Afro Media Nigeria plc’s surging and swelling operating expenses have dwarfed sales, which culminated in the company posting a loss of N1.41 billion in the third quarter (Q3) of 2014, analysis of the financial statement shows.
For the first nine months through September 2014, the company posted a loss after tax (PAT) of N1.42 billion, which is higher than the N851.32 million the same period of the corresponding Q3 2013.
The top line wasn’t spared of the unimpressive performance as sales reduced by 54 percent to N341.02 million compared with N742.90 million the preceding year.
The sloppy performance by the advertising giant calls for urgent cost control mechanism and focus strategy that will boost sales and reposition the company for better efficiency and growth.
BusinessDay analysis reveals operating expenses margin, a measure of efficiency, moved to 313.58 percent in the review period as against 106.16 percent last year. This means that for every one naira of sales generated by the company, it spends N3.13, which means operating expenses have swallowed sales.
Operating expenses that consist of distribution and administrative expense increased by 36 percent to N1.07 billion from N788.73 million last year. Production costs also spiked as cost of sales margin increased to 130.16 percent in 2014, as against 60.38 percent the preceding year, while costs of sales increased by 2 percent to N443.89 million.
Industry analysts say the company has a bright future given the opportunities that abound in the Nigeria economy of $510 billion (N80.22trn), attracting foreign direct investment (FDI) that is begging for more advertisement.
The PriceWaterHouseCoopers (PwC) recent report also validates analysts view on the stellar future of Afro Media.
The report has shown that Nigeria’s entertainment and media industries’ revenues will grow at a compound annual growth rate (CAGR) of 16.1 percent from $4 billion in 2013, to an $8.5 billion in 2018.
It also added that the television market in Nigeria will become $1 billion-plus market in 2018, and the value would be derived from advertising, subscriptions and licence fees. The market is expected to grow steadily.
There are upsides as the media and entertainment industries are expected to grow at 5 percent GDP, as the entertainment industry, popularly known as Nollywood, represents 1.2 percent of GDP, which is expected to drive growth of advertising firms in Africa largest economy.
It must be noted that there are challenges inhibiting the growth of firms operating the industry, which includes lack of data, violation of contractual agreement by clients to out-of-home agencies, regulation and multiple taxations – major factors likely to take some of the media agencies out of operations.
Afro Media’s total assets were down by 13.87 percent to N3.60 billion from N4.18 billion last year. Current ratio, which measures the ability of a firm to meet its short-term obligation as at when due was 0.32x- lower than the 2.1x industry average.
The company’s share price closed at N0.50 on the floor of the NSE, while market capitalisation was N2.21 billion.
BALA AUGIE
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