• Friday, March 29, 2024
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BusinessDay

JB forecasts 45% jump in profit amid sector-wide misery

The financial state of major companies in the Nigerian construction and real estate sector were grossly lousy for the 2017 financial year. However, Julius Berger, Nigeria’s biggest company in the sector,  has forecast a 45-percent jump in its revenue for 2018.

The construction giant recorded its highest trade receivables in three years according to the company’s 2017 financials. Legally enforceable claims for payments, held mostly by the federal government of Nigeria tended upwards, starting in 2016 when it stood at N33.08 billion, up by 22 percent from 2015 when it was N27.2 billion and was at its highest in 5 years in 2017 standing at N49.84 billion.

BusinessDay analysis of the company’s five year financial statements shows profit before tax (PBT) continually declined  in 2013, 2014, 2015 (N16.2, N13.1,  N6.5 billion respectively) and finally hit the rock bottom in 2016 when the company posted a loss of N1.49 billion, Berger’s first in 5 years. The company, however, saw PBT increase to N3.74 billion in 2017.

As is the case for Berger, most companies in the Nigerian construction and real estate sector are going through hard times financially, but with the country’s economic recovery from the 2016 recession that saw GDP growth rate fall to -0.67 percent and remained negative till the second quarter of 2017 when it bounced back to 0.72 percent majorly on the back of increasing oil prices, there is finally light at the end of the tunnel.

According to Q1 2018 GDP report released by the NBS, growth rate for construction and real estate sectors remained in negative territory at -1.95 and -9.4 percent respectively.

 UACN Property Development Comany (UPDC) recorded a loss of N3.06 billion in 2017, up from N1.3 billion loss it posted in 2016. In the same vein, Union homes real estate investment trust (UHOMREIT) also saw profit declined by 32.2 percent in 2017.

Berger derives almost two-thirds of its earnings from government contracts, and has based the forecast on Nigeria’s economic recovery and relatively stable foreign exchange market.

The 210 billion naira revenue growth Berger is expecting in 2018 is to be stimulated by contracts in the past year valued at 500 billion naira ($1.4 billion).

Managing Director Wolfgang Goetsch said “From 2014 to 2017 we had a decline in revenue, Combined with the weakening of the naira, the company registered a fall in earnings of almost 70 percent in dollar terms, he said. “With five months already into the year, our forecast is we will have very significant growth, of about 45 percent this year”

 “The company is in talks with the government, its main debtor, and is putting pressure on clients for payment as part of an effort to recover outstanding payments of about 60 billion naira”

 “The construction industry has initiated negotiations with the government on a so-called debt recovery program, which means government will raise bonds and these bonds will be given to the contractors and we can sell the bonds and generate cash.” Goetsch concluded.

 Key sub-sectors are faring much worse, with trade, real estate, and construction playing the role of ugly ducklings. These three sectors are key accounting for over 25 percent of the Nigerian economy and 16 percent of employed workers so weakness here has material repercussions.