Red Star Express is a licensee of FedEx, the air express company with over 650 aircrafts and more than 220 delivery destinations worldwide. FedEx has consistently been rated among the top 10 most admired companies in the world over the past 10 years. Red Star Express started operations in Nigeria in 1992 and now has over 156 offices and over 1520 staffs across the country.
The company’s December 2014 unaudited financial statement showed revenue moving by 6.15 percent to N5 billion from N4.71 billion the same period of the corresponding year 2013.
Minimal increase in the cost of production despite a tough operating environment
There was a minimal increase in the cost of production of the company despite the tough operating environment bedevilling firms operating in Africa’s largest economy and most populous nation, Nigeria. Firms borrow money from banks at high-interest rates due to the hike in interest rates by the CBN. To further exacerbate the already anaemic position of these firms is the devaluation of the currency which spiked Naira.
Red Star’s cost of sales increased by 6.50 percent to N3.60 billion compared with N3.38 billion the preceding year which is less than 8.2 percent inflation figure for the month of January.
The stable input costs helped improve the direct costs attributable to projects as gross profit increased by 5.20 percent to N1.40 billion from N1.33 billion last year.
Profit remains flattish on least operating expenses
The bottom line level also benefitted from the company’s ability to keep costs at a minimal level as profit before tax (PBT) remained flattish at N441 million. Profit after tax (PAT) also remained flattish at N309.09 million.
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Operating expenses moved by single-digit 5.32 percent to N964.38 million compared with N915.32 million the preceding year which explains the flattish level at the bottom-line level.
Strong balance sheet level as soaring debtors calls for a stringent collection period
Total assets were up by 8.74 percent to N3.74 billion in the review period compared with N3.44 billion the preceding year.
Trade debtors spiked by 21.87 percent to N1.56 billion as against N1.28 billion the same period of the corresponding year 2013. The rising receivables mean a lot of customers have unsettled debts that can crimp sales and liquidity.
We advise a stringent debt collection policy that will help speed up the collection of money owed and prevent huge bad and irrecoverable debt that could weigh on profits. Total trade debtors accounted for 41.70 percent of total assets, which makes it a high-risk area in the company’s balance sheet.
The increased competition within the sector means Red Star needs to adapt and improve products and services in order to retain and grow market share.
Nigerian’s rising middle class and its disproportionately young population will be a major driver of courier business. It also means there are positive investment perspectives given the guaranteed customer base for years to come.
BALA AUGIE
