Julius Berger Plc was hard hit by an economic downturn as the Nigerian construction giant spent less on equipment and machines, raising concerns about its expansion plans.
The 2016 audited financial statement of Julius Berger showed that the largest construction company in Africa’s most populous nation spent just N695 million on the acquisition of property, plant and equipment, 80 per cent drop from the N3.52 billion it expended in 2015.
Julius Berger’s cash and cash equivalent of N10.58 billion in the period under review means it has reasonable cash flow to undertake capital projects.
The massive drop in investment in capital expenditure is unsurprising as 2016 was torrid for operators in the industrial goods industry. In the time of recession, companies are unable to build more houses, acquire machines and employ workers
Analysts say that a severe dollar shortage, caused by a sharp drop in oil price, hindered these firms from importing plants and machinery for the few construction works at hand.
An industry expert who doesn’t want his name mentioned said the delay in the passage of the 2015 and 2016 budget spelt doom for construction firms as capital projects dipped.
The Nigerian economy plunged 1.5 per cent last year, the first full-year contraction since 1991, dragged by a fall in oil prices, and production and dollar shortages.
The Naira, Nigeria’s currency, lost up to a third of its value against the greenback after the central bank removed a 197-199 naira to dollar peg in June.
“In a time of recession the first sector that will suffer are the real estate and construction companies. Again firms are not investing in new projects; they are in a survival mood,” said Igbuan Okaisabor, vice president/CEO of KAISER Construction Limited.
“If construction workers don’t have jobs, they will not buy nails, paints and other building materials. We are cutting jobs by shedding jobs and that is bad for the economy,” Okaisabor said.
A devaluation of the currency may reignite the foreign exchange (FX) losses in the books of Julius Berger. FX losses as at December 2016 stood at N14.23 billion; the figure was N2.10 billion for first quarter, 2017.
For the first three months through March 2017, Julius Berger reported a loss of N427 million versus a profit of N951 million the previous year. Sales were up 2.73 per cent to N34.15 billion.
The Nigerian construction giant’s operating profit margins fell to 5.12 per cent in March 2017 from 8.24 per cent as at March 2016.
Analysts say there are positive prognoses for Julius Berger as a rebound in the price of oil, production uptick, and the spate of on-going activities across the country could see the firm rebound to the path of growth.
BALA AUGIE
