The continued delay in the endorsement of May & Baker’s N4 billion pharmaceutical factory (PharmaCentre) by the World Health Organisation (WHO) is harming the operations of the Ota, Ogun State-based enterprise, BusinessDay investigations have revealed.
Although the WHO has not explained reasons for the delay, BusinessDay gathered that the action is causing liquidity constraints and bringing pressure on May & Baker from creditor banks. Also, the resultant high debt-to-equity ratio is affecting the company’s return on investment (RoI).
WHO pre-qualification is a prerequisite for any company that wants the WHO and other international agencies to buy their drugs through bulk purchase, which are then distributed for health intervention programmes across the globe.
Drug manufacturers apply to WHO to have a product evaluated. The company must provide comprehensive information about the product’s quality, safety and efficacy. This is evaluated by a team of assessors, including staff from WHO and experts from national regulatory authorities worldwide.
Theophilus Danjuma, chairman of the company, recently said at the company’s annual general meeting that recapitalisation was an important measure to reduce the company’s current high debt-to-equity ratio and the resultant high financing costs.
“These measures include strategies to sustain revenue growth through more aggressive marketing and product development initiatives, better management of working capital and aggressive reduction in overhead costs,” Danjuma said.
He further noted that the consolidation of all pharmaceutical manufacturing operations of the company at its PharmaCentre in Ota would help to improve operational efficiency and capacity utilisation, while curtailing excess overhead costs.
According to him, it is imperative that shareholders inject more equity to the company to make it stronger and put it in a better position to face the challenges in the industry, saying that the management of the company had been implementing measures to improve the performance of the company and deliver returns to shareholders.
Azubike Okwor, former president, Pharmaceutical Society of Nigeria (PSN), told BusinessDay that WHO prequalification would help the nation to become self-sufficient in the manufacture of essential medicines.
“This would obviously have multiplier effects on the Nigerian economy, as it would lead to the creation of thousands of jobs and more foreign exchange earnings for the country. This in turn would reduce the plethora of challenges confronting the pharmaceutical sector, especially the continued dependency on importation of drugs and pharmaceutical inputs for drug production,” Okwor said.
The company, which was listed on the Nigerian Stock Exchange (NSE) in 1994, is involved in the manufacture, sale and distribution of human pharmaceuticals, human vaccines and consumer products.
With a share price at a low of N1.67kobo as at last week, when compared with its contemporaries in the healthcare sector, analysts believe equity investors may have started pricing in the company’s risks since its PharmaCentre project, expected to boost May & Baker’s bottom-lines, still awaits WHO’s endorsement. The risk is, however, heightened as the company services facilities used to finance the project.
Though the company’s revenue grew to N6.367 billion in 2013 from N5.668 billion in 2012, it reported a loss before tax (LBT) of N11.370 million in 2013 against N44.522 million profit in the corresponding financial year. Its loss after tax expenses were high at N103.089 million, against N75.943 million profit in 2012. Also in 2013, the company’s loss per share was 0.11kobo, against 0.08kobo earnings per share in the corresponding period of 2012.
May & Baker Nigeria plc’s financial report for the year ended December 2013 shows it is carrying term loan from FCMB; overdraft/term loan from CBN intervention fund; term loan from GTBank plc; term loan from Bank of Industry (BoI), and term loan from TY Holdings.
Last week at the company’s annual general meeting in Lagos, shareholders authorised the directors to raise up to N3 billion in new equity fund, with a view to reducing dependence on loans and strengthening the company’s balance sheet. The company targets to raise the N3 billion or any fraction thereof, either locally and or internationally, through any or a combination of rights issue, private placement and public offer.
The resolution highlighted that the new capital issue would be for the “purposes of enhancing the company’s working capital and financing the development of the company’s businesses”.
Details show that the bank overdrafts and Commercial Papers were secured by a negative pledge on the company’s assets and their interest rate range between 16.5 percent and 19 percent.
Bank of Industry granted the company a medium-term facility of N1.25 billion on June 18, 2013 with initial drawdown on December 27. The loan facility is for a six-year period (inclusive of one-year moratorium) at interest rate of 10 percent per annum, payable monthly in arrears. The loan is repayable in 60 equal and consecutive instalments commencing from January 1, 2015.
The company which marks its 70th anniversary on September 4, 2014 obtained a facility from FCMB in March 2012 which is repayable in 36 equal monthly instalments.
Also, N2 billion facility was obtained from TY Holdings by May & Baker in 2012 to refinance existing loans and working capital facilities. The facility was obtained from a related party. Interest is 11 percent per annum. The loan and accruing interest are to be repaid over 36 months commencing 12 months after the date of disbursement of the loan.
In addition, a Central Bank of Nigeria (CBN) intervention fund to manufacturers in the sum of N920 million was received by May & Baker in October 2010 at 7 percent interest per annum.
The CBN facility is in two parts, with N700 million repayable in 40 equal quarterly instalments from January 2011 and N220 million working capital renewable half-yearly. The facilities are also covered by a negative pledge on the assets of the company.
The company has 100 percent stake in its three subsidiaries –Osworth Nigeria Limited, Tydipack Nigeria Limited, and Servisure Nigeria Limited, whose principal activities, respectively, include distribution and sales of healthcare, healthcare and industrial packaging, and distribution and sales of pharmaceutical products.
The group manages its capital to ensure that entities in the group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of its capital structure.
The capital structure of the group is made up of debts (bank overdrafts, commercial papers and term loans) and equity comprising issued capital, retained earnings and share premium.
“We need to pump in more money. Currently, the debt-to-equity ratio is high, and it is also very relevant that we recapitalise our business and consequently reduce high financing cost. Injection of more equity to the company to make it stronger so as to contend with harsh business environment will also serve as a key,” said Nnamdi Okafor, the company’s managing director.
“Due to insufficient fund, the competition in the noodles market has continued to be intense with high dominance by the market leader and cost leadership by other major players. Our focus is to sustain market share growth while challenging the business unit to contribute positively to the growth of the organisation,” Okafor said during a facility tour of the N4 billion factory.
The company’s major suppliers are both local and foreign. Local suppliers are Drugs & Healthcare limited, National Salt Company of Nigeria plc, Dangote Flour Mills plc, Primal Nigeria limited, Chellarams, Flour Mills of Nigeria plc, and Presco plc, while the foreign suppliers are IPCA Laboratories limited (India), Aurobindo Pharmaceutical limited (India), Surya Engineers (India), Caffry Sanders International limited (UK), and Belco Pharma (India).
Iheanyi Nwachukwu & Alexander Chiejina
