Significant improvement in its core identity management business, improved cost management and increased productivity boosted the performance outlook of Chams Plc in 2012.
Audited report and accounts of the company for the year ended December 31, 2012 showed a major turnaround as the technology innovation group harnessed substantial growth in turnover and improved efficiency to break away from its recent losing streak to profitability.
With 249 per cent growth in its core business segment, strident cost management and internal efficiency initiatives being implemented by the management impacted positively on the top-down profit structure of the group.
The group’s increasingly efficient cost management was underlined by 51 per cent decline in cost of sales and muted increase of 14 per cent and 1.7 per cent in operating expenses and finance expenses respectively. These turned around the bottom-line from a net loss of N1.24 billion in 2011 to a modest net profit of N87.5 million.
While it could not declare any dividend, the positive bottom-line locked in values for shareholders and reassured on the prospects of the company. Return on equity turned positive at 1.9 per cent in 2012 as against -30.8 per cent in 2011. Return on total assets also curved from -15.2 per cent to 1.9 per cent.
The liquidity and financing position of the group improved during the period, with more working capital and improved financing for emerging obligations.
The structure and composition of its top-line however, remained precarious, largely dependent on unpredictable public sector’s projects.
Financing structure
Chams Group’s paid up capital remained unchanged at N2.35 billion, consisting of about 4.7 billion ordinary shares of 50 kobo each. Shareholders’ funds rose on the back of modest retained earnings to N4.49 billion, about 12 per cent above N4.01 billion recorded in 2011. Total assets increased by 10.5 per cent from N7.89 billion to N8.72 billion. Current assets rose by 40 per cent from N4.51 billion to N6.33 billion while long-term assets dropped by 22 per cent from N3.07 billion to N2.39 billion. Total liabilities stood at N4.23 billion in 2012 as against N3.88 billion in 2011, indicating marginal increase of 9.1 per cent.
The financing position of the group remained steady. The proportion of equity funds to total assets inched up from 50.8 per cent to 51.5 per cent. Debt-to-equity ratio however, rose slightly from 23.3 per cent to 24.3 per cent. Current liabilities/total assets ratio was almost flat at 46.1 per cent as against 46.5 per cent while long-term liabilities/total assets ratio reduced from 2.7 per cent to 2.4 per cent.
Efficiency
There was noticeable improvement in the overall cost efficiency and productivity of the group. On the basis of estimated workforce of 500 persons, average level of productivity per head and relevant cost per unit of production showed improved optimisation. Average contribution of each employee to pre-tax profit improved from –N2.40 million in 2011 to N0.34 million in 2012. However, average cost per staff reduced from N1.03 billion to N0.75 million. The company had undertaken staff audit and performance review during the period. Total cost of the business, excluding finance charges, reduced to about 105 per cent of total sales in 2012 as against 181.6 per cent in 2011. The reduction in top-line and operating costs enabled the group to leverage the bottom-line from additional incomes from non-core businesses.
Profitability
Chams’ profit outlook showed considerable improvement in the intrinsic profit-making capacity of the company as it consolidated expansive sales growth into notable profitability. Both outward and underlying profit and loss measures indicated significant upturn in the profit outlook, headlined by replacement of previous loss of N1.24 billion with a modest profit of N87.5 million.
Group turnover rose by about 60 per cent to N2.84 billion in 2012 as against N1.78 billion recorded in 2011. Top-line performance was driven by the group’s identity management solutions business, which recorded 249.3 per cent increase from N700 million to N2.45 billion. While cost of sales dropped by 51 per cent from N1.09 billion to N534 million, gross profit jumped by 235 per cent from N687 million to N2.30 billion. Operating expense remained muted at N2.45 billion compared with N2.14 billion while interest expense was almost flat at N230 million compared with N226 million in previous year.
With these, Chams broke away from recent losing streak with a profit before tax of N170 million in 2012 as against pre-tax loss of N1.20 billion in 2011. After taxes, net profit stood at N87.5 million in 2012 as against net loss of N1.24 billion in 2011, representing an increase of 107 per cent. It thus replaced its basic loss per share of 26 kobo in 2011 with modest earnings per share of 3.0 kobo for 2012. The group’s net asset per share also increased from 85 kobo to 95 kobo.
Underlying profitability indices showed generally positive outlook. Gross profit margin more than doubled at 81.2 per cent in 2012 as against 38.6 per cent in 2011. Profit before tax margin, which underlines average profit per unit of sales, turned around from -67.4 per cent in 2011 to 6.0 per cent in 2012. This implies that while Chams lost N67.4 on every N100 worth of operations in 2011, it made a modest profit of N6 on similar unit in 2012. The improved bottom-line also reflected on the underlying returns to shareholders and other stakeholders. Return on equity stood at 1.9 per cent in 2012 as against -30.8 per cent in 2011. Return on total assets also turned around from -15.2 per cent to 1.9 per cent.
The company did not pay any dividend for 2012, which underlined the nascent recovery. Its last dividend payment was in 2009.
Liquidity
The liquidity position of the group improved considerably with more working capital and improved financing for emerging obligations. Current ratio, which relates available current assets to similar current liabilities, improved from 1.23 times in 2011 to 1.57 times in 2012. The proportion of working capital to total sales almost doubled at 81.4 per cent in 2012 compared with 47.4 per cent in 2011. Debtors/creditors ratio stood at 622 per cent in 2012 as against 208 per cent in 2011.
Governance and structures
Incorporated in 1985 as a private limited liability company, Chams converted to a public limited company in 2007 and listed its shares on the Nigerian Stock Exchange (NSE) in 2008 by way of introduction. Chams Plc and its subsidiaries offer complete end to end solution to small and large projects in the areas of identity management, payments, collection and transactional systems, as well as providing digital platform and ICT trainings. The Chams Group consists of four subsidiaries; CardCentre Nigeria Limited, which is engaged in the production and manufacturing of identity, payment and other smart cards; PayMaster Limited, which deals with deployment of Point of Sales (POS) terminals; ChamsAcccess Limited, a licensed consortium for the deployment of Automated Teller Machines (ATMs), which is also involved in the deployment of multi application terminals; and ChamsSwitch, which engages in provision of the e-payment transaction processing platform for the Nigerian Market.
Chams is owned by about 8,500 shareholders with substantial shareholdings by financial and asset management companies and institutional investors. Nigerian institutional investors hold 48 per cent equity stake in the company.
The board and management of the company have remained stable. Mr. Demola Aladekomo, the founding managing director and main promoter of the company, retained his position.
Meanwhile, Prof. Adebayo Akinde retired as the chairman of the company earlier this month and Very Revd Ayo Richards was appointed as chairman. Akinde had served on the board for two decades and had been the chairman of the board in the past seven years.
The company’s governance and reporting structures comply largely with extant codes of corporate governance and reporting standards.
Analyst’s opinion
The performance of Chams shows a ray of hope and reassures on the prospects of the company. It however, remains delicate and cautious. While the top-line performance was commendable, it was driven mainly by its one-line identity management contract with the Federal Government. Although the group has made remarkable progress in its private-sector-driven payment solutions, its top-line remained heavily skewed towards the public sector, with penchant for unreliable project timelines and commitments. There is also the operating risk of policy somersault and realignment, which could see a slowdown or reversal of essential public policies on economic payment automation and identity management. There is no guarantee of institutionalisation of public policies in Nigeria’s highly politicised public decision-making process. The deficits, created by its previous streak of losses, remained a potential threat.
Notwithstanding, there is reasonable basis to be optimistic about the prospects of the company. The Governments, across the levels, are increasingly focused on identity management for internal security, planning and revenue generation. The automation of payment system, being driven by the Central Bank of Nigeria (CBN) and with general buy-in from major public and private stakeholders, has continued to gather momentum. It’s doubtful that there would be any major reversal in any of these directions. In all these, Chams holds competitive advantages as a stand-alone company and partner-of-choice.The company holds CBN’s licenses for mobile banking and automated payments including PoS terminal and PTSP licenses. Its partnership with the National Identity Management Commission (NIMC) is on stronger footing, and recent security events have reinforced the government’s desire on efficient identity management.
