Huge investment in R&D boosts Neimeth’s bottomline

The monolithic and huge investment in research and development (R&D) has helped boost the bottomline of Neimeth International Pharmaceutical plc, analysis of its financial statement shows.

This focus strategy aimed at producing innovative and market penetrating product has also placed the company in an upside position that will enable it pay bumper dividend to shareholders.
For the first nine months through September 2014, the Nigeria drug maker’s net income increased by 75 percent to N228.53 million from N130.17  million the same period of the corresponding year (Q3) 2013, while revenue dropped by 19 percent to N1.62 billion.

Neimeth impressive results are coming amid fluctuation in the nation’s currency that has been pressuring costs of firms operating in the drug industry. The foreign exchange volatility has been intense lately due to rout in the price of oil at the international market.

The naira, which has lost about 4.4 percent versus the dollar this year, ended trading at a low of N184.02, weekend, against the greenback, as foreign investors exiting stock and bond markets added to selling pressure on the local currency.

Nigeria drug makers are also incurring copious cost due to upgrading facilities to meet the World Health Organisation pre-qualification, a project that have slowed the bottomline of some firms in the industry.

Pharmaceutical manufacturers are working hard to ensure that they acquire the WHO pre-qualification that would enhance the competitiveness of locally-made drugs at the international market. This has resulted in over N70 billion ($44m) being invested by about 14 members of the Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria (PMG-MAN) into factory expansion and upgrade of manufacturing processes in the last four years.

Neimeth’s cost of sales margin increased to 52.80 percent in Q3 2014 as against 45.70 percent the preceding year, while cost of sales however reduced by 11 percent to N855.20 million
The company’s  ability to control direct costs attributable to projects reduced as gross profit dropped by 27 percent to N764.1 million compared with N1.05 billion the preceding year, while gross profit margin dipped to 47 percent from 52 percent last year.

Distribution and administrative expenses were slightly up by a single digit 4 percent to N926.89 million from N891.10 million, despite huge investments in R&D.
Total assets contracted by 3 percent to N2.78 billion in the review period from N2.88 billion the preceding year while total equity also fell by 8 percent to N1.63 billion as against N1.78 billion as at Q3 2013.

Current ratio, a measure of a company’s liquidity was 2.11x which is within the 2.1x industry average as fixed assets turnover stood at 0.58x.

Niemeth’s is using the resources of the owners of the business to generate higher returns as return on equity (ROE) moved to 14.02 percent as against 8.84 percent in the preceding year.
The company’s share price closed at N0.8 on the floor of the NSE, as market capitalisation was N1.255 billion .

 

BALA AUGIE