Nigeria’s top construction company Julius Berger is hurting from the slowdown in the economy which has led to a spike in receivables (cash payments for contracts signed) and difficulties sourcing foreign exchange.
The costs of financing foreign exchange acquisitions jumped to N2.98 billion in Q1, 2016 from Zero in 2015, significantly affecting profits.
The construction giants profits for the first quarter of 2016 declined by 73.5 percent to N558 million from the N2.11 billion recorded in the earlier 2015 period.
According to Julius Berger, “Due to the non availability of FOREX from the CBN the Company had to source foreign currencies from the interbank or parallel markets. The weighted average of the different rates was used in converting FOREX transaction which results in significant exchange losses that is affecting profitability.”
The firm’s trade and other receivables also jumped by 26.3% to N87.4 billion from N69.1 billion in 2015 Q1.
A breakdown of the sum shows that amount due from contracts signed was N63.23 billion, trade receivable N9.66 billion, advances to suppliers N0.50 billion and payments to subcontractors of about N14.04 billion.
“During the quarter, the Company continued to have 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 decline in volume of activities and related turnover,” the statement accompanying the results said.
Julius Berger saw its revenues for the quarter fall by 34% to N28.7 billion from N43.48 billion in 2015.
More worrisome the firm’s cash and bank balances moved further into negative territory in the period.
Cash and cash equivalents stood at negative N18.55 billion as at March 31, 2016 compared to negative N10.20 billion in March 2015.
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Bank overdrafts were also high at N27.9 billion.
If there was ever a reason for President Buhari to sign his 2016 budget to pay contractors being owed and give a lift to the economy, this is it!