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AG Leventis earnings falter on stiff competition

By on May 17, 2015

A.G. Leventis Plc’s full year net income dropped 62 percent last year after stiff competition and macroeconomic challenges continued to crimp growth prospect.

Profit came in at N155.77 million in 2014, compared to N405.27 million the previous year, according to company filings to the Nigeria Stock Exchange. Sales dipped by 2 percent to N11.80 billion.

Earnings per share (EPS) fell by 52 percent to 15k in 2014 from 31k in 2013.

Analysts attribute A.G. Leventis’ faltering performance to stiff competition, devaluation of the naira, weak consumer spending and security challenges in the northern part of the country.

“We attribute the slow in bottom line level to stiff competition from other foods companies such as Dangote Flour mills, Flour mills of Nigeria, Honeywell etc, cannibalizing sales with the production of noodles,” said Kayode Omosebi, equity research analyst with United Capital in an emailed statement to BusinessDay.

The continuous pressure on consumer wallets due to the fuel hike of 2012 has dampened the demand for the company’s various products.

A.G. Leventis is grappling with tough macroeconomic environment given the devaluation of the naira by the Central Bank of Nigeria (CBN) as the Apex body seeks to control inflation and regulate the economy.

Nigeria central bank scrapped its bi-weekly currency auctions in February this year and the apex body said it would sell dollars at 198 naira, a move that amounts to a de facto devaluation of Nigeria’s currency.

Nigeria’s consumer inflation rose to 8.7 percent year-on-year in April, up 0.2 percentage points from March, marking it the highest rate since July 2013, according to the National Bureau of Statistics (NBS).

Nigeria’s food inflation edged higher to 9.5 percent year-on-year in April, up 0.1 percentage point from March, it said.

A.G. Leventis recorded low net profit margin of 1.31 percent as production costs swallowed most of its operating profits.

Cost of sales decreased by 4 percent to N8.52 billion in 2014 as against N8.84 billion the previous year. Gross profit was flattish at N3.2 billion while gross profit margin didn’t move,standing at 27 percent.

Operating expenses were up by 10 percent to N2.27 billion as the company struggled with huge energy costs, due to the use of diesel oil, as power from the grid couldn’t support production.

Analysts see A.G. Leventis rebounding to growth given Nigeria’s huge population that craves for consumption.

Nigeria’s consumer market is worth more than $400 billion, According McKinsey Global Institute (MGI) in a report released on May 2014.

According to the report, the value of Nigeria’s consumer market could reach 1.4 trillion dollars by 2030 with food and non-food consumer goods accounting for one trillion of the total.

The rapid urbanization and the rising demand for building materials will also spur AG Leventis’ real estate business to growth.

According to the UN, Nigeria’s urbanization rate was estimated at 51% in 2012, which suggests that over 80mn people live in the cities; the UN estimates that this number is growing at an annual rate of 3.5%

AG Leventis total assets moved by 17.2 percent to N24.1 billion in 2014 compared with N20.48 billion in 2013.

The company’s return on equity (ROE) reduced to 1.51 percent in 2014 as against 3.95 percent in 2013.This means the company has not been utilizing shareholder’s resources in generating higher profits.

A.G. Leventis (Nigeria) Plc, together with its subsidiaries, sells and services trucks, buses, heavy equipment, generators, and other power equipment in Nigeria. The company operates in Foods and Hospitality; Sales, Transportation and Servicing of Engines; and Rent and Other Services segments.

The company’s share price closed at N1.62 on the floor of the exchange while market cap was N4.62 billion.

 

 

[Business Day]