Appraising Nigeria’s conglomerates sector
Acompany is regarded as a conglomerate if it has a combination of multiple business entities operating in entirely different industries under one corporate group. Having a wide range of companies in different sectors can be a real benefit for the bottom line such that the underperforming companies or industries can be compensated for by those performing in other sectors.
In the last few years, conglomerates operating in Nigeria have experienced a number of challenges which still remain till today. These challenges are having significant impact on their financials. Some of these problems include the business environment, infrastructure and development in the international market.
Businessday Research and Intelligence Unit (BRIU) analysed the listed conglomerates in Nigeria to have a feel of how they have weathered the economic conditions in recent times. The sector is so important in terms of job creation, diversity and poverty alleviation.
For the five quoted conglomerates – Chellarams Plc, John Holt Plc, SCOA Nigeria Plc, Transnational Corporation of Nigeria PLC(TCN) and the United Africa Company of Nigeria (UACN Plc), their interest cuts across a wide array of the economy from manufacturing to automobile, real estate, hotel, general trade and merchandise, power, agriculture and services, among other sectors
The latest audited and interim financial reports of the conglomerates which detailed and highlighted their performances for the periods ended 2018 and 2019 showed that the companies recorded a combined revenue of N177.2 billion in 2019, a value that is 9 per cent less than the preceding year’s revenue of N194.6 billion.
UACN contributed the most revenue to the tune of 47 per cent and TCN contributed 43 per cent. Then, Chellarams Plc accounted for 6 per cent, SCOAN Nigeria and John Holt 2 per cent and 1 per cent respectively.
On individual basis, the full year unaudited financial statement of
UACN for the year ended December 31, 2019, showed an upward trend in its revenue growth as revenue increased by 10 per cent to N83.9 billion in 2019. Gross profit rose from N14.9 billion in 2018 to N17.4 billion in 2019, and this represented an increase of 8 per cent. Similarly, Profit Before Tax (PBT) increased from N7.7 billion in 2018 to approximately N8.1 billion in 2019.
Growth in PBT was essentially driven by a substantial increase in revenue from the sale of animal feeds, which was up by 14 per cent YOY, and package food for the referenced period increase by 10 per cent YOY and this was also supported by the revenue from the sale of the company’s investment property to a tune of N631 million as against N15 million in 2018.
However, UACN recorded a loss arising from discontinued operations which translated to a decrease of 4 per cent when compared with the preceding year value of N9.5 billion. Notwithstanding, the company’s gross profit margin, a metric used to assess a company’s financial health and business model by revealing the amount of money left over from sales after deducting the cost of goods sold, stood at 21 per cent although slightly below the industry average of 31 per cent.
The current ratio, which measures a company’s ability to pay short-term obligations or those falls due within one-year stood at 1.73x, while debt to-asset for the period ended stood at 8.54 per cent, and this indicated that the company’s assets were funded by 8.54 per cent of its debt.
Return on Equity (ROE), which measures how effectively management is using a company’s assets to create profits for the said period stood at 10 per cent in 2019 while ROA, a metric that shows how profitable a company’s assets are in generating revenue, grew slightly by 3 percentage points from 8 per cent in 2018 to 11 per cent in 2019.
John Holt Plc’s revenue for the considered period contracted by 33 per cent from N2.7 billion in 2018 to N1.8 billion in 2019. This was largely driven by a decline in sales and leasing of a technical product.
Gross profit decreased by 13 per cent to N451 million in 2019 from N521 million in 2018, while gross profit margin stood at 25 per cent in 2019 from 19 per cent in 2018 owing to a rise in the cost of sales to turnover.
John Holt recorded an operating loss of N31 million in 2018 compared to an operating profit of N298 million. Similarly, the conglomerate recorded a loss before tax of about N86 million in 2018 and this, however, improved in 2019 accounting year to N236 million, about 174 per cent growth rate.
Profit after tax followed a similar trend as it increased by 169 per cent from a loss of N81 million in 2018. Return on equity (ROE) of 8 per cent and a return on assets (ROA) of 4 per cent represented an improvement on the negative returns of the previous year. Current ratio of 1.6x showed the company could still meet up its short-term obligations.
TCN on the other hand, followed a comparable trend, as the company recorded a decline in its revenue of 27 per cent from N104.2 billion in 2018 to N76.3 billion in 2018. The company’s gross profit followed a downward trend representing a 27 per cent decreased when likened with N48.2 billion recorded in 2018. The gross profit margin for the reference periods in 2018 and 2019 have been on a similar scale representing 47 per cent each.
The net income margin, which is the percentage of revenue that is left after all expenses have been deducted slumped from 20 per cent in 2018 to 5 per cent in 2019 which is lower than the industry average of 15 per cent. ROA declined by 12 percentage points from 14 per cent in 2018 to 2 per cent in 2019. Also, ROE followed a similar pattern as it decreased from 21 per cent in 2018 to 3 per cent in 2019.
SCOA Nigeria Plc recorded an increase in revenue portfolio for the period ended 31st December 2019 to a tune of 58 per cent from approximately N2.5 billion in 2018 to N3.9 billion. However, gross profit declined by 34 per cent to N550 million from N834 million in the corresponding year.
Gross profit margin also declined to 14 per cent in 2019 from 34 percent in the corresponding year. ROA and ROE for the reference period were up from -1 percent and -3 percent in 2018 to 2 per cent and 9 per cent in 2019 respectively.
Gross earnings of Chellarams Plc grew by 29 per cent from N8.7 billion to N11.2 billion in 2019. Gross profit for the considered period declined by 71 per cent from N1.8 billion in 2018 to N527.3 million in 2019. Chellarams Plc recorded a loss after tax for 2019 to a tune of N2.7 billion while net profit margin for the period for the considered period stood -25% and ROA was -44%.