Accounts - 2000

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Financial Highlights | Chairman's Statement | Profit and Loss Account | Balance Sheet | Cash Flow Statement | Five-Year Financial Summary | More Information

Financial Highlights

Year ended December, 2000

Chairman's Statement

From the 37th Annual General Meeting - 24th July, 2001

Distinguished Shareholders, Ladies and Gentlemen,

I am pleased to welcome you all to the 37th Annual General Meeting of our Company, and to present to you the Annual Report and Accounts for the year ended 31st December, 2000. In order to appreciate the results, I shall dwell briefly on the business and political environment under which we operated.

The Business and Political Environment

During the year 2000, Nigerians took advantage of freedom associated with democracy and respect for human rights, to test the boundaries of freedom of expression. Consequently, the political environment was catagorised by tense relations between the executive arm of government and the legislature.

There were also tense relations between the federal government and state governments, over issues, significant examples of which include Sharia law, the battle for resource control and state police systems.

Ethnic militancy increased during the year reflecting growing feelings of alienation and grass roots discontent arising largely from the impact of the poor economy.

The government's efforts to create a liberal market-oriented economy, driven by the private sector met with limited success. One major successful exercise recorded by the government however, was in its programme of privatising some of its assets. The exercise was remarkable transparent, with considerable enthusiasm for the programme expressed by several consortia made up of local and foreign investors.

On the other hand, efforts to increase the size and activity of the non-oil, especially the agricultural and manufacturing sectors, have not been as successful. To achieve this, the government needs to address the myriad difficulties arresting the development of the enfeebled private sector, and also needs to tackle the problems of collapsing infrastructure and lost confidence in the system.

Outside of telecom and oil sectors, and some multinational firms, the anticipated increase in foreign investment did not materialise, partly because investors are yet to be convinced of the country's economic turnaround and also adequate security.

The trade union movement, strengthened by their regained independence, under constitutional rule and the rule of law, staged several major protests and strikes against government policy. The most prominent of such actions was the strike forcing the government to back down on its plans to deregulate the petroleum sector.

2000 Performance

Our performance during the 2000 financial year reflects the extent to which we were able to perform, in spite of significant challenges posed by the operating environment.

Overall, we continued to battle with the costs of providing alternative infrastructure to run our operations, most notable of which was the very poor electricity supply situation. Our budget, as well as the cost of maintaining our overworked generating sets.

In the Industrial Chemical Division, the low production levels of our client companies in the textile, paint and soap industries meant that we could not meet our sales projections. Fierce competition from local and imported producers and suppliers, kept margins at an all time low. Despite rising costs, including the Naira devaluation, we were unable to effect price increases. Indeed, we had to sell some products at losses, to liquidate stocks.

Overall, slim margins compounded by the lengthy working capital cycle for funding inventory as well as receivables, led to a loss on the operations year. In the prevailing environment, our future activities in the chemical business have come up for review, as it has had a significant and adverse impact on our performance.

On the other hand, the Pharma Division recorded significant performance improvement. Divisional sales improved considerably over the previous year. While we effected no price increase during the year, we were able to focus resources more productively, to drive sales and profits by rationalising unprofitable product lines, and rationalising our distribution system.

Increased operating costs and distribution expenses were offset by continued gains form internal operational efficiencies, which reduced our administrative expenses significantly. By reducing our exposure to the banks, and taking advantage of the liquidity situation in the banking industry, we were able to reduce our interest expenses.

Because of all the foregoing, despite a reduced turnover in 2000 to N1,032m compared to N1,156m in 1999, we are pleased to have achieved a profit before tax of N29.4m for the year. This figure, though modest, reflects a 69% increase on the 1999 financial year result of N17.4m, and comes after a provision for depreciation of N88.4m.

The major area that remains a concern for us is our high depreciation provision arising from our reinvestment in plant and equipment, which continues to affect our results. The only way to combat this effectively is through increased capacity utilisation. We will continue to seek ways to effect this, while optimising our net working capital employed.

Lastly, at the end of the year, our association with the successor in title to the Hoechst Group, Aventis formally ended. Sufficient notice of this was received during the year, and adequate preparations made to minimise its impact on our operations. We retain close marketing and technical ties to the largest pharmaceutical group in the world, Pfizer, the licensor, following its merger with Warner Lambert, of our strong selling brands, Benylin and Sloans Liniment amongst others. Strategically, we have commenced investment in building our own brands, to reduce business risk arising from losing rights to brands we do not own.

Outlook for 2001 and Beyond

The Federal Government budget for the Year 2001 contained several initiatives to alleviate poverty and to reflate the economy. It also included adjustments to import tariffs, intended to assist local manufacturers improve their fortunes. Unfortunately, in reality, the Year 2001 is turning out to be the most challenging in recent times, for the manufacturing sector.

The difference in duty rates between some of our chemical raw materials and their finished equivalents are insufficient to create any comparative advantage, when taken against our higher operating and financial costs.

Of more concern has been the heavy government spending. We have already witnessed its impact in high inflation and a sharply devalued currency. Recent efforts by the Central Bank of Nigeria to protect the value of the Naira, has led to sharply increased interest rates, as a result of withdrawing liquidity from the system.

The foregoing, in addition to other high operating costs will put further pressure on our operating margins during the year. There is little room to pass on these costs to an impoverished populace through increased prices. We can only continue to seek avenues to reduce costs through additional internal costs rationalisation programmes.

We will also focus on programmes to increase capacity utilization at our Pharma plant in Otta. This will be achieved through investing in increased profitable product ranges and brand extensions as well as expanding strategic manufacturing alliances with third party companies.

Management will build on recent successes in the Pharma business, investing in strengthening its distribution systems, customer relationship management and brand building.

In order to achieve these objectives, we continue to focus on significantly improving staff caliber, and linking rewards to performance.

Dividend and Bonus Issue

Following two years of not declaring a dividend, it is proposed that a modest dividend be declared this year, of 6Kobo per share. The board has also recommended a bonus of one new share for every six shares owned by shareholders as at 27 June, 2001.

Changes to the Board

During the year, Alhaji Adamu Fika resigned from the board, due to the pressing demands of his national assignment, and in order to provide opportunity for others to contribute to growing the business. I am sure you have no objection to my thanking Alhaji Fika on your behalf, for his years of invaluable contributions to building NGC, and to wish him every success in his future endeavours.

After the end of the financial year, Mr. E.C. Ndiokwere also retired from the company following 28 years of dedicated and loyal service. In recognition of his contribution, he is remaining as a non-executive director, to enable the company continue to benefit from his wisdom and experience.

During the year, we invited two gentlemen to join the board, for which we will seek your approval by ratification.

Mr. T. Lindsay, a British national, resident in the UK, was a former employee of Roussel, part of the Hoechst Group, and what is now known as Aventis. He has been instrumental in obtaining new and additional licensing collaborations with global pharmaceutical companies such as Pfizer/Warner Lambert, and Solvay. His organisation has provided invaluable technical and marketing support to NGC since 1995.

Management and Staff Matters

Because of declining fortunes within the Industrial Chemical Division, and the need to rationalise administrative staff to reduce expenses, staff strength declined during the year. Despite the foregoing, and the strains of operations during the year, employee relations remained cordial throughout the year, continuing an eight-year tradition. The management and staff of the Company deserve commendation for their efforts in this difficult year.

Conclusion

In conclusion, let me express my gratitude to all the shareholders for their continued support. The Company remains fundamentally sound, with a very strong asset base, essential to safeguard sustained long-term growth and development. I am confident that long term shareholder value and returns are assured.

Thank you for your attention.

Abali Muhammadu – Emir of Fika
Chairman

Profit and Loss Account

Year ended December 31, 2000

Balance Sheet

At December 31, 2000

Cash Flow Statement

Year ended December 31, 2000

Five-Year Financial Summary

Year ended December 31,

More Information

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