John Holt says currency devaluation hurting profits

John Holt Nigeria Plc, one of the most diversified companies in Africa’s largest economy has had currency devaluation hurt its profit as the conglomerate giant is seeking investment in businesses that are less import dependent.

For the year ended September 30 2015, John Holt’s operating profit reduced by 18.50 percent to N1.63 billion from N2 billion the previous year.

Sales were down by 2.43 billion in 2015 as the company embarks on aggressive expansion with a view to consolidating its share of the market.

The company with interest in businesses ranging from engineering, leasing, trade and distribution said that the devaluation of the naira was a drain on bottom lines since most of its raw materials and equipments are imported.

“Because we are an import dependent company, we had N500 million wiped out because of devaluation,” said the company, in an emailed note to BusinessDay.

Last year was tough for conglomerate and manufacturers in Africa’s largest oil producer as the Central Bank of Nigeria devalued the naira twice since November 2014 in order to curb inflation and protect the reserve from continued fall due to a more than 70 percent drop in the price of oil to $31 a barrel.

Oil accounts for two-thirds of government revenue and about 90 percent of its foreign currency earnings. The Abuja-based central bank has held the naira at 197 to 199 per dollar since March last year while the currency trades between N275 and N285 at the parallel market.

John Holt’s debt to adjusted capital ratio fell to 43 percent in 2015 as against 51 percent in 2014. Finance cost dipped by 7.60 percent to N231 million.

The decrease in the debt to adjusted capital ratio for the Group during the year resulted primarily from decrease in debt by N400 million from N1.8 billion in 2014 as against N1.4 billion in 2015, according the company’s 2015 audited financial statement.

“This was as a result of settlement of FBN loan and liquidation of import finance liabilities,’ said the company.

Despite infrastructure deficits such as bad roads and  huge energy costs that spiral up operating expenses in Nigeria, John Holt was able to reduce costs as administrative expenses fell by 20.10 percent to N682 million in 2015 from N856 million in 2014.

Distribution expenses were down by 20.30 percent to N856 million.

The company spent less money on operating expenses to generate every unit of product as operating expense margin (OPEX) margin fell to 43.21 percent in 2015 from 48.10 percent in 2014.

Cost of sales was down by 3.80 percent to N1.77 billion, thanks to effective cost control mechanisms put in place by management.

John Holt attributed the slow growth in sales to reduced patronage from major customers in the oil and gas industry that got hit by the oil price crash.

The company’s share price closed at N0.92 while market capitalization was N528 million.

 

BALA AUGIE