The Central Bank of Nigeria (CBN)’s inclusion of fertilizer on a list of 41 items barred from sourcing foreign exchange at the official window could be a boon for local fertilizer companies from Notore to Indorama.
Under the revised policy, which the CBN intends to use to stimulate local demand for fertilizer, meansimporters will now have to patronize the parallel market for FX to import fertilizers into the country. The spread between the official CBN rate and the parallel market is as wide as N57 per dollar.
To avoid these extra costs, fertilizer importers are likely to turn to local manufacturers, which would in turn boost revenues for the local fertilizer companies and comes as a relief particularly for struggling Notore.
A similar scenario played out with Okomu oil Plc and Presco Plc, both of which benefitted from the CBN’s dollar restriction on palm oil imports. Presco’s revenues rose 115 percent between 2015 and 2017, while profit climbed a staggering 920 percent within the same period.
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Okomu saw revenues rise 108 percent within the two year period while profit rose four-folds.
The two companies have also helped shareholders to bumper return on investment in terms of capital appreciation, bonuses and dividends.
Should the dollar restriction on fertiliser replicate the success with palm oil, local fertiliser companies and their shareholders could be in for similar gains.
Shares of Notore remained at N62.50 Tuesday, where they have been for the past 5 years.
“The new policy will boost domestic demand and could be a game changer for the local fertiliser companies, but the government must keep a keen eye on smuggling so that the gains of the new policy are not muted,” said Ayodeji Ebo, managing director of AfrinvestSecurities Limited.
“We may not see an immediate impact from the CBN policy but the future looks bright for the companies involved,” Ebo added.
New CBN policy
The apex bank as part of its developmental objective of employment generation and inclusive growth had in July 2015 restricted the availability of foreign exchange to the importation of 41 items.
The recent addition of fertilizer to the list is seen by many as a welcome development which could help boost the local production capacity of Fertilizer in the country. This is also in line with the Presidential Fertilizer Initiative PFI which was flagged off in 2016.
Just the same time the CBN announced this new policy, NotoreChemical Industries Plc, a major manufacturer of Urea Fertilizer released a ‘notoriously’ bad 2018 financial results for the second year running. This has also raised some growing concerns by PWC, the auditor of the company.
According to the auditor’s report as contained in the financial results, the Group and Company incurred net losses of N2.01 billion and N1.91 billion respectively during the year ended 30 September 2018 and, as of that date, the Group and Company had net current liabilities of N8.48 billion and N9.11 billion respectively.
According to the auditors, these circumstances cast doubt about the ability of the Group and Company to meet their obligations as they fall due and accordingly.
In its recently released 2018 full year results for the period ended 30th September 2018, the company’s revenue fell 25 percentto N26.8 billion as against N35.9 billion a year ago.
Loss before Income Tax surged 69 percent to N3.63 billion from N2.15 billion in 2017.
Figures from the results also show that revenue from Urea and other Chemicals production plummeted 25 percent from N35.68 billion in full-year 2017 to N26.65 billion in 2018, the largest revenue segment of the company.
Also, revenue from its Ammonia production segment almost halved from N214 million in full-year 2017 to N170 million in the same period 2018.
What Notore is doing to get out of the woods
Last year, the company undertook a Listing by Introduction of 1.61billion ordinary shares at a Listing Price of N62.50 per share.
Sadly, there has been no movement on the share price as the price remains flat.
According to the company, the listing is to help promote better liquidity of its ordinary shares in the secondary market and have access to long term capital from a wide range of local and international investors when required.
While speaking at the “Facts behind the listing” Onajite Okoloko, the company’s Group Managing Director, noted that this will grant Nigerians the opportunity to participate in Notore’s growth story.
Speaking on the medium-term plan, he said that the company would develop new compound fertilizer blends specifically for key growth crops, expand its seed business and develop a crop protection business and as well expand fertilizer production capacity.
Noting that dredging activities are expected to commence on Notore’sprivately owned jetty in 2019 thus, increasing the jetty berth capacity from 15,000mt vessels to 25,000mt.
Upside risk for Notore
Notore has also continued to enjoy patronage from the Federal Government as it remains the primary supplier of fertilizer for the on-going Anchor Borrowers’ Program (ABP), the ₦55 billion programme intervention scheme launched in 2015 by the Federal Government through the Central Bank of Nigeria (CBN) to boost agricultural production and non-oil exports in the face of unpredictable crude oil prices and its resultant effect on the revenue profile of the nation.
The Company had on 4 July 2018, secured formal approval for a US$37 million long-term loan facility from Afrexim Bank, for the funding of its Plant Turn-Around-Maintenance (TAM) program, to acquire and install a back-up power plant and for the stocking-up of critical equipment spares inventory.
The loan is repayable over seven years with one-year moratorium on principal repayment, and upon successful completion of the TAM program in Q3 2019, the company’s Urea production volume will increase to its nameplate capacity of 1,500mtpd, this will translate to a significant increases in future revenues and cash flows of the Company and the Group.
Downside Risk for Notore
The dwindling purchasing power of local farmers, depreciating infrastructure, importation of foreign brands, smuggling activities at border posts have impacted negatively on the activities of Notore in recent times.
Investors are anxiously waiting for the Onajite Okoloko-led management team to turn things around and return Notore to the path of profitability so that shareholders can get a good return on their investment in no long time.
Notore commenced commercial production and distribution of fertilizer across the country in 2010 after the rehabilitation of plants and assets acquired from the moribund National Fertilizer Company of Nigeria (NAFCON) through the federal government’s privatization programme in 2005. NotoreChemical Industries (Mauritius) Limited controls 76% of the shareholding structure with a couple of other Nigerian investors.
The Group currently produces Urea and Ammonia and owns a Urea producing plant in Onne, Rivers State. It currently supplies and sells its fertilizer products across the thirty-six (36) states in Nigeria including Abuja, the Federal Capital Territory. The Group trades and exports its manufactured fertilizer products to West Africa, South Africa, South America, and Europe.
