Conglomerates giant John Holt Plc has attributed its weak sales to economic doldrums bedevilling most firms in Africa’s largest economy as a crash in oil price watered down patronage from the company’s clients who are major oil and gas operators.
The first quarter (Q1) 2015 unaudited financial statement of John Holt Nigeria Plc showed sales reduced by 22 percent to N418 million, from N536 million the same period of the corresponding year (Q1) 2014.
The drop in sales was mainly because of crash in crude oil price which negatively affected revenue from oil and gas clients, according to a press statement from the company.
“Sales were also negatively affected by the tension and uncertainty associated with the 2015 general elections and the subsequent lull in the economy after the elections,” the company.
Oil and gas companies in Africa’s have recorded significant drop in revenue as a result of more than 70 percent drop in the price of oil to $29 a barrel and the devaluation of the currency in 2014.
Analysts say the macroeconomic headwinds have forced upstream players to renege on obligations to most customers as cash flow remained crimped and stunted. These firms record significant reductions in the far value of their asset portfolios.
The volatility and uncertainties forced Oando Nigeria Plc to recognise N76.9 billion impairment charges in its exploration and production business.
Nigeria’s economic growth slowed to 2.84 percent in the third quarter of 2015 from 6.23 percent a year earlier as a result of lower oil prices, the Nigerian Bureau of Statistics (NBS).
John Holt said the foreign exchange restrictions imposed by the central bank, high borrowing costs and huge infrastructure deficit such as lack of stable electricity from the grid and bad roads are hurting the company’s operations.
The Abuja based bank stabilized the naira by imposing trading restrictions and banning importers from using the foreign-exchange market for about 40 items.
Despite the unpredictable macroeconomic environment, John Holt was cost effective as cost of sales fell by 22.38 percent to N299 million in 2015 as against N385 million in 2014. Cost of sales ratio, a measure of efficient reduced to 71 percent in the period under review as against 72 percent in 2014.
The lower cost of sales ratio means the company is spending less on input costs to produce each unit of product. Operating expenses were down by 49.20 percent to N191 million in 2015 from N324 million in 2014.Operating expense margin, another measure of efficiency fell to 45.70 percent in the period under review as against 60.45 percent in 2014. John Holt said the cost cuts measures put in place by its management paid off as loss after tax reduced by 48.40 percent to N127 million in 2015 compared with N246 million in 2014.
The conglomerate giant plans to source long term capital and dispose of properties surplus to requirement as it intends to make inroads into businesses that are less import dependent.
“Ordinarily, 2016 budget provides some optimism, but there are doubts as to the ability to fund the budget given the reduction in the main source of financing the budget i.e. crude oil revenue. Because of this as well as the increasing difficulty in sourcing forex, there are concerns that 2016 will be challenging, said John Holt.
BALA AUGIE
