Saturday, December 31, 2011

My take on five companies that released their results recently

Nigeria German Chemicals
It does not look good for Nigerian German Chemicals (NGC) with a second quarter loss of N153 million in June 2011 down from a profit after tax of N146 million in June 2010. The challenge for management here is a 17.2 per cent drop in sales which wiped off N300 million from the company’s revenues. A corresponding cut in cost of sales by N160 million still left management looking for N140 million to break-even. Interest charges of N190 million despite other income of N56 million was not enough to cover the hole created by the drop in sales. Stocks have built up in the face of the declining sales.
The positive takeaway from the second quarter for NGC is a steep drop in trade debtors, and short term borrowings. Working capital is now also positive with almost a doubling of cash balances. The increase in cash balances is however still less than half of outstanding current liabilities, an indication that liquidity is still tight. NGC could not generate enough cash to cover interest payments due in the second quarter.
The implication is that NGC may seek more short term borrowings in the third quarter unless there is a sharp increase in sales or steep cut operating expenses. For a company struggling to improve sales, cutting operating expenses may be a tough choice. 
Universal Insurance
Universal Insurance Plc has released its December 2010 result 12 months later than it should have been out. Though the company is still in the red to the tune of N187 million, but shareholders could hold some comfort from the fact that it is less than a N2 billion loss made in 2009.
Shareholders, may however be worried by a steep drop in gross premium, an indication that the company may be losing business. Also of concern is a sharp rise in management expense against a steep drop in short term investments. Cash balances stand at just fraction of current liabilities. Though net assets stand at what looks like a healthy N8.97 billion, but the fixed assets component stands at about 61 per cent, not a good indication for a company that should thrive on liquidity.
Aso Savings and Loans
A N628 million provision for non-performing loans has ensured that Aso Savings run into a N243 million loss in its second quarter result for the period ended September 2011. A N431 million increase in operating expenses despite a N675 million drop in earnings, also contributed to the loss announced by Aso Savings and loans. Aso Savings operating cash flow was negative in the second quarter. Shareholders will hope this trend is reversed in subsequent quarters.
Perhaps hurt by the significant loans provisions that it has had to make in the second quarter, Aso loans and Savings cut new loans by about N8 billion in the second quarter despite taking in fresh deposits of about N10 billion. This is no good news for millions of Nigerians seeking mortgage facilities to build their dream homes.
The fresh deposits seem to have found its way mainly into government treasury bills as management seem to have switched on the “play safe” button.  Hopefully management may not need to make further significant provisions on the current loan portfolio of N28 billion in the remaining two quarters and cut down the interest on borrowings which despite a 41 per cent drop, still consumed N988 million of earnings in the second quarter.
Learn Nigeria
Obviously, Nigerians are not learning going by Learn Nigeria Plc (former Longman) third quarter results for the period ended September 2011. The company, which is a leading seller of educational books in Nigeria, saw its sales slip 17 per cent to N1.744 billion. This translates to N375 million less cash spent by Nigerian on books compared to the same period of last year. With an educational system in shambles, certainly, the hope is that this trend does not continue.
Learn Nigeria Plc was however able to still announce a N59 million profit in the third quarter, marginally better than the profit made in the same period of 2011. But the company’s profit is not really coming from selling books. Operating profit for the third quarter stood at a marginal N43 million. The company’s profit before tax at N88 million got a boost from interest income of N48 million earned from cash deposits of N1.21 billion with banks.
 Learn has just enough money to pay all its outstanding current liabilities without having to sell its stocks. This is good because learn Nigeria’s stocks are almost stagnant. At current sales rate, it will take the company more than one and half years to sell down its current level of inventory as the company’s stock holding period gets longer.
On the flip side, Learn Nigeria is paying down its trade debtors within six months down from eight months in the same quarter of last year. This may explain the noticeable depletion in cash balances by 23 per cent or (N354 million) within the period.
Learn Nigeria will have to figure how to make Nigerians to start reading again or perhaps find some other good use for its current cash. Unless Management finds that perfect strategy soon, it may find itself with lots of books and no money. 

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