the large top-line appeared to expand the frontier, the company struggled with less-efficient cost structure, which significantly eroded the underlying margins.

    The company undertook staff right-sizing, reducing average number of employees from 577 persons to 566 persons. Total staff costs thus dropped from N751.6 million to N588.6 million, representing average staff cost per employee of N1.04 million in 2012 as against N1.30 million in 2011. However, average contribution of each employee to pre-tax profit dwindled from N2.38 million to N0.92 million. Total cost of business, excluding finance charges, spiralled to about 95 per cent of total sales in 2012 compared with 87 per cent in 2011.

     

    Profitability

    Japaul saw a major contraction in profitability in 2012, further underlining the inability of management to halt sustained and considerable year-on-year decline in average profit-making capacity. Average pre-tax profit margin hit a low of 4.2 per cent in 2012 as against 13.4 per cent in 2011. It had dropped from 25.5 per cent in 2008 to 22.02 per cent in 2009 and closed 2010 at 15.02 per cent. Gross profit margin had set the downtrend in 2012 with loss of five percentage points from 46 per cent in 2011 to 40.7 per cent in 2012. With depressed bottom-line, both actual and underlying returns reduced considerably. Return on total assets slumped to 1.6 per cent in 2012 as against 5.0 per cent in 2011. Return on equity also dropped from 4.0 per cent to 1.6 per cent, underlining the double-end losses of shareholders who were not paid any dividend for the year.

    Earnings per share had slumped to 4.5 kobo in 2012 as against 15.7 kobo in 2011. The company had distributed N125 million to shareholders, on the basis of 2.0 kobo per share, as dividends for the 2011 business year. Net assets per share also dropped by 24 per cent from N3.60 in 2011 to N2.73 in 2012. Notwithstanding, the company’s net assets suggested a significant undervaluation at the stock market, where its shares have stuck around its nominal value of 50 kobo.

    Japaul witnessed appreciable growth in the top-line in 2012. Group turnover rose from N10.25 billion to N12.28 billion. Overall top-line performance was driven by impressive growth of 28 per cent in its largest business segment, offshore services, which recorded turnover of N7.24 billion in 2012 as against N5.66 billion in 2011. Besides, top-line performance was driven mainly by growth within the Nigerian market. Foreign incomes from the company’s operations in the United Arab Emirates dropped from N1.62 billion in 2011 to N1.25 billion in 2012

    . Nigeria contributed N11.03 billion to group turnover in 2012 as against N8.63 billion in 2011.

    However, cost of sales outpaced turnover growth with 32 per cent increase in 2012 to N7.28 billion as against N5.53 billion in 2011. Group gross profit thus inched up by 5.9 per cent from N4.72 billion to N5.0 billion. General and administrative costs ballooned to N3.66 billion in 2012 as against N2.93 billion in 2011. Sales and distribution expenses rose from N451.4 million to N680.6 million. Total group operating expenses thus stood at N4.35 billion in 2012 compared with N3.38 billion in 2011. While interest and other non-core incomes rose by 25 per cent from N62 million to N77 million, interest expenses jumped by 560 per cent from N32 million to N210 million. With these, profit before tax dropped from N1.38 billion to N521 million while profit after tax followed the downtrend with a drop of 70 per cent to N272 million in 2012 as against N908 million in 2011.

     

    Liquidity

    The liquidity position of the company weakened considerably during the period with negative working capital and significant decline in financial coverage and immediate response to financing obligations. Current ratio, which denotes the financial agility of a company by relating current assets to current liabilities, dropped below reassuring benchmark to 0.78 times in 2012 as against 1.47 times in 2011. Current ratio is accepted as one of the measures of solvency and going concern status. Also, the proportion of working capital to total turnover worsened in 2012 at -8.5 per cent as against positive working capital at 15.7 per cent in 2011. Debtors/creditors ratio stood at 400 per cent as against 475 per cent.

     

    Governance and structures

    Japaul was incorporated as a private limited liability company in 1994 and commenced operations in 1997. It converted to public limited liability status and became the first maritime company to be listed on the Nigerian Stock Exchange (NSE) in 2005. Japaul provides services to the upstream operators in the oil and gas industry including dredging, provision of offshore oilfield vessels, maritime logistics, pipeline construction and oil flow lines among others.

    There were no major changes in the ownership, board and management of the company. Mr. Jegede Paul, the main promoter of the company, who holds the largest single individual equity stake of 6.0 per cent, remains the managing director. Major General Joseph Omosebi (rtd) also still chairs the board of directors. Japaul is owned by some 229,000 shareholders with largest spread of ownership within the range of one to 100,000 shareholdings. The company’s corporate governance structure complies with extant code of corporate governance, although it sometimes fails to meet up its scheduled reporting and disclosure requirements.

     

    Analyst’s opinion

    The management of Japaul needs to demonstrate it has the capacity to halt the dwindling fortunes of the company and make commensurate returns to shareholders. Contrary to the key-man scenario that dominates the psychology of the company, Japaul is a retail stock owned largely by sundry shareholders whose concerns border not only on growth and investment but also sustained returns. While the company has made commendable investments in operations, it has failed to align the management structure, dividend policy and governance with the large retail ownership structure. This is the crux of the nominal valuation of its shares.

    Besides, with five executive directors-including the founding managing director and four general managers, Japaul appears to run a top-heavy management that looms larger than its actual size as a relatively small company. This also applies to its 11-man board of directors and its 6.26 billion outstanding ordinary shares. It needs to undertake considerable cost reduction strategy, starting from its corporate structure down to the operations. Financial mismatch or high gearing will also further complicate the outlook of the company.

    All these are underscored by early operational results for this year. First quarter report ended March 31, 2013 showed that while turnover rose modestly to N3.47 billion in 2013 as against N2.99 billion in first quarter 2012, general and administrative costs jumped from N784.64 million to N1.16 billion. Interest expenses leapt to N168.54 million as against N38.35 million. These depressed profit before tax from N892.99 million to N380.08 million while profit after tax dropped from N803.69 million to N334.47 million. Average profit before tax margin dwindled to 10.96 per cent as against 29.9 per cent in comparable period of 2012. Unless it tackles key fundamental changes, Japaul appears set for the downbeat again.

     

     

     

  • Learn Africa: Hard start

    Learn Africa Plc started its first year as a wholly-owned Nigerian company on a difficult note with marked decline in the company’s overall performance outlook. Audited report and accounts of the education resource company for the year ended December 31, 2012 showed a generally negative performance but the company appeared to be on a firmer ground with improved financing and liquidity positions.

    Both actual profit and loss figures and underlying profitability ratios were negative as the company struggled with static sales amidst rising operating expenses. While turnover dropped marginally by 0.3 per cent, profits before and after tax slumped by 44 per cent and 21 per cent respectively. Average pre-tax profit per unit of sales halved from 13 per cent to 7.3 per cent, reflecting the marked increase in average cost of business relative to sales from 89 per cent to 98 per cent.

    With the decline in profitability, the company reduced cash payouts to shareholders by 20 per cent. Besides, the underlying returns to shareholders, intrinsic value of the company and future sustainability of dividend payment diminished during the year.

    However, the company’s balance sheet emerged stronger with zero financial leverage, higher equity funding and improved liquidity. These balance sheet supports provide a reassuring outlook for recovery.

     

    Financing structure

    Learn Africa’s total assets stood at N4.61 billion in 2012 as against N5.02 billion in 2011. Long-term assets had increased by 24 per cent from N610 million to N758 million, counterbalancing the 13 per cent decline in current assets from N4.41 billion to N3.85 billion. Meanwhile, total liabilities dropped by 28 per cent from N1.43 billion to N1.03 billion. Current liabilities had also fell by 30 per cent from N1.33 billion to N937 million. While paid up capital remained unchanged at N385.7 million, shareholders’ funds dipped slightly from N3.59 billion to N3.58 billion.

    With no debts, equity funds amounted to 77.6 per cent of total assets in 2012 compared with 71.6 per cent. The proportion of current liabilities to total assets dropped from 26.5 per cent to 20.3 per cent.

     

    Efficiency

    There were marked declines in the company’s cost efficiency and productivity. Employees’ contributions failed to match substantial increase in staff costs during the period just as rising costs weighed in on margins. Average number of employees had dropped by 16 per cent from 241 persons to 204 persons. Total staff costs meanwhile, increased from N485.4 million in 2011 to N544.64 million, reflecting increases in both existing staff remunerations and post-employment benefits to previous employees. Average cost per staff thus stood at N2.67 million in 2012 as against N2.01 million in 2011. However, average contribution of each employee to pre-tax profit dropped from N1.59 million to N1.04 million. Total cost of business spiralled upward to 97.6 per cent of total sales in 2012 as against 89.1 per cent recorded in 2011.

     

    Profitability

    Learn Africa witnessed a top-down decline in profitability during the year, a negative trend that trickled down to the balance sheet and net values of the company. Total turnover slipped by 0.3 per cent from N2.92 billion to N2.91 billion. With 9.4 per cent increase in cost of sales from N1.36 billion to N1.48 billion, gross profit dropped by 8.7 per cent from N1.57 billion to N1.43 billion. Total operating expenses also increased by 9.0 per cent from N1.25 billion to N1.36 billion. The midline was partly boosted by 124 per cent increase in non-core business incomes, which rose from N64 million to N143 million.

    With these, profit before tax slumped by 44 per cent to N213 million as against N383 million recorded in previous year. After taxes, net profit stood at N175 million, a decrease of 21 per cent from N221 million recorded in 2011. Consequently, earnings per share dropped from 29 kobo in 2011 to 23 kobo in 2012. The board of the company fully reflected the decline in net profit in dividend payouts, reducing dividends to shareholders by 20 per cent. Gross dividend reduced to N154 million in 2012 compared with N193 million distributed for the 2011 business year. Dividend per share thus decreased to 20 kobo as against 25 kobo paid in previous year. The company’s net assets per share also dipped to N4.64 in 2012 as against N4.66 in 2011. Besides, the future dividend outlook dimmed slightly with a dividend cover of 1.15 times as against 1.16 times in previous year.

    Underlying profitability ratios also showed a general weak performance. Gross profit margin dropped from 53.6 per cent in 2011 to 49.1 per cent. Profit before tax margin slumped to 7.3 per cent as against 13.1 per cent. Also, return on total assets nearly halved from 7.6 per cent to 4.6 per cent while return on equity dropped from 6.2 per cent to 4.9 per cent.

     

    Liquidity

    The liquidity position of the company improved considerably in 2012 with better financing coverage and steady working capital. Current ratio, which broadly indicates ability of the company to meet emerging financing needs by relating current assets to relative liabilities, increased from 3.31 times in 2011 to 4.11 times in 2012. The proportion of working capital to total sales stood at about 100 persons in 2012 as against 105.4 per cent in 2011. Debtors/creditors ratio stood at 480 per cent in 2012 as against 375 per cent in 2011.

     

    Governance & structures

    There were remarkable changes in the ownership and management of the company during the period. Pearson Education Limited and Longman Group (Overseas) Holding Limited, the foreign core investors in the company, then known as Longman Nigeria Plc, divested their shareholdings by freely distributing the shares to the Nigerian shareholders, thereby doubling their holdings. Pearson had 19.60 per cent while Longman had 31.40 per cent, totaling 51 per cent. The company, which thereafter changed its name to Learn Africa. Learn Africa, is now owned by more than 7,100 shareholders.

    Besides, erstwhile sales and marketing director, Mr. Segun Oladipo was appointed the managing director following the resignation of Mr. Fred Ijewere. The board also appointed two non-executive directors to the board. Meanwhile, Mr. Emeke Iwerebon remains chairman of the board of directors. The company generally complied with extant codes of corporate governance and best practices.

     

    Analyst’s opinion

    Learn Africa contended with several challenges in the period under review. Besides the immediate transition associated with the relinquishing of equity ownership by its foreign core investors, it faced many operational issues as the new company struggled to start on a new slate. Besides, the printing and publishing industry generally faces challenges of high costs and unethical practices by unscrupulous importers of sub-standard books. The dependence of the sector on government educational plan makes it susceptible to changes and delay in national budget, especially with recent decline in allocation to the education sector.

    While the board had assured that it had used the 2012 business year to resolve several challenges, emerging results show that the company remains on a shaky start. First quarter report for the period ended March 31, 2013 showed that turnover dropped by 79 per cent to N149.85 million in first quarter 2013 as against N700.53 million. As against modest profit of N7.32 million recorded in first quarter 2012, it posted a loss of N65.44 million within first three months of this year.

    Learn Africa will need to emplace a cost-efficient, sales-driven strategy to stabilise its domestic market and possibly explore other markets. A large top-line growth will provide better opportunity to manage costs and deliver a healthier bottom-line. The overall outlook of the company hangs on the strategic mix of sales growth and cost management.

     

     

     

     

     

  • Cadbury Nigeria: Improving performance

    Cadbury Nigeria Plc rode on the back of appreciable increase in sales and cost efficiency to improve its bottom-line performance significantly. While it had leveraged on cost efficiency to drive performance in the last audited report, the company benefited from substantial growth in sales and improved cost efficiency in the first quarter of this year.

    Earnings report for the first quarter ended March 31, 2013 showed that turnover rose by 16 per cent while profit growth scaled up through the ranks from 43 per cent for gross profit to 185 per cent each for pre and post tax profits. The bottom-line performance was boosted by 29 per cent reduction in finance expenses.

    Total sales stood at N8.36 billion in first quarter 2013 as against N7.2 billion in comparable period of 2012. Gross profit rose from N2.27 billion to N3.25 billion. Profit before tax leapt to N1.68 billion as against N587.1 million in corresponding period of 2012. Profit after tax stood at N1.41 billion compared with N400.7 million in comparable period of 2012. With this, earnings per share tripled to 36 kobo as against 13 kobo in previous year. Underlying profitability ratios showed considerable improvements in the profit-making capacity of the company. Gross profit margin increased from 31.5 per cent to 38.9 per cent while pre-tax profit margin jumped from 8.2 per cent to 20.1 per cent.

    Audited report and accounts of the company for the year ended December 31, 2012 had shown marginal decline in sales, but improved cost and financing management squeezed out more profit than the previous year. Although tax provisions impinged on net earnings, underlying profitability ratios generally showed stronger performance.

    The company’s balance sheet indicated better financing and liquidity positions, which supported the overall performance outlook. With lower gearing ratio, improved liquidity, higher working capital and increased proportionate contribution of equity funds to total assets, amenable balance sheet structure moderated midline constraints that could have resulted from the lull in sales.

     

    Financing structure

    Cadbury Nigeria’s underlying financing structure improved slightly in 2012. The proportion of equity funds to total assets inched up to 50 per cent in 2012 as against 49 per cent in 2011. Debt-to-equity ratio improved from 9.0 per cent to 7.5 per cent. However, current liabilities/total assets ratio stood at 42 per cent in 2012 as against 41 per cent in 2011. Long-term liabilities/total assets closed 2012 at 8.0 per cent as against 9.5 per cent in 2011.

    Total assets had increased by 19 per cent to N40.16 billion in 2012 as against N33.66 billion in 2011. Non-current assets had increased marginally from N13.43 billion to N13.99 billion while current assets rose by 29 per cent from N20.23 billion to N26.17 billion. On the other hand, total liabilities rose by 18 per cent from N17.07 billion to N20.12 billion. While long-term liabilities steadied at about N3.2 billion, current liabilities increased by 22 per cent from N13.88 billion to N16.91 billion. The company’s paid up share capital remained unchanged at about N1.57 billion, consisting of about 3.13 billion ordinary shares of 50 kobo each. With about 55 per cent of net earnings flowed into the reserves, shareholders’ funds improved by 21 per cent to N20.04 billion compared with N16.59 billion recorded in the previous year.

     

    Efficiency

    Overall outlook appeared to suggest steady productivity and cost efficiency in 2012. Total cost of business, excluding financing charges, stood at 88.4 per cent of total sales in 2012, almost flat with 88.0 per cent recorded in 2011. Finance expenses had dropped by 29 per cent from N41.95 million to N29.89 million.

     

    Profitability

    Cadbury Nigeria recorded a mixed-grill in 2012. While the lull in sales constrained opportunity for wider profit growth, the company fell on cost and finance management to mitigate decline and steady the bottom-line. These played out variously in the outward profit and loss items and the underlying profitability ratios. While sales, gross profit and trading profit dipped to lower levels, gross profit margin and pre-tax profit margin showed improved cost efficiency and profitability.

    Gross profit margin inched up to 33.1 per cent in 2012 as against 32.7 per cent in 2011. Profit before tax margin also improved modestly from 14.8 per cent to 16.4 per cent. Both indices indicated that the company witnessed improvement in average profit per unit of sales, in spite of the decline in actual figures.

    Total sales dropped marginally by 1.6 per cent from N34.11 billion to N33.55 billion. Cost of sales also slumped to N22.45 billion from N22.95 billion. Gross profit flattened to N11.10 billion in 2012 as against 11.16 billion in 2011. Total operating expenses stood at N7.21 billion, some 1.8 per cent above N7.08 billion recorded in 2011. Trading profit thus dropped from N4.08 billion to N3.89 billion. With 67 per cent increase in non-core business income from N971 million to N1.62 billion, profit before tax rose to N5.51 billion in 2012 compared with N5.05 billion in 2011. However, increase in tax provisions reversed net profit after tax by 5.9 per cent to N3.46 billion as against N3.67 billion in previous year.

    Per share analysis indicated earnings per share of N1.10 in 2012, a slight decrease from N1.17 recorded in 2012. The company distributed some 45 per cent of net earnings as cash dividends to shareholders. Gross dividend of N1.57 billion was distributed on the basis of 50 kobo per every ordinary share of 50 kobo each. Net assets per share also increased by 21 per cent from N5.30 to N6.40. The dividend cover of 2.20 times also represents substantial future payment potential. Underlying returns were however, generally lower. Return on total assets dropped from 15 per cent to 13.7 per cent while return on equity slipped from 22.1 per cent to 17.2 per cent.

     

    Liquidity

    The liquidity position of the company improved considerably during the period. Current ratio, which indicates the potential ability of the company to meet emerging liabilities, strengthened to 1.55 times in 2012 compared with 1.46 times in 2011. The proportion of working capital to sales also improved from 18.6 per cent to 27.6 per cent. Debtors/creditors ratio stood at 42.5 per cent as against 43.3 per cent.

     

    Governance and structures

    Cadbury Nigeria Plc was incorporated in January 1965 and became a publicly quoted company in 1976. Mondelçz International, a global snacks company, holds the majority equity stake of 74.99 per cent in Cadbury Nigeria while thousands of Nigerian individual and institutional shareholders hold the remaining 25.01 per cent. Mondelçz International has operations in 165 countries with total revenue of $35 billion in 2012. Mondelçz is listed in the Standard and Poor’s 500, NASDAQ 100 and Dow Jones Sustainability Index. The board and management of the company remained stable. Mr Atedo Peterside still chairs the board. Mr Emil Moskofian replaced Mr Alan Palmer as the managing director. Cadbury Nigeria complied with codes of corporate governance and best practices during the review period.

     

    Analyst’s opinion

    The performance of Cadbury Nigeria in the first quarter and the audited report show continuing improvement in the operating fundamentals of the company. With a relatively strong balance sheet, streamlined business that focused on optimal return and recent horizontal and vertical integrations, the company has shown considerable potential for growth. The recent absorption of its subsidiary-Stanmark Cocoa Processing Company Limited and continuing integration of Cadbury Nigeria as the hub for Mondelez International’s African operations are expected to be catalysts for significant growths in the years ahead.

     

  • Julius Berger Nigeria: Firm and better?

    Julius Berger Nigeria Plc strengthened its overall performance outlook with improved cost and resource efficiency as it sought to restructure its balance sheet into a more supportive base for sustainable long-term returns. While immediate performance was evident in appreciable increases in the top-line and bottom-line, significant reduction in gearing ratio from about 165 per cent to 54 per cent and stronger retention further stabilized the outlook for the construction company.

    Audited report and accounts of Julius Berger Nigeria for the year ended December 31, 2012 showed that turnover increased by 19 per cent while profits before and after tax grew by 24 per cent and 82 per cent . The improvement in the underlying profit-making capacity and returns of the company was underlined by increases in all profit-making indices.

    Julius Berger started the arduous task of strengthening its balance sheet, especially reduction of huge overbearing debt. With the retention of about 63 per cent of net profit for the year and 48 per cent reduction in borrowings, it brought its financial leverage to its lowest position in recent years while increasing equity funding for operations.

    While the decision to retain much earnings and strengthen the balance sheet resulted in modest increase in actual cash payouts to shareholders, it substantially increased the underlying value of the company as net assets per share rose by 55 per cent. Besides, returns on equity and assets were higher at 53 per cent and 6.9 per cent in 2012 as against 45 per cent and 5.8 per cent in 2011. Almost a double in dividend cover suggests the company is in better position to sustain dividends in the years ahead.

    However, the immediate liquidity of the company weakened during the period, though it remained positive and within acceptable limit. With less financial coverage and significant reduction in working capital, the liquidity position was the low point of the performance outlook.

     

    Financing structure

    Group total assets inched up by 3.9 per cent from N172.25 billion to N179.03 billion. Balance sheet size was driven mainly by long-term assets which rose by 35 per cent from N71.40 billion to N96.65 billion as against 18 per cent reduction in current assets from N100.84 billion to N82.39 billion. Total liabilities was almost flat at N163.89 billion in 2012 as against N162.50 billion in 2011. Bank loans had dropped by 49 per cent from N16.04 billion to N8.21 billion. Paid up share capital remained unchanged at N600 million, consisting of 1.2 billion ordinary shares of 50 kobo each. Equity funds however rode on the back of retained earnings to N15.14 billion in 2012 compared with N9.75 billion in 2011, indicating an increase of 55.4 per cent.

    The underlying financing position was stronger with equity funds accounting for 8.5 per cent of total assets in 2012 as against 5.7 per cent in 2011. Both reduction in loans and increase in equity funds substantially deleveraged the balance sheet with debt-to-equity ratio of 54.2 per cent in 2012 as against 164.6 per cent in 2011.

     

    Efficiency

    Average number of employees increased from 18,670 persons to 19,234 persons. The staff structure however remained almost the same with wide gap between senior staff and junior staff as well as senior and management cadre. Some 95.3 per cent of employees were categorised as junior staff while 4.04 per cent and 0.63 per cent fell under senior and management staff respectively. Although average cost per employee improved from N2.32 million to N2.57 million, the staff structure counterbalanced such robustness, especially in the absence of a breakdown of staff costs across the cadres. Total staff costs had increased from N43.23 billion to N49.44 billion.

    Fundamentally, the company was more efficient and relatively productive during the year. While average contribution of each employee to the bottom-line improved from N0.532 million to N0.642 million, total cost of business, excluding financing charges, dropped marginally from 93.7 per cent to 93.6 per cent of total turnover.

     

    Profitability

    Civil works provided the main linchpin for top-line performance in 2012. While the group recorded improvements across business lines, the size of civil works and growth rate reflected on the total turnover. Civil works also remained relatively more profitable than other segments. Turnover in the civil works segment rose by about 21 per cent from N103.40 billion in 2011 to N124.99 billion in 2012. Building works, the second largest segment, was almost flat at N76.31 billion in 2012 as against N75.89 billion in 2011. Services contributed a modest N271.96 million to group turnover, 16.3 per cent more than N125.76 million contributed in 2011. Broadly, construction contracts accounted for about 97.7 per cent of group turnover with an increase of 17.7 per cent to close 2012 at N196.95 billion as against N167.40 billion recorded in 2011. Contribution from provision of services meanwhile more than doubled at N4.61 billion compared with N2.01 billion recorded in previous year, an increase of 129.4 per cent.

    With these, group turnover grew by 19 per cent from N169.41 billion to N201.57 billion. Cost of sales increased by 15 per cent to N156.73 billion compared with N135.79 billion. Gross profit leapt on higher margin to N44.84 billion, 33.4 per cent above N33.62 billion recorded in previous year. Total operating expenses increased by 39 per cent from N22.92 billion to N31.86 billion. About 80 per cent increase in non-core business incomes mitigated 39 per cent increase in interest expenses, leaving pre-tax profit with an increase of 24 per cent. Interest and other incomes increased from N1.17 billion to N2.07 billion while interest expenses rose from N1.95 billion to N2.71 billion.

    Both the civil and building works maintained considerable profitability during the period. Profit before tax stood at N12.34 billion in 2012 as against N9.93 billion in 2011. After taxes, profit for the year jumped by 82 per cent from N4.41 billion to N8.01 billion. Basic earnings per share stood at N6.83 in 2012 as against N3.68 in 2011. The company distributed N3 billion on the basis of N2.50 per share as dividends for the 2012 business year, a modest increase of 4.2 per cent on N2.88 billion paid out on the basis of N2.40 per share for the 2011 business year. With large retained earnings, net assets per share increased from N8.12 to N12.62.

    Beyond the surface, the group’s underlying profitability improved during the period, indicating that the outward profit and loss growths were driven by fundamental strengths. Gross profit margin improved from 19.8 per cent to 22.2 per cent. Pre-tax profit margin also increased from 5.9 per cent to 6.1 per cent.

     

    Liquidity

    The liquidity position of the company declined during the period. Current ratio, which measures the relationship between current assets and relevant liabilities, declined from 1.60 times in 2011 to1.20 times in 2012. The proportion of working capital to turnover dropped from 22.4 per cent to 6.7 per cent. Debtors/creditor ratio stood at 158.5 per cent in 2012 as against 451.8 per cent in 2011.

     

    Governance and structures

    Julius Berger Nigeria is the leading construction company in Nigeria. Incorporated in 1970, it became a publicly quoted company in 1991 and now has 1.2 billion shares in the hands of more than 10,000 shareholders. There were no major changes in the ownership, group structures, board and management of the company during the period under review.

    Bilfinger Berger SE, remained the majority core investor in Julius Berger Nigeria Plc, with 39.87 per cent equity stake. Watertown Energy Limited holds 10 per cent equity stake, the second largest by a single shareholder. Other substantial shareholders include the Lagos State and Benue State, which hold 5.50 per cent and 5.21 per cent through their investment companies.

    A major shareholder, Oasis Petroleum Company, which held 9.7 per cent equity stake by the year-end, reduced its stake to 0.2 per cent, boosting current percentage holdings by less-significant Nigerian shareholders to 39.2 per cent. Altogether, 77 per cent of the equities of the company were in strategic, non-retail holdings, leaving 23 per cent equity stake as free float. Its free float was three per cent above 20 per cent minimum requirement of the Nigerian Stock Exchange (NSE).

    Julius Berger Nigeria Group includes four wholly owned subsidiaries and two largely-owned subsidiaries.

    There were no major changes on the board and management of the company. Avm. Mohammed Nurudeen Imam (rtd) still chairs the board of directors while Engr. Wolfgang Goetsch remains the managing director.

    Julius Berger Nigeria generally complies with code of corporate governance and the scope and presentation of its report were adequate.

     

    Analyst’s opinion

    The performance of the company was showed a commendable consolidation of its growth strategy, driving top-line while reducing the inefficiencies and drags-such as huge borrowings, which stifle returns to shareholders. While the company has ruled out new capital issue, management has outlined aggressive steps to recover debts. A stronger balance sheet and sustained internal efficiency will ensure increased profitability. Julius Berger Nigeria’s top-line performance remains relatively assured given Nigeria’s infrastructural requirements and the leading position of Julius Berger Nigeria in the building and construction industry. It recently won the multi-billion Naira contract for the Lagos-Sagamu Expressway while it has secured letter of intent for the landmark second Niger Bridge, which will be jointly owned by Julius Berger and other stakeholders under a private public partnership (PPP). Besides its stronghold in public sector, increasing diversification into the private sector and emerging opportunities in the power and energy sectors suggest a robust business portfolio.