The full-year profit of DAAR Communications plc has tumbled by 89.78 percent as the media and entertainment giant’s input cost doubles, analysis of the financial statements just posted on the floor of the Nigerian Stock Exchange (NSE) shows.
The company’s audited financial statement for the year ended December 2012, showed that profit after tax (PAT) shrank by 90 percent to N273.87 million from N2.69 billion in the corresponding period of (FY) 2011, as revenue fell by 18 percent to N4.23 billion.
Based on BusinessDay analysis, the fulcrum of the company’s falling bottomline was caused by a 67.03 percent increase in cost of sales to N6.13 billion in the period under review, as against N3.67 billion the preceding year.
Additionally, the cost-of-sales margin jumped by 144.81 percent in FY 2012, compared with 28.50 percent last year, which consumed most of the sales and also resulted in a negative gross margin of 1.90 billion in the period under review.
The results show that DAAR Communications should improve on its cost reduction mechanism in order to minimise spiralling input costs and maximise profits.
It is a generally accepted management principles that a company that is a cost leader is in a better position to magnify shareholders’ return on investment.
However, the company operates in a challenges environment that is plagued by unlimited power supply and bad roads that culminate to huge distribution costs.
Despite the aforementioned challenges, analysts see an upside potential in the Nigerian market as a report by PricceWaterHouseCoopers (PWC) showed that the country’s entertainment and media industries’ revenues will grow at a compound annual growth rate (CAGR) of 16.1 percent from $4 billion in 2013, to $8.5 billion in 2018. Nigeria’s entertainment and media growth rates are the fastest growth rates in the world, according to the report.
Administrative expenses were down by 33.65 percent to N2.07 billion in the review period as against N3.12 billion the preceding year, while operating expenses margin also reduced to 48.93 percent to 60.47 percent in 2012.
The PwC report also revealed that the television market in Nigeria will become a $1 billion-plus market in 2018, and the value would be derived from advertising, subscriptions and licence fees. The market is expected to grow steadily.
DAAR Communications’ debt collection policy is impressive as total trade receivables and prepayments reduced by 75.23 percent to N2.43 billion in FY 2012, from N9.81 billion in the earlier period.
Finance costs increased by 62.41 percent to N1.14 billion in FY 2012, as against 3.033 billion as of FY 2011, as total borrowing costs in the balance sheet also soared by 120.13 percent to N3.39 billion.
The company’s share price closed at N0.5 on the floor of the NSE, while market capitalisation was N4 billion.