Shareholders of Courteville Business Solutions finally get to hear directly from the CEO of the company has he took on questions ranging from their latest results, to the outlook of the company as we approach Q4.
Courteville Business Solutions PLC Q3 2015 Review
In this interview, Adebola Akindele, Group Managing Director of Courteville Business Solutions, an NSE-listed ICT company, discusses the company’s 3rd Quarter performance, its strategy, and the broader economic milieu.
1. What were the context and highlights of the latest quarter?
Adebola Akindele: A frank assessment by most executives would characterise the economic conditions in the past 3 months as unfavourable. In fact, businesses have been dealing with a lull in activity for the past 15 months. Nothing much has changed in terms of the available opportunities. Businesses are in survival mode, trying to keep their heads above water. The private sector is still crippled by the paralysis brought on by the electoral cycle and tardy take-off of the government.
The nature of our biggest businesses such as AutoReg places a limit on our ability to raise prices or unilaterally impose higher commissions. We are hampered on how we can pass on these costs to our state government and regulatory agency partners; neither can we push them to retail end users. This is a Catch-22 situation. The decision to hike fees for motor vehicle administration and documentation does not reside with Courteville as the AutoReg administrator. Only the state governments can do that.
At Courteville, the third quarter saw only marginal progress. It did not live up to expectations. Revenues remained flat, while costs have doubled despite our best efforts. A big chunk of the rise in costs is attributable to the slide in the value of the naira and the scarcity of FX to pay for inputs from foreign vendors that we use in our operations. The FX regime has also constrained our ability to send working capital to our foreign operations in Jamaica and Zimbabwe.
The dry up of liquidity forced interest rates up, making bank financing a very costly option when it became available. The implementation of the Treasury Single Account, despite the CBN’s reduction in the cash reserve ratio to assuage its effect may further aggravate the drought in funds. I hope this will be a short term pain. Policymakers need to bear in mind the high costs to businesses when assessing the benefits of transparency in government.
2. Reading the latest financial results, what are the most important factors that the market should bear in mind when reading these results?
AA: High costs are the single most important consideration that affected Courteville’s results. The naira’s worsening position, and restrictions placed on accessing foreign exchange, have had a negative effect on our profitability as the cost of foreign sourced inputs we use have skyrocketed.
I had expected that the third quarter would offer a dose of relief once the administration of President Buhari settles down. This would have given fillip to business confidence and new investment would flow into the country. The uncertainty has stalled new investment, and in many places, production has practically ground to a halt.
It has not been good. Latest figures released by the IMF, which forecast a 4 per cent growth rate for Nigeria’s GDP, as against 5.5 per cent projected in the country’s 2015 budget.
To place the IMF’s figures in perspective, its projection for growth last year was 6.75 per cent. Of course, the delay in appointing a cabinet is only part of the problem. Declining oil prices, which have dropped about 50 per cent since the middle of last year, the slowdown in China, and a flight to safety away from frontier markets have also played their role in getting us here.
As things stand, I do not expect a lot to happen on the government side in the remaining two months of this year. My hope is that things would bottom out by year end, and we hit the ground running in 2016.
3. Last month, you were a guest on Channels TV’s Sunrise Daily program. During the interview, in response to a question on your perception of the economic outlook, you discounted the likelihood of a recession, and instead, expressed optimism. Do you stand by your prognosis considering Courteville’s latest results?
AA: I hold dearly to that optimistic position because as a Nigerian businessman I am wired in such a way that despondency is not part of my vocabulary. The storm will pass. Earlier, I spoke of high costs and an unfavourable FX regime. To give you an instance of how Courteville is addressing those, the company has embarked on international expansion to earn revenues from overseas.
Let us ask ourselves, ‘how much worse can things get?’ I doubt it will get much worse. The naira is not going to fall much further, and the oil price looks to have hit its support level. From what we have seen of the ministerial nominees, President Buhari has chosen a tested-and-tried team that should deliver.
On all sides, adjustments to the new normal have been made. Banks have restrategized to live with the TSA, and businesses and importers understand that the FX regime is a bitter pill we must swallow for the time being. As I speak, departmental heads in Courteville will submit their proposed budgets for 2016 before the end of the month, and they have factored in the new reality into the scenario.
So I would say my optimism is borne out of an appreciation that these conditions are a reality that will soon pass. I owe it to my shareholders, employees and customers to adjust and find a way out, because there must be a way. The lull should end in a few months, by December according to my calculations, and we will see an upswing from that point forward.
4. During the same interview, you observed that ‘nothing much has happened in the last 6 quarters since the second half of 2014 due to the elections and drop in oil prices’. With the elections now over, and new ministers due to be sworn in in coming weeks, if oil prices remain depressed do you expect a material improvement in general business confidence without prejudice to your earlier expressed ‘optimism’?
AA: I keep saying that low oil prices are the new reality we have to adjust. This informed Courteville’s cross-border expansion into Zimbabwe, and Jamaica with other countries to follow soon. Our ability to execute well on these adjustments is what feeds my confidence.
I do not see the new cabinet citing low oil prices as an excuse for failing to fix the economy.
When the incoming minister of finance outlines an economic agenda that, by itself, should have an uplifting effect on business confidence.
I also believe that some of the toughest decisions have already been taken, a few of which led to JP Morgan’s decision to remove Nigeria from its Emerging Market Bond Index. Vice President Yemi Osinbajo has gone on record to say that some of the harsh actions are not permanent policies; but are temporary and will be reviewed in future.
Therefore, going forward businesses expect to hear good news that should raise confidence.
5. This year, Courteville embarked on an international diversification program with entries into the Jamaican and Zimbabwean markets. How far along the line are Courteville’s operations in those countries?
AA: So far, so good. Courteville entered Jamaica through the acquisition of Priority Loss Adjusters Ltd., one of the country’s biggest motor damage assessment and valuation service providers. It will be a vehicle to introduce our compelling services that have conquered the Nigerian market over there. Our plan is to invest J$300 million in the Caribbean nation over the next 3-5 years. I am proud to say that within two months after we took over the business broke even. That is unprecedented.
In November, Courteville will introduce its Central Insurance Industry Database in Zimbabwe. This service is already in use by and has won accolades from the Nigerian Insurance Association. Next, we are eyeing Kenya and Guinea, where talks are at an advanced stage.
6. In difficult business conditions, many companies seize the ‘opportunity’ to embark on reorganizations such as staff layoffs. Has Courteville considered human resource reviews to save costs?
AA: Currently, Courteville has about 300 full time employees, supported by a network of several thousand commission-paid agents. Our board believes that we are optimally staffed. A recent survey we commissioned showed that productivity-per-employee at Courteville is one of the highest in the industry globally, not just in Nigeria.
If you take AutoReg, for example, the company needs a certain number of contact centre personnel to be able to satisfy inbound requests from customers. Culling staff there would be detrimental to the business. It is the same in other parts of the company. Courteville does not binge hire when times are good, only to shed fast when profits drop.
In fact, the volume of business we do has been inching up steadily. The good thing is that since we are a technology solutions provider, we can handle higher volumes without taking on more staff. Our shareholders can take comfort that our wage bill will not rise as business improves.
The fault lies with rising costs, which we are frantically working to resolve through initiatives such as our global expansion strategy.
7.Around the world, economic headwinds often push companies to explore business combination options. Looking at the ICT landscape today, from your competitors to partners on your supply chain, would Courteville’s board consider M&A scenarios to fill any gaps in its portfolio or to rationalize costs?
AA: This is an interesting question because Courteville is constantly on the lookout for ways to rationalize our value chain to save costs, enhance synergies, and bring assets in-house that will strengthen our competitive position.
At the moment, there may be one or two partners in our value chain whose business areas, and importantly, culture, would fit in well with Courteville. A combination with these companies could have merit because of complementarity. But this is only conjecture. Investment bankers, lawyers, tax consultants will need to examine any proposals for Courteville’s board. We have not entered into any formal talks.
One must also bear in mind the significant costs involved in takeovers and likely diminution of control. Being a publicly held company, if we do get to that bridge we will carry all our stakeholders, including the regulators along. Perhaps in a year from now we could talk more concretely about these options.
8. In August, Courteville held its 10th Annual General Meeting. What feedback did the company receive from its shareholders?
AA: The last AGM reaffirmed the board’s sense of fiduciary responsibility. In a season when several companies declared losses Courteville declared a profit. That speaks volumes. Although the company did not declare a dividend last year due to a technical accounting flaw, we made good by paying an interim dividend this year. Shareholders applauded the company’s sustenance of its CSR initiatives, and record of cordial regulatory stakeholder relations.
9. What is Courteville’s outlook for the last quarter of the year?
AA: With barely two months to the end of the year I do not expect any miracles to happen in such a short space of time. Courteville operates in an economy that is undergoing a difficult transition. 2015 is already gone as far as I can tell. Our focus now is on 2016. I expect that next year will be a good year.