In an apparent confirmation of the cash crunch that has hit Nigerian Government, Julius Berger has guided that it likely to post a 43% drop in full year profits by the time it releases its 2015 full year results early next year.
The projected results which was posted on its websites suggest revenue is likely to take a 24.2% drop by the end of the year. Julius Berger reported a 7.5% drop in revenues in 2014 but still eked out a 4.5% rise in profits. Revenue for the 4th quarter of 2014 was about N39 billion representing a whopping 48% drop from the N76 billion reported in the 4th quarter of 2013. Revenue for the 4th quarter of 2015 is now projected to be about N34.9 billion. Revenue has dropped quarter on quarter throughout 2015 and has also dropped year on year by as much as 38% in 2015 Q3 compared to 2014 Q3.
Huge receivables
Julius Berger reported a decline in revenue for all three of its business segments, Civil Works, Building and Services. It makes over 65% of revenue from Civil works. The company in its 9 months results explained that;
The decline recorded on turnover and performance in the quarter when compare to prior year resulted from the slow pace work in the period under review. The last three-quarters witnessed a decline in clients payment to the company as evidence in the increase in receivables. Hence the drop in the Groups performance.
It explained further
During the year, the Company had significant difficulties in converting receivables to cash or cash equivalent as result of delayed payments by most clients which invariably translated into slow performances on project sites. This culminated in significant decline in volume of activities and related turnover.
Weak Economy
Construction activities in the country has taken a huge plunge this year as the country battles a fall in oil prices crisis that has negatively impacted on government revenues. According to the National Bureau of Statistics 2015 third quarter GDP numbers, the construction industry recorded a year on year GDP decline of -11.4%. Its share of the national GDP also dropped to 3.2% from 4.5% same period last year.
To make matters worse, Julius Berger also faces massive competition from China Civil Engineering Construction Company (CCECC), who currently leverages on the loans provided by the China Exim bank to States and Federal Governments to execute projects. With revenue basically drying up for capital projects, the government is now shifting more towards bilateral models that doesn’t require the government to cough out any more cash to fund capital projects. The downside of that however is that the likes of Julius Berger will have to struggle to get large projects that help boost top line revenue.
Silver Lining
The Federal Government’s plan to push for an N8 trillion Federal Budget in 2016 may however be a game changer for JB depending on how the government funds it. It is rumoured that Capital Expenditure could take as much as N2 trillion from the budget with most going to infrastructural development such as road construction, railways, bridges etc. Julius Berger will however have to deal with the likes of G Cappa and other smaller construction firms who are more nimble and relatively cheaper than JB.
