The Nation Newspaper

Tag: margins

  • Fitch says T-Bills’ yields helping banks maintain margins

    International rating agency, Fitch Ratings, yesterday said very high Nigerian treasury bills’ yields are helping banks maintain margins.

    Fitch says Nigerian banks’ lending opportunities have been constrained by weak economic growth, continued soft oil prices and sluggish consumer demand.

    The agency considers Nigerian banks’ capital adequacy to be weak, in general, adding that high yields on Nigerian banks’ investments in t-bills compensating for scarcity of opportunities for profitable new lending to private sector.

    The Central Bank issues treasury bills twice a month to help the government to finance its budget deficit, curb money supply growth and provide an avenue for lenders to manage liquidity.

    The t-bills’ maturities range between three months and a year and would be raised today, according to the CBN. T-bills are marketable short-term money market securities that serve the purpose of raising money for the government and  help in monetary policy management of the CBN.

  • Nigeria set to move tourism from ‘margins to mainstream’

    Nigeria set to move tourism from ‘margins to mainstream’

    Tourism is acknowledged as a money spinner all over the world. But the huge revenue coming from oil made it difficult for Nigeria to look at other viable sectors of the economy.

    Tourism, for example,  has been so neglected that the traffic in Nigeria trickles while other neighbouring countries in West Africa and beyond enjoy huge tourist influx.

    This is going to change as the current government said it will move tourism sector forward from “the margins to mainstream”.

    This was disclosed by the Minister of Information and Culture, Alhaji Lai Mohammed, in a session with the media.

    According to the minister, “this administration is diversifying the economy away from oil which for many years has been the mainstay of our economy. Among the sectors that have been identified as veritable sources of revenue for the nation are the arts, culture and tourism sectors. This is why we in the Ministry of Information and Culture are working hard to move these sectors from the margin to the mainstream and ensure that the rural poor in particular are factored into the sector’s architecture.”

    He said the ministry is working with various local and international partners, including the Tony Elumelu Foundation and the British Council, to map creative arts with a view to reviving them massively through capacity building for those involved and the provision of loans. He said the Federal Government believes this would not only create hundreds of thousands of jobs, thus keeping people meaningfully engaged.

    The Federal Government, according to the minister, would train festival managers so they can be fortified enough to take their events to the next level and involving the local communities, as critical stakeholders, fully in our efforts to bring the sectors into mainstream.

    “We are aware that culture drives tourism, hence we intend to leverage heavily on our numerous cultural festivals in the country to boost tourist arrivals. That is why we are currently compiling a list of the top 10 creative arts and cultural festivals in each state of the federation, with a view to creating a year-round calendar of such events. This way, those willing to attend such events can plan ahead,”the minister said.

    Alhaji Lai Mohammed said it was in a bid to finetune and plan for the sector that his ministry held the national summit on culture and tourism this week  in Abuja.

    He said in order to get the industry moving, the Nigerian tourism industry must learn to do things differently.

    His words: “We cannot continue to do things the same way and get a different result. It is because Ghana is doing something differently, that is why it is getting better results. Only two weeks ago, Ghana made history. It became the first country, I think after Mauritius, to declare that all members of the African Union (AU) can come to Ghana and obtain visas on arrival. This is a very a major catalyst for tourism.

    “ It will interest many of us to know that it is more difficult at times to obtain a Nigerian visa than to obtain a visa to the Ukraine. Every day we are inundated with petitions reputable organizations who have put in applications to come to Nigeria, but for one reason or the other, they could not come in.

    “I think the first thing towards boosting tourism is that we must change our visa regime. If we don’t change our visa regime, we will find it difficult to get people to come in. But it goes beyond the visa regime, it goes to what is the attitude of our people at the land and air borders.

    “We must train our people who work at this borders to be tourist friendly. Many people, when they land in any airport in Nigeria, they are very afraid. So, this administration is working very hard to see that we have a tourist friendly visa regime.

    “But as you know, it is not only the Ministry of Information and Culture that can make this happen. We need to carry along the minister of interior, the director of our security service, Nigerian police, immigration and the NSA because everybody must  be part of it. But it even goes beyond that. What about the roads? In Cross River today, we have the Takamanda forest reserve. It is the oldest forest in the entire world.

    “The implication is that it has the richest bio-diversity in the whole world, more than the Amazon forest. Properly exploited, the cures to most of the diseases could be found in the trees in that forest reserve. That reserve today has the only surviving family of the silver beard gorillas. But it will take you 10 hours from Calabar to Takamanda,  a very bad road. So, it needs a combination and collaboration of all ministries-works, power, interior, security and so on, for you to have a proper tourism. We have realized this, and we are working very hard to carry everybody along. They say necessity is the mother of invention. Now that the price of crude has gone down, it is important to look at other sectors and provision of infrastructure will help a lot in turning around our tourism.”

  • Weak profit margins dampen U.S. producer inflation

    United States producer prices fell in February for a fourth straight month, pointing to tame inflation that could argue against an anticipated June interest rate hike from the Federal Reserve.

    Other data showed a decline in consumer sentiment in early March, as harsh winter weather left households with high utility bills and disrupted shopping and general business activity.

    The Labour Department said its producer price index for final demand declined 0.5 percent as profit margins in the services sector, especially gasoline stations, were squeezed, and transportation and warehousing costs fell.

    The PPI had dropped 0.8 percent in January. In the 12 months through February, producer prices fell 0.6 percent, the first decline since the series was revamped in 2009.

    “The underlying message appears to be that pipeline inflationary pressures remain quite weak, even as energy prices have stabilised and gasoline prices have drifted modestly higher,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

    Economists had forecast the PPI rising 0.3 percent last month and remaining unchanged from a year ago.

    In a separate report, the University of Michigan said its consumer sentiment index fell to 91.2 in early March from a reading of 95.4 in February. But with bad weather mostly blamed for the ebb in sentiment, a rebound is seen as likely.

    U.S. Treasury prices were mixed, while the dollar rose against a basket of currencies. U.S. stocks fell, putting the S&P 500 index on track for its third straight weekly decline.

    The inflation data came ahead of next week’s Fed meeting, where policymakers are widely expected to signal the U.S. central bank’s openness to a June rate hike by dropping a pledge to be “patient” in considering such a move.

    But with price pressures remaining muted and retail sales extending their decline in February, some economists believe the central bank could hold off on raising rates until at least September. Inflation is running well below the Fed’s 2 percent target.

    “The Fed will need to see some firming in core and pipeline inflation before achieving lift-off to assure that the 2 percent target on inflation is indeed within reach,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

    The Fed has kept its key short-term interest rate near zero since December 2008.

    Services accounted for 70 percent of the decline in the PPI last month. The volatile trade services component, which mostly reflects profit margins, fell a record 1.5 percent in February, after rising 0.5 percent in January.

  • Red Star Express: Modest gains, tough margins

    Red Star Express: Modest gains, tough margins

    Red Star Express Plc witnessed modest gains in key profit and loss items in 2012 but cost pressures thinned out margins, leaving the courier and logistic company with relatively subdued bottom-line. Latest operational report for the period ended September 30, 2012 showed single-digit growth in sales and profit, but the company’s net earnings remain substantial to sustain previous cash payout trend. The second quarter report however indicated flat margin, replicating the performance trend in the immediate past audited year.

    Audited report and accounts of Red Star Express for the year ended March 31, 2012 had indicated improvement in the underlying profit-making capacity of the courier and logistics company with about three percentage points in average profit per unit of sales. With relatively high operational costs, the company fell on internal cost management to improve profitability. However, 303 per cent increase in taxes reduced net earnings. Although the company’s zero financial leverage remained supportive of the profit and loss accounts but marginal declines in the liquidity position and proportionate equity funds impinged on the balance sheet position.

    Notwithstanding, the company sustained its cash payout rate of 30 kobo per share, although reduction in net earnings affected long-time dividend sustainability.

    With earnings per share of about 31 kobo by the second quarter, the company appeared in better stead to sustain dividend trend. Gross profit margin slipped to 28.55 per cent by September 2012 as against 30.19 per cent in comparable period of 2011 while profit before tax margin was flat at 10 per cent.

    Financing structure

     

    Red Star Express’s paid up share capital remained unchanged at N294.7 million but shareholders’ funds increased by 10.5 per cent from N1.44 billion in 2011 to N1.59 billion. Total assets also improved by 13.5 per cent to N3.14 billion in 2012 as against N2.77 billion in 2011. Current assets rose by 23 per cent from N1.87 billion to N2.3 billion while permanent assets had declined marginally from N896 million in 2011 to N845 million. With zero bank borrowing, equity funds amounted to 51 per cent of total assets in 2012 as against 52 per cent in 2011. Long-term liabilities/total assets ratio slipped from 14 per cent to 12 per cent while current liabilities/total assets ratio weakened from 34 per cent to 37 per cent.

    Efficiency

    The company showed better cost management and efficiency. Improved midline cost management mitigated overall cost profile, as total cost of business declined to 88 per cent of total sales in 2012 as against about 92 per cent in 2011. While average pre-tax profit per staff was N0.43 million on average staff cost per head of N1.06 million in 2011, there were no definitive details to determine the average productivity level per person in the immediate past year.

     

    Profitability

     

    Interim report for the six-month ended September 30, 2012 showed that turnover rose by 8.6 per cent from N2.39 billion in 2011 to N2.60 billion in 2012. Gross profit inched up by 2.8 per cent from N722.06 million to N742.4 million. Profit before tax stood at N260.27 million in September 2012 as against N239.62 million in corresponding period of 2011. Profit after tax increased from N167.71 million to N182.19 million, indicating modest increase of 8.6 per cent.

    The full-year report ended March 31, 2012 showed that Red Star Express grew sales by about 20 per cent in 2012 but profit after tax dipped by 1.9 per cent. Total turnover rose from N4.21 billion in 2011 to N5.03 billion in 2012. Cost of sales however increased by 21 per cent to N3.38 billion as against N2.79 billion. Gross profit stood at N1.65 billion compared with N1.41 billion, representing an increase of 16.6 per cent. Operating expenses remained flat at N1.059 billion in 2012 as against N1.06 billion in 2011. Non-core business income dropped by 13 per cent from N58 million to N50 million.

    With these, profit before tax rose by 56 per cent from N411 million in 2011 to N640 million in 2012. However, significant increase in tax provisions from N77.71 million in 2011 to N313.14 million in 2012 depressed net earnings to N327 million compared with N334 million in previous year.

    Underlying profitability showed a mixed-grill between the top-line and the midline. While gross profit margin dropped from 33.6 per cent to 32.8 per cent, pre-tax profit margin improved from 9.8 per cent to 12.7 per cent. Also, return on total assets increased from 14.8 per cent to 20.4 per cent while return on equity slipped from 23.2 per cent to 20.6 per cent.

    Basic earnings per share slipped from 57 kobo to 55 kobo. The company meanwhile sustained its gross dividend of N176.8 million, representing a dividend per share of 30 kobo. Net assets per share however improved from N2.44 to N2.70, indicating that the company has been trading largely around its book value.

     

    Liquidity

     

    The liquidity position of the company declined marginally, although it remained considerably sufficient to meet emerging liabilities. Current ratio, which essentially measures the agility of the balance sheet to meet emerging financing obligations, slipped from 2.01 times in 2011 to 1.96 times in 2012. The proportion of working capital to total sales was flat at 22.4 per cent in 2012 as against 22.3 per cent in 2011. Debtors/creditors ratio stood at 771 per cent in 2012 compared with 745 per cent in 2012.

     

    Governance & structures

     

    Incorporated as a private limited liability company in 1992, Red Star Express became a public limited liability company and was quoted in 2007. Wholly owned by Nigerian institutional and individual investors, the major core investor in Red Star Express is Dr. Mohammed Koguna. Red Star Express has more than 4,200 shareholders with 589.4 million ordinary shares of 50 kobo each.

    Red Star Express generally complies with all relevant codes of corporate governance. Dr. Mohammed Koguna still chairs the seven-man board while Mr. Sule Bichi leads the executive management team as managing director. Red Star Express operates defined charity programmes including the Red Star Foundation which receives 0.5 per cent of net earnings annually for scholarships in public secondary schools.

     

    Analyst’s opinion

     

    Red Star Express shows steady outlook but it remains significantly challenged by relatively high input costs. While the top-line performance reflects the gains of its recent diversification programme, which has created new growth centres, the flat bottom-line underlines the limit of the modest increase in sale amidst rising costs. The company needs to increase sales substantially to provide headroom for profit growth. It particularly needs to address flagging margins, which may become more visible unless the company addresses the fundamental leakages.

    With earnings per share at 30.9 kobo by September 2012 as against 28.5 kobo in comparable period of 2011, there is reasonable basis to assume that the company could maintain a sufficiently positive overall outlook in the years ahead.