Connect with us
nairametrics
UBA ads

Blurb

DAAR Comms N1.1 billion unpaid salary and mass sack explained

Published

on

Information from DAAR Communications Ltd, owners of AIT, reveals the company is owing its employees about N1.1 billion in accrued (unpaid) salaries. The company has been hemorrhaging cash for the last three years as its business model struggles to contain incessant drop in revenues.

DAAR reported that its employees are owed about N1.1 billion as at June 2017 an increase of about N130 million from the N1.06 billion owed as at December 2016. The company’s unpaid salaries has been increasing from 2014 when it was N583 million. It rose to about N774 million as at the end of 2015 and now N1.1 billion.

UBA ADS

A further look at the company’s books reveal its staff cost has averaged about N1.4 billion annually, despite it multi-year drop in revenues.

Downsizing

In 2016, AIT reportedly laid off about 32% of its workforce, reducing headcount to about 814 from 1,211 the year before. Staff downsizing was also at all cadres with Management staff shedding about 74 employees to close at 36. About 24 senior staff members were let go, leaving just 149 on its payroll. About 299 Junior Staff members were relieved of their jobs leaving just 629 as at December 2016.

GTBank 728 x 90

Struggle with television

DAAR Communications problems started in 2014 after it reported a revenue of about N6.9 billion in 2016 compared to N5.3 billion in 2015. A major factor for the strong revenues back then was its Television segment which reported about N6.2 billion alone in revenues. Since then, its television revenue has dropped to under N3 billion as it struggles to bring back lost business in its personal paid adverts and agency sales.

onebank728 x 90

AIT has posted losses for over 5 years now, however it appeared to be turning the corner in 2014 and 2015, at the height of campaign for the 2015 Presidential elections. The company was perceived to be in support of the then ruling PDP, airing programs that berated the current ruling party, the AIT. Business seems to have gone south for them since President Buhari took over, allowing TV stations like Channels, Silver Bird, TVC dominate the airwaves.

It is also interesting to note that despite booking over N6 billion in revenues, DAAR Communications has struggled to convert the amount into cash. Out of its N6.4 billion in trade receivables, it wrote off about N3.2 billion.

Other obligations

app

DAAR Communications sold the property of its parent company in 2016 for about N950 million and used to proceeds to repay loans owed to Fidelity Bank Plc. The company’s only major loan of N1.48 billion is owed to its Parent company.

How it dovetails

DAAR Comms inability to pay its salaries boils down to a business model that is structurally flawed. The company spends between N95 to N105 in cost of sale for every N100 of revenue generated. It also carried huge operating cost, most of which are salaries, explaining why it chooses not to pay salaries. To make it worse, it finds it hard to get paid for some of the ads paid on its platform, resulting in the N3.2 billion write down mentioned above. Had it collected this cash, it may have had enough money to pay salaries.

By downsizing and cutting cost, the company seems to be adjusting to the realities of its situation, a move that might please shareholders.

Silver lining

app

Despite the company’s dire situation, it could still turn things around if the current management and owners will allow it to. The company has over N31 billion in Fixed Assets, stated at cost. This can be significant source of cash if it decides to unlock some value from its properties. It is still a recognized brand name in Nigeria and could attract significant business as the 2019 election draws nearer. Nigerians disgruntled with the current administration may find a television station critical of the government in power as a solace thus boosting the company’s ratings. This of course depends on the running battle between its chairman, Raymond Dokpesi and the EFCC.

The share price remains stuck at 50 kobo.

Patricia

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

3 Comments

3 Comments

  1. anodebenze

    August 29, 2017 at 4:54 pm

    raymound dokpesi a serial and versertile Nigerian businessman,he did set up an ocean transportation vessel with the late abiola,he have to ante his game.he must ask himself.why his previous business failed.this article showed the company made revenue over a billion with assets over 31 billion,the business.SOMETHING IS MISSING AND IT’S NOT BEING DONE PROPERLY, THIS COMPANY AS a successful business on-going concern, HAVE GOOD FIRBES and virbration,BUT A BUSINESS WAS SET UP TO MAKES PROFIT.is he pumping his business with his friend,cronies or relative,i said so because the profit margin is thin,due to overhead expenses.can information technology helps in reducing cost.or are they ignoring the views of their customers, IN their television and radio programmes.are they boring and irrelevant,the choice is your.over to you to the board and management

  2. DEAN GAY

    February 9, 2018 at 8:03 pm

    WHAT THE GOOD PEOPLE AT NAIRAMETRICS DO NOT REALIZE FROM THEIR ANALYSIS OF THE DAARCOM BOOKS ARE THE DISTURBINGLY BAD BUSSINESS DECISIONS MADE BY MR. DOKPESI AND HIS BOARD OF DIRECTORS. THE MONEY THAT HAS BEEN WASTED IS MORE THAN ENOUGH TO PAY EVERYONE + GIVE THEM A RAISE IN SALARY. THEY ALSO ARE NOT ABLE TO TAKE INTO ACCOUNT THE HUGE AMOUNT OF CASH THAT THE BOOKS NEVER SEE.

  3. DEAN GAY

    March 5, 2018 at 4:17 pm

    the problems at Daar started a long time ago. one major factor is the GMD. here is a partial look at the destruction of DAAR. visit me on FB to see more information, : “Mr. Akiotu, it is becoming painfully clear that you have no concept of the principal Fiduciary duties of A Board of Directors. Even though you have been the General Managing Director of DAAR Communications since May of 2009. Please look it up.
    I have been doing some calculations of the losses you have caused the shareholders and owners of DAAR based on you’re so called projects that we have talked about. This does not include you over seeing the 95.3% drop in share prices or your own salary and benefits.
    Total loss: N4,977,500,000.00 Naira
    Average per year: N633,187,500.00 Naira
    This is an incredible amount of money. God has no idea how you can throw money away like this and at the same time hold an expatriate who served DAAR well for 10 years hostage in Nigeria by not paying him the 19 million that has been due to him for the last 14 months. I am of course speaking of Engineer Dean Gay.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Blurb

Why Insurance firms are selling off their PFAs

It has not been uncommon over the years to have insurance companies with pension subsidiaries.

Published

on

Why Insurance firms are selling off their PFAs

The idea of mitigating risks and curtailing losses at the bare minimum begins from the insurance industry and only crosses into the pension space with the need for retirement planning. For this reason, it has not been uncommon over the years to have insurance companies with pension subsidiaries. However, controlling the wealth of people is no easy feat – and crossover companies are beginning to think it might not be worth it competing with the big guns; that is, the pension fund administrators (PFAs) that already cater to the majority of Nigerians.

A few months ago, AXA Mansard Insurance Plc announced that its shareholders have approved the company’s plan to sell its pension management subsidiary, AXA Mansard Pensions Ltd, as well as a few undisclosed real estate investments. It did not provide any reason for the divestment. More recently, AIICO Insurance Plc also let go of majority ownership in its pension arm, AIICO Pension Managers Ltd. FCMB Pensions Ltd announced its plans to acquire 70% stakes in the pension company, while also acquiring an additional 26% stake held by other shareholders, ultimately bringing the proposed acquisition to a 96% stake in AIICO Pension. The reason for the sell-off by AIICO does not also appear to be attributed to poor performance as the group’s profit in 2019 had soared by 88% driven by growth across all lines of business within the group.

UBA ADS

 So why are they selling them off? 

Pension Fund Administration is, no doubt, a competitive landscape. Asides the wealth of the over N10 trillion industry, there is also the overarching advantage that pension contributors do not change PFAs regularly. Therefore, making it hard to compete against the big names and industry leaders that have been in the game for decades – the kinds of Stanbic IBTC, ARM, Premium Pension, Sigma, and FCMB. Of course, the fact that PFAs also make their money through fees means the bigger the size, the more money you make. With pressure to capitalize mounting, insurance firms will most likely spin off as they just don’t have the right focus, skills, and talents to compete.

The recent occurrence of PENCOM giving contributors the opportunity to switch from one PFA to another might have seemed like the perfect opportunity for the smaller pension companies to increase their market shares by offering better returns. More so, with the introduction of more aggrieved portfolios in the multi-fund structure comprising of RSA funds 1, 2, & 3, PFAs can invest in riskier securities and enhance their returns. However, the reality of things is that the smaller PFAs don’t have what it takes to effectively market to that effect. With the gains being made from the sector not particularly extraordinary, it is easier for them to employ their available resources into expanding their core business. There is also the fact that their focus now rests on meeting the new capital requirements laced by NAICOM. Like Monopoly, the next smart move is to sell underperforming assets just to keep their head above water.

READ MORE: AIICO seeks NSE’s approval for conducting Rights Issue

GTBank 728 x 90

Olasiji Omotayo, Head of Risk in a leading pension fund administrator, explained that “Most insurance businesses selling their pension subsidiaries may be doing so to raise funds. Recapitalization is a major challenge now for the insurance sector and the Nigerian Capital Market may not welcome any public offer at the moment. Consequently, selling their pension business may be their lifeline at the moment. Also, some may be selling for strategic reasons as it’s a business of scale. You have a lot of fixed costs due to regulatory requirements and you need a good size to be profitable. If you can’t scale up, you can also sell if you get a good offer.”

What the future holds

With the smaller PFAs spinning off, the Pension industry is about to witness the birth of an oligopoly like the Tier 1 players in the Banking sector. Interestingly, the same will also happen with Insurance. The only real issue is that we will now have limited choices. In truth, we don’t necessarily need many of them as long all firms remain competitive. But there is the risk that the companies just get comfortable with their population growth-induced expansion while simply focusing on low-yielding investments. The existence of the pandemic as well as the really low rates in the fixed-income market is, however, expected to propel companies to seek out creative ways to at least keep up with the constantly rising rate of inflation.

 

onebank728 x 90

Patricia
Continue Reading

Blurb

Nigerian Banks expected to write off 12% of its loans in 2020 

The Nigerian banking system has been through two major asset quality crisis.

Published

on

Nigerian Banks expected to write off 12% of its loans in 2020 

The Nigerian Banking Sector has witnessed a number of asset management challenges owing largely to macroeconomic shocks and, sometimes, its operational inefficiencies in how loans are disbursedRising default rates over time have led to periodic spikes in the non-performing loans (NPLs) of these institutions and it is in an attempt to curtail these challenges that changes have been made in the acceptable Loan to Deposit (LDR) ratios, amongst others, by the apex regulatory body, CBN. 

Projections by EFG Hermes in a recent research report reveal that as a result of the current economic challenges as well as what it calls “CBN’s erratic and unorthodox policies over the past five years,” banks are expected to write off around 12.3% of their loan books in constant currency terms between 2020 and 2022the highest of all the previous NPL crisis faced by financial institutions within the nation.  

UBA ADS

Note that Access Bank, FBN Holdings, Guaranty Trust Bank, Stanbic IBTC, United Bank for Africa and Zenith Bank were used to form the universe of Nigerian banks by EFG Hermes.  

READ MORE: What banks might do to avoid getting crushed by Oil & Gas Loans

Background  

GTBank 728 x 90

Over the past twelve years, the Nigerian banking system has been through two major asset quality crisisThe first is the 2009 to 2012 margin loan crisis and the other is the 2014 to 2018 oil price crash crisis 

The 2008-2012 margin loan crisis was born out of the lending institutions giving out cheap and readily-available credit for investments, focusing on probable compensation incentives over prudent credit underwriting strategies and stern risk management systems. The result had been a spike in NPL ratio from 6.3% in 2008 to 27.6% in 2009. The same crash in NPL ratio was witnessed in 2014 as well as a result of the oil price crash of the period which had crashed the Naira and sent investors packing. The oil price crash had resulted in the NPL ratio spiking from 2.3% in 2014 to 14.0% in 2016.  

Using its universe of banks, the NPL ratio spiked from an average of 6.1% in 2008 to 10.8% in 2009 and from 2.6% in 2014 to 9.1% in 2016. During both cycles, EFG Hermes estimated that the banks wrote-off between 10-12% of their loan book in constant currency terms.  

onebank728 x 90

 READ MORE: Ratings firm explains why bank non-performing loans could be worse than expected

The current situation 

Given the potential macro-economic shock with real GDP expected to contract by 4%, the Naira-Dollar exchange rate expected to devalue to a range of 420-450, oil export revenue expected to drop by as much as 50% in 2020 and the weak balance sheet positions of the regulator and AMCON, the risk of another significant NPL cycle is high. In order to effectively assess the impact of these on financial institutions, EFG Hermes modelled three different asset-quality scenarios for the banks all of which have their different implications for banks’ capital adequacy, growth rates and profitability.  These cases are the base case, lower case, and upper case. 

app

Base Case: The company’s base case scenario, which they assigned a 55% probability, the average NPL ratio and cost of risk was projected to increase from an average of 6.4% and 1.0% in 2019 to 7.6% and 5.3% in 2020 and 6.4% and 4.7% in 20201, before declining to 4.9% and 1.0% in 2024, respectively. Based on its assumptions, they expect banks to write-off around 12.3% of their loan books in constant currency terms between 2020 and 2022a rate that is marginally higher than the average of 11.3% written-off during the previous two NPL cycles. Under this scenario, estimated ROE is expected to plunge from an average of 21.8% in 2019 to 7.9% in 2020 and 7.7% in 2021 before recovering to 18.1% in 2024.  

Lower or Pessimistic Case: In its pessimistic scenario which has a 40% chance of occurrencethe company projects that the average NPL ratio will rise from 6.4% in 2019 to 11.8% in 2020 and 10.0% in 2021 before moderating to 4.9% by 2024It also estimates that the average cost of risk for its banks will peak at 10% in 2020 and 2021, fall to 5.0% in 2022, before moderating from 2023 onwards. Under this scenario, banks are expected to write off around as much as 26.6% of their loan books in constant currency terms over the next three years. Average ROE of the banks here is expected to drop to -8.8% in 2020, -21.4% in 2021 and -2.9% in 2022, before increasing to 19.7% in 2024.   

Upper or optimistic case: In a situation where the pandemic ebbs away and macro-economic activity rebounds quicklythe optimistic or upper case will hold. This, however, has just a 5% chance of occurrence. In this scenario, the company assumes that the average NPL ratio of the banks would increase from 6.4% in 2019 to 6.8% in 2020 and moderate to 4.8% by 2024Average cost of risk will also spike to 4.2% in 2020 before easing to 2.4% in 2021 and average 0.9% thereafter through the rest of our forecast period. Finally, average ROE will drop to 11.6% in 2020 before recovering to 14.4% in 2021 and 19.0% in 2024. 

With the highest probabilities ascribed to both the base case and the pessimistic scenario, the company has gone ahead to downgrade the rating of the entire sector to ‘Neutral’ with a probability-weighted average ROE (market cap-weighted) of 13.7% 2020 and 2024. The implication of the reduced earnings and the new losses from written-off loans could impact the short to medium term growth or value of banking stocks. However, in the long term, the sector will revert to the norm as they always do.   

app
Patricia
Continue Reading

Blurb

Even with a 939% jump in H1 Profit, Neimeth still needs to build consistency

Neimeth has been one of the better performers in the stock market in the last one year. 

Published

on

Even with a 939% jump in H1 profit, Neimeth still needs to build consistency 

Neimeth’s profit after tax for H1 2020 might have jumped by 939% from H1 2019, but there’s still so much the company needs to do to remain in the game. 

For the first time in years, Pharmaceutical companies across the globe are in the spotlight for a good reason.  As the COVID-19 pandemic rages on, the world waits patiently for this industry to produce a vaccine that can once again lead us back to the lives we all missed. Nigeria is also not an exception, it seems. One of Nigeria’s oldest pharmaceutical companies, Neimeth, has been one of the better performers in the stock market in the last one year. However, there is still so much the company needs to do to earn profits consistently. 

UBA ADS

READ MORE: Covid-19: List of pharmaceutical firms that will receive grants from the CBN

Neimeth’s recently released H1 2020 results show a jump of 19.4% in revenue from 976 million earned in H1 2019 to 1.165 billion in H1 2020. While this is impressive, its comparative Q2 results (Jan-March ‘ 20) show a drop in revenue of 25.4% from 748.8 million earned in Q2 2019, to the 568.7 million revenue in Q2 2020. In similar vein, while its profit-after-tax soared by 939% from 5.447 million in H1 2019 to 56.596 million in H1 2020, its quarter-by-quarter results show a drop of 118%. While there is a truth that some months are better performers than others, Neimeth’s extreme profit jump in the half-year results juxtaposed with the more-than-100% drop in the first quarter of this year, reveal wide-gap volatility in its earning potential. Its revenue breakdown attributes the quarter-by-quarter drop in revenue to a comparative drop in its ‘Animal Health’ product line by a whopping 897.42%. The ‘Pharmaceuticals’ line also only experienced a marginal jump of 2.57%. 

Full report here. 

GTBank 728 x 90

READ MORE: Nigeria records debt service to revenue ratio of 99% in first quarter of 2020.

Current & Post-Covid-19 Opportunities  

A 2017 PWC report had revealed that by 2020 the pharmaceutical market is expected to “more than double to $1.3 trillion. Mckinsey had also predicted that come 2026, Nigeria’s pharma market could reach $4 billion. The positive outlook of the industry is even more so, following the disclosure by the CBN to support critical sectors of the economy with 1.1 trillion intervention fund.  

onebank728 x 90

The CBN governor, Godwin Emefiele, had stated that about 1trillion of the fund would be used to support the local manufacturing sector while also boosting import substitution while the balance of 100 billion would be used to support the health authorities towards ensuring that laboratories, researchers and innovators are provided with the resources required to patent and produce vaccines and test kits in Nigeria. 

READ MORE: Airtel to acquire additional spectrum for $70 million 

While manufacturing a vaccine for the Covid-19 pandemic might be nothing short of wishful, the pandemic presents a global challenge that businesses in the healthcare industry could leverage. Through strategic R&D, it could uncover a range of solutions, particularly those that involve the infusion of locally-sourced raw materials.  

app

In order for the company to attain sustainable growth, it needs to come up with structures and systems that are dependable, while also tightening loose ends. One of such loose ends is its exposure to credit risk. It’s Q2 2020 reports reveal value for lost trade receivables of N693.6 million carried forward from 2019. To this end, it notes that while its operations expose it to a number of financial risks, it has put in place a risk management programme to protect the company against the potential adverse effects of these financial risks. 

At the company’s last annual general meeting (AGM), the managing director, Matthew Azoji, had also spoken on the company’s efforts to gain a larger market share through its initiation of bold and gradual expansion strategies.  

The total revenue growth and profitability of the half-year period undoubtedly signals a potential in the company. However, we might have to wait for the company’s strategies to crystalize and attain a level of consistency for an extended period before reassessing the long-term lucrativeness of its stock or otherwise. That said, it certainly should be on your watchlist.  

Patricia
Continue Reading