The foremost outdoor advertising company in Nigeria, Afromedia plc, has ended 2015 financial year with a huge loss of N2.75 billion, as rising costs and adverse regulatory requirements continues to dampen the company’s growth prospects.
Afromedia’s N2.75 billion loss in the year ended September 2015 eclipse N1.43 billion losses recorded the previous period. Sales however increased by 19.42 percent to N407.25 million in 2015 from N341.02 billion.
The company got swallowed by its own costs as cost of sales of N806.78 million in the period under review, wipe out all of the N407.25 sales generated, resulting in gross loss of N399.53 million in the period under review.
Cost of sales increased by 84.24 percent while operating expenses surged by jumped by 98.04 percent in 2015 to N2.06 billion, from N1.04 billion last year, culminating in operating loss of N2.08 billion in the period under review.
The company attributed the loss partly to the protracted remodeling of federal airports nationwide.
Afromedia also experienced continuous adverse disruptions of its operation at all its major and exclusive airport advertising concession sites as a result of the infrastructural upgrade by the Federal Airport Authority of Nigeria (FAAN).
The insurgency in the north part of the country, which paralyzed economic activities in that region, also truncated the company’s business plans as it was unable to erect most billboards in the crisis ridden region. Analysts also attribute the faltering performance of the advertising and billboard firm to budgets cuts from its major customers particularly in the telecoms industry on the back of a weak economy.
Further analysis of the financial statements of Afromedia showed the company has a negative working capital of N5.91 billion in 2015 from N4.09 billion the previous year.
Negative working capital is when a company’s current liabilities exceed its current assets.
Afromedia’s current ratio, a measure of working capital was 0.09x in 2015 as against 0.24x in 2014, which is below the industry standard of 2.1x.
A buyer usually considers negative working capital in a target as detrimental because it signifies additional capital that will be required to run the business after closing. Analysts say a buyer actually prefers to see a working capital ratio of 1 to 1.5 times, which means there is at least one N1 of current assets for every naira of current liabilities.
Afromedia’s inability to meet short term obligations demands may threaten its existence in the foreseeable future, a situation that signals the company can no longer convert liquid assets to cash to cover payable.
Industry expert of the view that a cash injection through the scheme of capital restructure and reorganization will strengthen the company’s balance sheet. They added that an urgent cost control mechanism should be installed as such a strategy will help return the company to the path of profitability.
Afromedia’s share price closed at N0.50 on the floor of the exchange while market capitalization stood at N2.22 billion.
BALA AUGIE
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