Chellarams revert to profitability amid weak sales

Chellarams Plc., one of Nigeria’s leading conglomerates, with interest in wide range of business, has reverted to the path of profitability amid weak sales and a slow growing economy.

For the period ended December 2015, Chellarams posted a profit after tax of N202.36 million, from a loss of N1.06 billion in the same period of (April-Dec 2014).

The improved bottom lines were helped by a reduction in production cost that spiked gross margins despite the risk associated with currency devaluation.

Chellarams’ cost of sales fell by 28.77 percent to N12.82 billion in 2015 as against N18 billion the previous year. Gross profits were up by 84.11 percent to N 3.13 billion in 2015 from N1.70 billion in 2014.

A lower gross profit means a firm is efficient in using direct costs attributable to projects. Gross margin increased to 19.61 percent in 2015 compared with 8.63 percent in 2014.

The Nigerian conglomerate’s cost of sales fell to 80.63 percent in the period under review compared with 91.42 percent in 2014. This means the company is spending less on input costs to produce each unit of products.

Despite the remarkable improvement at the bottom lines on the back of reduced costs, Chellarams’ top lines suffered a hit as sales reduced by 18.94 percent to N15.96 billion in 2015 as against N19.69 billion in 2014.

Conglomerates in Africa’s largest oil producer are grappling with weak sales caused by squeezed consumer wallets consumer and rising inflation.

Nigeria’s consumer price inflation stood at 9.6 percent year-on-year in December, up 0.2 percentage points from November, and still above the central bank’s target upper limit of nine percent, the national bureau of statistics said in January.

Nigeria, Africa largest economy has been hit by significant drop in oil price by more than 70 percent to $32 a barrel.

This has put pressure on reserves and has also forced the central bank to devalue the currency twice since 2014. The apex bank pegged the naira at N197-N199 as the currency has hit N400 on the parallel market as at February 19.

Chellarams’ finance costs increased by 110.42 percent to N1.18 billion in 2015 compared with N560.78 million in 2014. The company’s high borrowing costs, if denominated in dollars exposes it to currency risk on the back of devaluations.

PRIMLAKS Group, pioneers of Individually Quick Frozen (IQF) fruits and vegetables in Nigeria, has outsourced distribution of its Sympli brand of convenience foods to Chellarams Plc. The agreement was struck because of the conglomerate giant’s solid distribution channels.

Further analysis of Chellarams’ financial statement shows total assets were down by 15.47 percent to N15.50 billion in 2015 as against N18.40 billion in 2014.

Current ratio, which measure the ability of a company in  meeting its obligations to suppliers as at when due fell to 0.84x in 2015 as against 0.85x in 2014. The 0.84x liquidity ratio is however below the 2.1x industry average.

Chellaram’s stock price closed at N3.58 on the floor of the exchange while market capitalization was N2.58 billion.

BALA AUGIE