May & Baker Plc: Sustaining the path of profitability amid economic headwinds, cash-strapped consumers

In the last few years, several quoted healthcare companies have closed shops with others struggling to stay afloat in a challenging operating environment.

Notable among these is Evans Medical Plc which was taken over by First Bank and defunct Skye Bank Plc for defaulting on a loan facility. The drugmaker recently won the World Health Organization’s prequalification license that gives it an opportunity to participate in international bids, sadly, before it could reap the dividend, the two lenders came for its jugular.

Also, drugmaker, Swiss Pharma Nig Ltd (Swipha) was in 2017 acquired by French pharmaceutical multinational firm, Biogaran, a subsidiary of the Servier Group specialized in generic medicines.  The 2016 economic recession also dealt a big blow to their bottomlines while consumers shifted to cheap and smuggled substandard drugs. There has also been a shift to traditional medicine by most low-income households.

In spite of these, May & Baker Plc has continued to maintain the tempo of profitability.

Business operations

May & Baker manufactures and distributes pharmaceutical products, diagnostic equipment, reagents, consumer products, and human vaccines’ The Company also engages as contracts manufacture for other companies and organisations.
It signed a Joint Venture Agreement for the-production of a nutritional supplement with FIIRO through the Ministry of health. The Company has three subsidiaries, Osworth Nigeria Limited, Tydipacks Nigeria Limited and serviiure Nigeria Limited and has the majority shareholding in Biovaclines Nigeria.
In April 2018, May & Baker sold its food production line, worth some N775 million to DE United Foods Industries Limited (DUFIL), owners of Indomie noodles. The food production line covers its noodles business under the brand name, Mimee Noodles.

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Corporate Governance

The company has Nnamdi Okafor as its managing director/CEO. He holds a Bachelor of Pharmacy (Honours) degree from the prestigious University of Ife, Ile-Ife (now Obafemi Awolowo University, Ife) as well as Master of Business Administration (MBA) in Marketing from ESUT Business School, Lagos. He is a Fellow of the Pharmaceutical Society of Nigeria, Member of the Nigerian Institute of Management and an alumnus of the Lagos Business School. As at 21 March 2019, he has 14.5million units of shares in the company.
The company recently appointed Daisy Danjuma, as chairman following the retirement of T.Y Danjuma, a retired army general.  She was first appointed to the Board of Directors of the company on 30th July 1999 until 8th October 2003 and later on 30th May 2019.

As at 21st March 2019, T.Y. Danjuma,  through T.Y. Holdings Ltd; Oil TechNig. Ltd; Osis Yuvic Ltd; has an indirect shareholding amounting to 746.84million units of shares.
Other non-executive directors includes Adetunj Adeleke, who holds a Master Degree in Business Administration (MBA) from Delta State University, Abraka and a current member of the Nigerian Institute of Management., Edudie Abebe, a retired federal permanent secretary Fellow, London Society of Hygiene and Tropical Medicine, Ishaya Dankaro, an expert in power plant systems engineer and a member of the International Association of Mechanical Engineers and the National Soceity of Black Engineers, USA. Dankaro has 61.63million units of shares as at 21 March 2019.

Wave of economic contraction

The drug-maker was not shielded from the wave of economic contraction that swept the country in 2016 as it plunged the company into a loss of N41.09million. The company however emerged from its loss path in 2017 and maintained it in 2018 recording a net profit of N336.61million and N585.20million.

In its recently released third-quarter result for the period ended 30th September, the drugmaker reported a decline in its top-line (Revenue) of 9.57percent to N5.91 billion as compared to N6.54 billion reported in the same period in 2018. Bottom-line (Profits) also ballooned 14.2percent from N414.75 million in 2018 to N473.57 million in 2019.

The pharmaceutical unit which contributes over 90percent to total revenue recorded revenue of N5.85 billion in the period. This was however lower by 6.95percent when compared to the same period in 2018.

According to the company, this was a general industry trend attributed to a decline in consumer purchasing power, industry regulatory headwinds and unfavourable macroeconomic conditions.

“The revenue decline was due to the discontinuation of some key products in compliance with industry-wide regulatory directives and the sale of her noodles (Food) business,” the company said.

Its other unit, the beverage business unit showed some resilience surging 9.18percent to N57million.

The beverage unit, however, recorded some level of resilience, inching upwards by 9.18percent, to print at N56.79million from N52.02million

Its finance cost dropped 41.55percent to N175.90 million compared to N300.94million in third quarter 2018, thanks to the recently concluded rights issue which saw it reduced some of its debts.  Overall, net margin improved to 8.01percent from 6.34percent in the corresponding period.

Cost of sales within the third quarter also dropped 0.69percent to N3.75bn putting cost-to-sales at 63.45percent as compared to 63.53percent in same period 2018. Distribution and marketing expenses declined 22.69percent to N756.56million.

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Administrative expenses increased by 16.59percent to N626.07million, wiping out the gains from the direct costs and distribution expenses.

The company consummated an agreement with the Federal Government of Nigeria for a joint venture project in Biovaccines Nigeria Limited, a special purpose vehicle for local vaccine production.
According to management of the company, the Biovaccines has taken off as a business and the roadmap to berth Nigeria’s local vaccines is in full swing.

Similarly, the drug company has signed agreement with the National Institute for Pharmaceutical Research (NIPRD) for the production and commercialization of an anti-sickling drug, NAPRISAN, which will provide succor to millions of homes with sickle cell patients.
It is also working on a project with the Federal Institute of Industrial Research for the development of a nutraceutical product.

The Nigerian Stock Exchange (NSE) listed additional 745,234,886 ordinary shares of May & Baker Nigeria Plc issued by way of a Rights Issue. The additional shares arose from company’s Rights Issue of 980,000,000 ordinary shares of 50 kobo each at N2.50 per share on the basis of one new ordinary shares for every one shares ordinary shares held as at 4 September 2018. The company realised about N1.86 billion from the right issue as it was 76.04 per cent successful.

Nnamdi Okafor, managing director, said the continuing improvement in the profitability of the company underscores the success of strategic initiatives aimed at optimizing value for all stakeholders.

He said the company has been positioned for sustained growth noting that ongoing investments in additional production capacity and investment in marketing and promotions among other strategic initiatives would provide impetus for growth in the years ahead.
The company has continued to explore opportunities to broaden its products base and top-line including recent investments in vaccine production, new pharmaceutical products, nutraceuticals and herbal products that are expected to further diversify revenue base overtime.