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Caverton Helicopters is in for good times, but…
Last month, Caverton Offshore Support Plc unveiled eleven newly acquired helicopters, and by so doing, increased its total fleet to seventeen. This move is indicative of the oil services company’s expansion drive. Recently, the company emerged winner (after a competitive tendering process) to become the sole air transportation services provider for the Chevron/NNPC joint venture in Escravos.
Therefore, in light of the foregoing, and also bearing in mind that the oil and gas sector has shown considerable improvement in recent times, it is safe to speculate that the company is in for good times. But there are some caveats.
An overview of Caverton
Caverton Offshore Support Plc is a marine and aviation logistics company which operates in Nigeria’s oil and gas sector. The company is estimated to have close to 80% market share. Caverton was incorporated in 2008 and positioned for the acquisition of Caverton Marine Limited and Caverton Helicopters Limited, two previously existing logistics companies that were incorporated in 1999 and 2002 respectively.
Caverton became a group following the acquisitions. Also, the company is currently quoted on the Nigerian Stock Exchange. It is on a mission to fully take advantage of the Nigerian Government’s ‘Local Content Policy’.
As an aviation and maritime logistics company operating in Nigeria’s oil and gas sector, Caverton is focussed on providing transportation and environmental support services to its many clients. In specific terms, the company provides emergency/medical evacuation services, maritime and coastal surveillance services, search and rescue operations, etc.
Since inception in 2008, Caverton Offshore Support Plc has ensured to operate by well-defined business objectives, one of which is to become a major player in the oil and gas sector, not only in Nigeria but also in most parts of Africa. From all indications, it can only be said that the company has considerably actualised much of this objective, mostly “by drawing from both global offshore experience acquired from its strategic partners and the service delivery competence of its member companies.”
In 2014, Caverton became Nigeria’s first offshore support company to be listed on the Nigerian Stock Exchange. At the Initial Public Offering (IPO) on May 20th, Caverton offered about 3.35 billion shares, raising about $197 million. Caverton’s success notwithstanding, it is important to note that there is a need for improvement.
Oil price effects on Caverton’s financial year results
In its financial year report for the year ended December 31st, 2017, Caverton recorded a 6% increase in total revenue. Revenue had risen from ₦19.3 billion in 2016 to ₦20.5 billion last year. In the same vein, profit before tax grew from ₦1.1 billion in 2016 to ₦3.9 billion in 2017. Also worthy of note is the fact that the company’s total asset for the year grew higher than its total liabilities, standing at ₦46.25 billion (as against ₦41.35 billion in 2016), and ₦30 billion (as against ₦28 billion in 2016) respectively. In total, the company’s profit grew from ₦612.2 million in 2016 to ₦2.6 billion in 2017.
Note that the noticeable improvement in Caverton’s 2017 financial result is due mainly to the gradual rise in global oil prices. The company’s profit had taken a hit back in 2016 due to poor oil prices which not only affected the oil companies but also, the Nigerian economy in general. Apparently, the decline in global oil prices led to lesser contracts for Caverton, as most of its clients struggled to survive the economic hardship necessitated by the ensuing recession.
Favourable global oil outlook in 2018
In 2018, global oil price has been on a steady rise, recently surpassing $75 and projected to reach $80 soon. The Organisation of Petroleum Exporting Countries (OPEC) had in 2017 put in place a mechanism that reduced oil output, and by so doing, reduced global crude supplies, a situation that ultimately resulted in a price spike.
Meanwhile, the trend is expected to continue thanks in part to the United States of America’s impending sanctions on Russia and Iran for their interference in the Syrian war. This sanction would see a ban placed on crude exportation of these two countries, a situation that has tightened the crude oil market and inevitably increased prices.
Why a spike in global oil prices is favourable to Caverton
The nature of Caverton’s business model is such that its services are most needed when its customers are making money. What this means, therefore, is that as global demand for crude oil rises, oil companies in Nigeria benefit from the subsequent rising prices, even as they require more logistics services which Caverton provides. Caverton, on the other hand, makes more money when its services are in demand.
Right now, global oil prices are at its peak since 2014, meaning that demand for crude is on the increase. Nigeria is one of the world’s biggest crude oil exporters, and most of the oil companies in Nigeria comprise of Caverton’s customer base. Consequently, as oil prices continue to rise, Nigerian oil companies will demand more of Caverton’s services. This will, in turn, lead to a projected profit increase for the company in 2018.
But there are some caveats…
It is apparent that Caverton is in for good times in 2018. Not only does the market look promising, the company has already signed a major contract and upgraded its fleet in readiness for expansion and profitability this year. But all these are chiefly dependent on whether the global oil prices will remain stable. And even in the circumstance that prices remain stable and favourable, Caverton must also be prepared to check its competition.
Currently, the company contends with Bristow Helicopters and OAS Helicopters for market share. Those two companies are understandably making their own expansion moves with hopes of taking more advantage of the market. More so, Caverton must also ensure to reduce its liabilities and operational costs down.
Also, Caverton must avoid any form of scandal and labour issues that could potentially harm its business operations. Earlier this year, such scandal had resulted in the grounding of its flights following protests by several labour unions, including the National Association of Aircraft Pilots and Engineers (NAAPE) and the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG). The labour unions were protesting what they perceived as the company’s labour discrimination, whereby the juicy positions are given to expatriates, while the not so juicy ones are given to Nigerians. Caverton cannot afford such a scandal, not if it is focused on making profit this year and henceforth. This is because subsequent protests can happen anytime and ground its operations.
It is also important for Caverton to consider diversifying its operations away from the oil and gas sector. At the end of the day, the aim is to make profit and pay dividends to shareholders, something the company has not done in recent times.
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Dangote Sugar records revenue boost despite inflation and Apapa gridlock
Dangote Sugar has revealed it increased prices in the first quarter of 2021 to mitigate the problems of rising inflation and depreciation.
One of Nigeria’s largest Sugar manufacturers, Dangote Sugar revealed it increased prices in the first quarter of 2021 to mitigate the problems of rising inflation and depreciation.
In a note to investors, the company revealed its recent 41.5% surge in revenues was due to an increase in sales volume as well as an uptick in price. In the first quarter of 2021, Dangote Sugar posted a revenue of N67.39 billion compared to N47.6 billion, the same period in 2020. The increase in price was driven by 5.7% pop in sales volume as the company sold 200,510 tonnes of sugar in the quarter compared to 189, 724 the same period in 2020.
But while sales value surged by 41.5%, volumes only rose 5.7% suggesting that price increase was a catalyst for the growth in revenue and the company alluded to this in its statement.
READ: Dangote set to earn N13 billion in dividend from his sugar business
Dangote Sugar’s performance
“Group sales volume increased in the quarter by 5.7% to 200,510 tonnes (2020: 189,724 tonnes). Growth continued to benefit from the sustained efforts to drive customer base expansion, several trade initiatives and investments. Group production volume also increased by 4.3% to 200,783 tonnes (2020: 192,584 tonnes) due to our operations optimization strategy despite the challenges of the Apapa traffic situation. Group revenue increased by 41.5% to N67.39 billion (2020: N47.64 billion). Growth in revenue advanced ahead of volume growth due to pricing benefits. Gross profit increased by 41.8% to N18.04 billion (2020: N12.72 billion) on account of better topline performance. EBITDA increased by 34.7% to N17.02 billion (2020: N12.64 billion) on account of increased earnings. Group profit after taxation for the period increased by 30.3% to N8.30 billion (2020: N6.37 billion) reflecting management’s unrelenting drive to deliver consistent shareholder value.”
The company also explained it had no choice but to increase prices because of the impact of the 2020 devaluation, higher inflationary environment, port congestion issues and a rise in global sugar prices. The company imports raw sugar from Brazil, under the government’s backward integration plan.
“We have continued to witness high cost of raw materials, energy costs and other input costs due to rising inflation and FX rate fluctuation. Further cost escalation is anticipated in the year as inflationary pressure mounts,” the company said.
READ: Dangote Sugar yearly revenue surge by 33%, announces a dividend of N1.50
Dangote vs BUA Sugar Scarcity Controversy
Just last month, the company’s adversary and competitor BUA Group accused Dangote Sugar of conniving with Flour Mills of Nigeria (FMN) in price-fixing and arbitrary collusion to create sugar scarcity and keep the price of the commodity high.
This triggered Dangote Sugar and FMN into issuing a joint press statement denying the accusations.
The allegation made by BUA was triggered by a joint letter written by John Coumantaros of FMN Plc and Aliko Dangote of Dangote Industries Limited, reporting key developments in the Nigerian Sugar Industry to the Minister of Industry Trade and Investment, Niyi Adebayo.
The duo in the letter dated January 28, 2021, pointed out how BUA’s new sugar refinery in Port Harcourt may lead to a spike above the import quota as stipulated in the National Sugar Master Plan (NSMP), and how BUA’s investment in the sugar industry via the new refinery is non-compliant to the undertakings under its Backward Integration Programme, in line with local production.
READ: Dangote’s stakes in his sugar enterprise has earned him N90 billion in 365 days
BUA’s response however led to an immediate reply by the duo of Dangote Sugar and Flour Mills of Nigeria.
“In line with this, the Dangote Sugar Refinery wishes to vehemently refute the allegations and assertions made by BUA Sugar Refinery as they are not only false but defamatory, malicious and libellous, as they were geared at tarnishing the good name and brand of Dangote Sugar Refinery Plc and Dangote Industries Limited.”
The Group Managing Director, Mr Ravindra Singhvi, explained that the Dangote Group is socially responsible and considers price-fixing to be unethical and disastrous to the nation’s economy, and as such, the allegations made by BUA is highly mischievous and defamatory and should be considered a malicious attempt to smear the reputation of DSR.
“DSR does not engage in artificial price manipulation of its products, either during the Holy month of Ramadan or at any other time. We have never ever increased the price of our food items or commodities during the Holy month of Ramadan in the history of our operations,” Ravindra Singhvi said.
Outlook for Dangote Sugar
Despite the operational headwinds, the company insist it is on track to improve its operations and seek growth in its sugar sales volumes. It also recently received approval from the government to revise its local sugar production targets to 550,000 metric tonnes annually from over 1 million metric tonnes annually.
“Despite these uncertainties, achievement of our Sugar for Nigeria Backward Integration Project goal remains a key priority, though we anticipate increase in cost to completion in Naira-terms and some delays in Letter of Credit establishment for the importation of plant and equipment. The focus is to achieve the Federal Government’s revised sugar production target of 550,000 metric tonnes annually by 2024. We remain confident of the huge benefits the Backward Integration Programme would deliver and the positive impacts it will have on the economy.”
Find out why Dangote Sugar is recommended as a buy in our Stock Select Portfolio Newsletter? Click here.
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GlaxoSmithKline in big trouble as losses mount
The results were less than impressive with several key indicators showing a year-on-year decline.
GlaxoSmithKline Consumer Nigeria Plc (“GSK Plc” or “the Company”) is a public limited liability company with 46.4% of the shares of the Company held by Setfirst Limited and Smithkline Beecham Limited (both incorporated in the United Kingdom), and 53.6% held by Nigerian shareholders.
The ultimate parent and controlling party is GlaxoSmithKline Plc, United Kingdom (GSK Plc UK). The parent company controls GSK Plc through Setfirst Limited and SmithKline Beecham Limited.
The Company recently published its unaudited first quarter (Q1) 2021 consolidated financial statements for the period ended 31 March 2021.
READ: GSK Consumer Nigeria Plc records 3.34% increase in 2020 9M revenues
The results were less than impressive with several key indicators showing a year-on-year decline. For example, Group revenue (turnover) declined from ₦4.99 billion in Q1 2020 to ₦3.46 billion in Q1 2021 a drop of over 30.66%. The revenue drop was due to a sharp decline in the local sale of its healthcare products.
Total loss after tax as of Q1 2021 was ₦238.07 million compared to a profit after tax of ₦113.47 million for the same period to Q1 2020.
The company is essentially divided into two segments viz: Consumer Healthcare and Pharmaceuticals. While the Healthcare segment was largely profitable in Q1 2021 (making a profit before tax of ₦ 8.73 million by March 31, 2021, the pharmaceuticals segment made a loss of ₦262.93 million in the same period.
READ: GlaxoSmithKline Nigeria announces changes in its board
The Consumer Healthcare segment of the company consists of oral health products, digestive health products, respiratory health products, pain relievers, over the counter medicines, and nutritional healthcare; while the pharmaceutical segment consists of antibacterial medicines, vaccines, and prescription drugs. While goods for the consumer healthcare segment are produced in the country, the pharmaceuticals are all imported.
The largely imported pharmaceutical products are thus exposed to the vagaries of foreign currency fluctuations coupled with a negligible to no revenue from the foreign sale of its healthcare products (same as in Q1 2020) as it barely exports its products out of the country.
The cost of importing the antibacterial, vaccines and prescription drugs, and the significant local operating expenses wiped off the marginal gross profits made by the pharmaceutical segment of the company. In effect, the gross profit of ₦508.12 million made by the pharmaceutical segment of the company was eliminated by an operating expense of ₦735.7 million and this resulted in a net loss for the pharmaceutical segment of the business.
READ: Nigerian Breweries posts N7.66bn as Q1 2021 profit, shares gain 2.2%
Apart from the impact of imported pharmaceutical products as already discussed, other issues that affected the company’s Q1 2021 results and are likely to continue to affect its performance in future include:
- A limited product mix that has only the likes of Macleans and Sensodyne (Oral Healthcare); Pain relievers (Panadol and Voltaren); Digestive Health (Andrews Liver Salt); and Respiratory Health (Otrivin and Panadol Cold and Catarrh) all within the Consumer Healthcare segment.
- Increased competition, particularly from local pharmaceutical manufactures of similar over the counter medicines and other prescription medications and vaccines.
In addition, in October 2016, GSK Plc divested its drinks bottling and distribution business that manufactures and distributes Lucozade and Ribena in Nigeria, and other assets including the factory used for the drinks business to Suntory Beverage & Food Limited. The loss in revenue from these popular brands continues to impact its topline.
GlaxoSmithKline (GSK) is a global healthcare company and is well-known and acknowledged for its pioneering role in discovering and distributing vaccines for the likes of hepatitis A and B, meningitis, tetanus, influenza, rabies, typhoid, chickenpox, diphtheria, whooping cough, cervical cancer and many more.
It is also renowned for its manufacture and distribution of prescription medicines such as antibiotics and treatments for such ailments as asthma, HIV/AIDS, malaria, depression, migraines, diabetes, heart failure, and digestive disorders.
Perhaps GSK Plc’s fortunes may change if the company is able to obtain the parent company’s licence to manufacture GSK-owned vaccines and prescription medicines within the country while also exploring the possibility of extending the sale of its products outside the shores of the country.
Since different expertise is required for vaccines and prescription drug manufacture and distribution as compared to manufacture and sale of consumer healthcare products, perhaps another alternative may be for the company to create two separate companies with one company being a 100% vaccines and prescription drug pharmaceutical manufacturing and distribution company while the second company specializes entirely in the manufacture and sale of consumer healthcare products.
As a result of the Q1 2021 performance, the company’s earnings per share (EPS) dropped to -20 kobo compared to the 9 kobo earnings per share reported in Q1 2020. At the start of 2021, GSK Plc’s share price was ₦6.90 but the company has since lost over 10% of its price valuation as the company’s share price closed at ₦6.20 on April 30, 2021.
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