External auditors have raised the red flag that there is uncertainty over the ability of Union Dicon Salt Plc to continue as a going concern as the 33-year-old company struggles with dormancy and continuing expenses.
In the latest audit, which was obtained at the weekend, external auditors to Union Dicon Salt, BDO Professional Services, noted that while write-backs dressed up the company’s account with a profit of N398.96 million, the subsisting negative shareholders’ funds and working capital raised material uncertainty on the going concern status of the company.
The audit committee of the company aligned with the position of the external auditors. The audit committee headed by Mr Lawal Jinadu stated it had noted the concern on material uncertainty raised by the external auditors in their report “and agreed with their opinion and confirms that management is taking necessary steps in addressing the issues”.
“The external auditors had discharge their duties conscientiously and satisfactorily,” the audit committee stated.
According to the audit, while the company recorded pre-tax profit of N398.96 million during the year ended December 31, 2016, the net current liabilities stood at N723.39 million while negative shareholders’ funds stood at N774.52 million.
Key extracts of the audited report and accounts of Union Dicon for the year ended December 31, 2016 showed no activities over the comparative years. However, the company recorded other operating income of N471.12 million in 2016 as against N78.66 million in 2015. With this, it appeared to rebound from pre-tax loss of N2.29 million in 2015 to pre-tax profit of N398.96 million in 2016. After taxes, net profit stood at N388.03 million in 2016 as against net loss of N2.63 million in 2015.
The write-backs were mainly write-off of long outstanding liabilities which have become statute-barred including N146.37 million payables to related parties, N80 million obligations to employees and N201.56 million of accrued expenses.
The directors of the company under the chairmanship of Lt. Gen Theophilus Danjuma (rtd) agreed that the company was experiencing “difficulty in maintaining a positive working capital position”.
They noted that the board had decided on the immediate need to address the impact of the negative working capital and net liabilities by approving the diversification of the company from its core business into agriculture.
According to the board, Union Dicon had in 2016 invested about N25.5 million on acquisition of land for agrwiculture in Edo State.
The management of the company-led by Mr Chuka Mordi, anticipates that farming activities will commence on the land in the immediate future once the title documentation has been perfected.
The board also noted that as part of measures to sustain the going concern status of the company, the amount due to the related parties will not be required for immediate repayment until the company returns to profitable position. The company is owing some N341.46 million on its directors’ current account, which is largely believed to be due to Danjuma.
“The financial statements have therefore been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that the actions being taken by the directors as explained above will yield positive result and that the realization of assets and settlement of liabilities will occur in the ordinary course of business,” the company stated.
The audit report, which was included in a regulatory filing submitted by Union Dicon Salt, noted that the salt company made a loss of N87.62 million and current deficit of N1.01 billion and negative shareholders’ funds of N1.17 billion. The audit, for the year ended December 31, 2014, was submitted to the Nigerian Stock Exchange (NSE) last week.
The report stated that with the current liabilities exceeding current assets by N1.01 billion and negative shareholders’ funds of N1.17 billion as well as the operational loss, there were reasons to doubt the ability of the company to sustain its operations.
These conditions “indicate existence of a material uncertainty which may cast doubt about the company’s ability to continue as a going concern, unless the bankers continue their financial support and the shareholders introduce additional capital not only to wipe out the negative shareholders’ funds but to enable the company operate profitably,” the audit stated.
Danjuma holds 23 per cent equity stake in Union Dicon. Taraba Fisheries Limited holds 8.0 per cent equity stake. Aims Limited holds the single largest equity stake of 28 per cent while Defence Industries Corporation and UDS Staff Trust Fund hold 19 per cent and 4.0 per cent respectively. Minority shareholders hold 18 per cent equity stake.
Union Dicon Salt was the legacy company from the business combination of Dicon Salt Limited and Union Salt Limited which were incorporated in 1984 and 1991 respectively. The two companies were merged, converted to a public limited liability company and listed on the Nigerian Stock Exchange in 1993.
Apart from the production of the iodized edible salt, and the processing of crude salt for wholesale, Union Dicon Salt Plc also manufactured industrial salt for detergent manufacture, animal feeds, leather tanning, oil wells, and other drilling related operations. It is also engaged in the sales of packaged water in sachets and plastic bottles.
The NSE had recently suspended trading on the shares of Union Dicon Salt and 16 other companies after they failed to file their accounts and operational reports as required by the listing rules at the Exchange. Such suspension will remain in place until the companies file the relevant accounts and reports.