It is not the best of times for engineering and construction giant Arbico Nigeria Plc as huge input and operating costs plunge the company into a loss position.
This means shareholders returns for investing in the firm is in jeopardy as companies don’t pay dividend out of losses instead they distribute from profits.
It was grace to grass as the company’s 2014 audited financial statement showed the construction giant recorded a loss after tax of N259.64 million from N295.91 million profit of it netted last year.
The loss is connected with the copious costs incurred in the review period which saw operating expenses of N835.47 million wipe out all of gross profit, resulting in the dents at the bottom line.
The company’s cost of sales ratio was as high as 85.44 percent in the period under review. This means for every N100 generated in revenue, Arbico spent N85.44 on input costs. Cost of sales increased by 31.53 percent to N3.17 billion.
Operating expenses were up by 28.82 percent to N835.17 million in 2014 as against N648.30 million as at December 2013.
Gross profit reduced by 42.31 percent to N936.15million in 2014 from N539.98 million last year.
This means the construction firm could not control direct costs attributable to projects.
Arbico’s sales increased by 10.74 percent to N3.71 billion in the period under review compared with N3.50 billion last year.
Gross margins were down to 14.57 percent in 2014 as against 27.94 percent the previous year.
Analysts say construction business in Africa’s largest economy has been slow since last fuelled by weak government spending on capital projects and rising inflation that means less money for consumers to spend on accommodation.
The sharp drop in the price of oil by more than 50 percent also affected the construction sector as allocations to states dwindled hence there were no monies to spend on capital projects.
Oil makes up 2/3 of government revenue and 90 percent of foreign exchange earnings.
A halving of crude prices in the past year has slowed annual economic growth to 2.4 percent in the second quarter according to the latest figures from the statistics body.
However, there is upside potentials for the sector as the country’s huge population that crave for accommodation and the rising middle class will drive the demand for construction business.
Arbico’s total assets surged by 78 percent to N4.45 billion in 2014 from N2.50 billion the previous year. The N1.28 billion negative retained earnings in the company’s balance sheet means the construction firm has been making more losses than profit since its existence.
The company has been appointed as the Main Contractor on the Lakowe Lakes Village Project.
The Village features a secure environment within the established grounds of Lakowe Lakes Golf and Country Estate, according to its website.
It has two distinct home styles specially designed to cater for those that prefer a quiet living environment.
The Village will be an exclusive sanctuary of only 18 units designed to offer peace, luxury and security within this exclusive neighbourhood.
Arbico share price closed at N5.30 on the floor of the exchange while market capitalization was N787.05 million.
BALA AUGIE
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