The pharmaceutical industry has continued to struggle with operational challenges, which has eaten into the profit of Neimeth Pharmaceuticals Plc. Chris Ugwu writes.
Nigeria’s economic landscape and headwinds in the recent years were more challenging than some of the past years. This was because the international price of crude oil, Nigeria’s major source of foreign exchange earnings dropped significantly during the period.
This triggered a shortage of foreign exchange that led the nation’s currency, the Naira, to lost significant value against major currencies particularly the Dollar.
In addition, the power and infrastructural challenges remain unresolved. These factors, amongst others, exerted considerable pressure on companies’ input cost and the capacity to fully operate at optimum level.
Apart from the rising cost of raw materials driven by the challenging macro environment, coupled with fiscal and monetary headwinds, which had resulted in marked reduction in domestic output, manufacturers have continued to groan under the pressure of the increased cost of operations.
Also, infrastructural deficit, particularly electricity supply and bad road networks have continued to hit hard on manufacturers, at times forcing some of them to fold up.
Besides, the prevailing macroeconomic indicators also point to a sector, which is headed for collapse if adequate measures are not taken to arrest the situation.
Given headwinds such as weak demand on the back of a squeeze on household wallets, most consumer goods companies in Nigerian have continued to find it difficult to weather the storm.
One of the companies negatively affected is Neimeth Pharmaceuticals Plc, which has seen continuous loss in profit.
The company had ended the year 2016 on a positive trajectory as it returned to profitability from loss position but began the year 2017 in an unimpressive note, reverting to loss position, which market watchers majorly attributed to weak consumer demands, stiffer competition and lack of accessibility to key markets in the Northern part of the country coupled with increased financing cost that has resulted in slow growth of many fast-moving consumer goods companies.
The fire incident, which affected the company’s raw materials’ warehouse situated on Billings Way, Oregun, Lagos was also believed by market analysts to have contributed to the negative bottom line.
The company had in a notice to the Nigerian Stock Exchange (NSE), said the inferno, which occurred on March 7, consumed the company’s entire stock of raw materials, which as of December 31, 2016, was worth N441.29 million.
However, market sentiments for the shares of Neimeth, one of Nigeria’s leading indigenous companies in the pharmaceutical industry listed on the floor of the NSE, has also appreciated relatively following the unprecedented rally the stock market is witnessing presently.
The share price, which has closed at 69 kobo per share last February, has recorded a leap in growth. At the close of business last Friday, the company’s share price stood at 85 kobo, an increase of 16 kobo or 23.19 percent year-to-date.
Financials
Neimeth had bounced back to profitability in the year ended September 30, 2016, recording a profit after tax of N65 million, compared with a loss of N335.684 million in 2015.
In a filing with the Exchange, turnover rose from N1.461 billion in 2015 to N2.002 billion in 2016, showing an increase of 36 percent. Gross profit grew from N684.6 million to N1.225 billion, while administrative expenses reduced from N600 million to N527 million.
The company also reduced finance costs from N92 million to N89.6 million in 2016. It ended with profit of N95.361 million compared with N315.77 million loss in 2015.
Based on the results, the drug maker proposed a bonus of one for 10 to its shareholders. However, the expectation that the company will maintain the tempo of profit was dashed as Neimeth began the financial year in a loss position.
The drug maker reported a loss after tax of N248.364 million for the first quarter ended December 31, 2016.
According to a release from NSE, the company posted the loss after tax as against a profit after tax of N51.848 million recorded during the comparable period of 2015.
The company’s revenue dropped from N396.152 million posted the previous year to N137.394 million during the year under review, representing an decrease of 65.31 percent.
Neimeth Pharmaceuticals sustained the trend of negative position, recording a loss after tax of N195.241 million for the second quarter ended March 31, 2017.
The company posted the loss after tax as against a profit after tax of N100.451 million recorded during the comparable period of 2016.
The firm’s revenue dropped from N787.677 million posted the previous year to N601.427 million during the year under review, representing an decrease of 23.64 percent.
Neimeth also finished the third quarter with a loss after tax of N259.433 million for the third quarter ended June 30, 2017 in contrast to a profit after tax of N116.695 million recorded during the comparable period of 2016.
The company’s revenue dropped from N1.200 billion posted the previous year to N916.402 million during the year under review, representing a decrease of 23.63 percent.
The drug maker closed the year in the red as it recorded a loss after tax of N411.484 million for the financial year ended September 30, 2017, as against a profit after tax of N65.093 million recorded during the comparable period of 2016.
The company’s loss before tax stood at N404.920 million during the year under review as against profit before tax of N65.093 million posted in 2016.
The company’s revenue dropped from N2.001 billion posted the previous year to N1.534 billion during the year under review, representing a decrease of 23.34 percent.
Profit deflators
Following the fire incident that gutted the company’s warehouse, market analysts said the development did not augur well for Neimeth, given that as of the first quarter of 2017, the company posted a loss to the tune of N258.36 million after a significant decline of 65 percent in revenue and a 43 percent increase in operating expenses.
“We expect this incident to stall manufacturing operations and consequently thwart revenue and earnings growth in the near term,” analysts at Meristem Securities said in a response.
The management also noted in a report that the pharmaceutical sector experienced a slow growth rate of 4.4 percent when measured in the local currency.
According to the company, “the major constraint for local pharmaceutical manufacturing companies in Nigeria included limited access to foreign currency to import raw materials, relative higher tariff on imported raw materials, as compared to finished products, abundance of counterfeit drugs, lower health spending by the government, and a lower proportion of government spending on pharmaceutical as a percent of total health expenditure.”
It lamented the low share price of the company as traded on the Exchange.
“We are not comfortable with our share price as we want it to reflect the current performance of the company. We have done a lot to reposition the company since I came on board and would like to see our price on the upward trend,” it said.
The company also stated that the absence of national energy resource plan as an integral part of comprehensive infrastructural renewal programme will continue to leave the manufacturing sector of the economy frustrated, confused as to its reason for existence and perpetually underperforming their counterparts from all over the world.
Way forward
The Chairman of the Board of Directors, Dr. ABC Orjiako, at an Annual General Meeting (AGM) of the company, said that the firm’s resolve to consolidate its local research and product development strategy remains on course notwithstanding the crippling challenges imposed on local manufacturing by the lack of sovereign support policies.
He noted that the company is concluding the clinical reports of its multi-center studies on Ciklavit held in Nigeria and Ghana.
“The satisfactory conclusion of the clinical reports will lead to upgrade of the product to full drug status. Other studies are ongoing to reduce the manufacturing cost of our existing products for the benefit of our customers. As part of this product development vision, the board is still working to be part of the club of Nigerian pharmaceuticals companies with manufacturing plants approved by World Health Organisation (WHO), which can manufacture products that are WHO pre-qualified,” he said.
“Our vision is to re-emerge a strong domestic company with international attributes. To assist in actualizing this aspiration, the board had authorized management to undertake comprehensive digitalization of operations and processes of the company. this project that is currently underway will lead to further changes in structure, costs, and profitability of the company in the outer years,” he added.
Last line
Though high cost of operations has remarkably weighed down on the manufacturing sector, it is important for the company to continue to manage its cost base tightly to deliver moderate operating margins improvement for growth and profitability.
