Players in the industrial goods space were unable to maximise returns on their expanding asset base on account of their top-line failing to keep pace with growth in fixed capital in the first quarter of 2019.
Analysis of the key asset efficiency metrics; Fixed Asset Turnover (FAT) and Return on Asset (ROA) of industrial goods manufacturers that have released their earnings scorecards for 2019’s first quarter showed a tangible decline in their ability to utilize assets to grow earnings.
Fixed Asset Turnover for eight firms including Cement Company of Northern Nigeria (CCNN), Berger Paints, Chemical & Allied Products, Meyer, Grief, Premier Paints, Portland Paints and Beta Glass, shrank to 0.71 in the quarter review, indicating some 430 basis points decline over 1.14 reported a year earlier.
On the other hand, Return on Asset of these firms dipped some 3 per cent points to 0.95 per cent in the recently concluded quarter, compared with 3.86 per cent in the previous comparable quarter.
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The Fixed Asset Turnover ratio shows how manufacturers’ acquisition of property, plant and equipment are effectively utilized to raise output.
When a firm makes such significant purchases, investors track FAT to see if the company’s new fixed assets are rewarded with higher sales.
ROA shows the capacity at which manufacturers use their assets to generate profit. A higher ROA figure indicates better managerial efficiency towards assets utilization; conversely, a lower figure shows less efficiency.
This implies the firm realized N710 as revenue from every thousand nairas invested in fixed assets and earned N95 from every thousand nairas expended on total assets.
The cumulative monetary worth of assets of the eight players accelerated from N48.2 billion in 2018’s first quarter to N420.9 billion a year after, on the back of CCNN’s merger with BUA-owned Kalambaina Cement, which expanded asset base from N27 billion to N358 billion.
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Similarly, revenue and net earnings of the eight players surged 80 per cent and N103 per cent respectively to N28 billion and N5 billion, although both underperformed assets growth which skyrocketed over a thousand per cent.
The analysis revealed that CAP having a FAT figure of 2.51, generated the most revenue from each naira investment in fixed capital, and trailed by Portland (1.5), while others were below the industry average of 0.71
On the basis of ROA, CAP, Berger Paint, CCNN, Portland and Beta Glass recorded positive returns while Meyer, Premier paints and Grief were haunted by losses made in the period.
Nigeria’s most-capitalized firm, Dangote Cement, was excluded from the analysis to provide a clearer basis of comparison given that the cement maker accounts for a lion share in the industry’s profit and assets.
Israel Odubola & Segun Adams
