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Cutix Plc: Revenue growth despite challenges  

Historical Background 

Cutix started production with one extrusion line in 1984 with staff strength of 20, and by 1985 it added a second line. By 1986, Cutix added several wire-processing lines to be at par with leading cable makers in Nigeria and elsewhere in the world. All machines were specified, installed and commissioned by Cutix staff.

The company also incorporated as much locally fabricated parts as it could without lowering overall quality and efficiency. In 1992, the company went ahead to become the first manufacturer to acquire a plastic compounding line. In 1999, the first machine built by staff of Cutix was successfully put to service. 

Cutix_plc

Financial results for the year ended July 2014

For the three months ended July 2014, Cutix gross revenue increased by 4.41 percent to N575.02 million from N550.72 million in the same period of the corresponding period (Q1) July 2013.

Profit before tax PBT rose by 27.34 percent to N44.62 million in Q1 2014 compared with N61.41 million as at (Q1) July 2013.

Net margin, a measure of profitability and efficiency dropped to 5.04 percent in 2014 from 7.42 percent as at Q1 2013

Earnings per share EPS fell by 40 percent to 3k  as against 5k as the last year.

The company incurred high cost of production as cost of sales margin increased to 72.85 percent in the review period from 1.39 percent last year, while cost of sales jumped by 6.75 percent to N418.93 million.

Gross margin remained flattish at 27 percent in the period under review while gross profits were down slightly by 1.39 percent to N156.08 million in (Q1) July 2014 as against N158.23 million (Q1) 2013.

Distribution and Administrative expenses were up by 9.33 percent to N92.17 million as against N84.30 million last year.

Current ratio, which measures the ability of a firm to meet its short term obligation, was 1.23x which is lower than the 2.1x industry average.

Due to the company’s expansion drive, its loans soared as finance costs surged by 72.13 percent to N25.82 million in Q1 July 2014 compared with N15 million the corresponding period of Q1 July 2013.

Furthermore, total borrowings in the balance sheet spiked by 87.50 percent to N808.14 million as against N431.1 million the preceding year.

Total assets were up by 28.70 percent to N1.79 billion in Q1 July 2014 compared with N1.39 billion the preceding year.

Return on average equity ROE was 27.96 percent, while the return on average assets ROAA stood at 1.23 percent in the review period.

Share performance and outlook

The company’s share price closed at N1.83 on the floor of the Nigeria stock exchange while market capitalization stood at N1.67 billion.

In order to boost operation, the indigenous cable company has installed a 300 million cable plant, the first among cable operators in Nigeria.

Growth in the Nigerian economy which is expected to expand by 6.4 percent in 2014 means that Cutix will continue to have a growing market and business.

The rising need for housing is expected to drive the demand for building materials such as cables, which means Cutix has stellar future prospects.

Influx of Cheap cables undermining growth now

The company’s growth potential is however being undermined now by the importation of cheap and substandard cables from Asian countries such as China into the Nigerian market.

This is in connivance with some corrupt Nigeria custom authorities who allow such goods into the country.

Analysts call on government to strengthen its institution as the flooding this materials slows the sales of cable manufacturing companies.

Limited Power Supply hurts bottom line performance

Cutix had earlier in the year complained about shortage of power supply from the National grid as it used 100 percent generator to power its plants for the purpose of production.

This as shown in the financial analysis section may have resulted in huge overhead costs which bled profits.

It must be noted that if power were available, cost would have been reduced by 40 percent.

The privatization of the power sector by the Nigeria government analysts say will produce the desired result of stable electricity that will increase the output of the manufacturing sector.