Tough operating environment leaves Learn Africa with low profit margins

 

The tough operating environment combined with the slow economy has shown face in the numbers of Learn Africa as rising operating expenses wipe out most of sales leaving the book maker with low profit margins.

Also, the crisis in the north part of the region is having serious effects on the company’s promotional activities and sales generations.

Such challenges analysts say will make it practically difficult for publishing firms to give a high returns on investment to shareholders in form of dividends as huge costs dampen bottom line.

For the first nine months through September 2015, Learn Africa sales reduced by 10 percent to N1.27 billion from N1.41 billion the previous year as the company continues to have top lines stifled by book piracy.Net reduced by 43.41 percent to N3.91 million due to cost pressures.

“We operate in a tough economic climate that is characterized by high interest rate, erratic energy supply, poor road network and other variables that have escalated costs,” said Segun Oladipo, Managing Director Learn Africa in a recent interview with BusinessDay.

“Besides, our book sales revenue has been constrained by the dwindling purchasing power of an average Nigeria family, the recurring incidence of book piracy and most significantly the high level of insecurity and violent crimes in most part of the country,” said Oladipo.

Analysis of the financial statements of Lean Africa showed operating expenses ratio was 60.22 percent in the review period which means the company spent N60 to generate every N100 in sales.

Further, the company’s expenses of N764.41 million, though lower than the N903.24 million recorded last year wiped out the whole of gross profit of N752.52 million which left profit margins at less than one percent.

Companies in Africa largest oil producer are grappling with slow economy stoked by more than 60 percent fall in the price of oil and a weak naira.

Oil accounts for 70 percent of oil revenue and 90 percent of foreign exchange earnings.

The economy has slowed to 2.84 percent in the third quarter of the year as against 6.34 percent the corresponding period which means more Nigerians are getting poorer.

Equities have also dropped as investors lose confidence in a hazy economy.

Annual inflation was 9.3 percent in October, higher than the central bank’s target of 6 percent to 9 percent which means less money in the pockets of people to buy books.

The naira was unchanged at 199.05 per dollar and has been all but fixed at 198 to 199 since early March. Forward prices suggest it will weaken to 241.25 in a year.

Industry analysts say government should support the Nigeria Copy Right Commission and the Nigeria Publishers Association in reducing book piracy to the barest minimum as this crime is preventing book makers from reaping the dividend of hard work.

‘‘Without any doubt, the poor reading culture in our country is a big challenge in the publishing industry. Books are low on the preference lists of Nigeria and this has made it difficult to achieve turnover that is commensurate with the huge population,” said Oladipo

Learn Africa share price closed at N0.60 on the floor of the exchange while market capitalization was N462.87 million.

 

BALA AUGIE