Accounts - 1998

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, 1998

Chairman's Statement

From the 35th Annual General Meeting - 30th June, 1999

Distinguished Shareholders, Ladies and Gentlemen, It is with gratitude to  God for sparing our lives this far, that I take the opportunity to welcome you all to the 35^th Annual General Meeting of our Company. Before I present the results of our operations for the 1998 financial year, let me recapture the environment in which we operated in that year.

THE BUSINESS ENVIRONMENT

1998 turned out to be a very difficult year for business. Despite a Federal Government Budget that promised constructive gains for the economy, the manufacturing sector in particular, and the country as a whole was brought to a virtual standstill by a crippling energy crisis. The impact of the fuel scarcity on purchasing power, and costs of transportation and distribution was significant.

NEPA’s (National Electric Power Authority) ability to satisfy consumer demand continued to fall, as its infrastructure crumbled, due to years of neglect. With epileptic power supply and fuel scarcity, manufacturers production capacities and production costs were severely and adversely affected. MAN estimates that average industrial capacity utilisation in 1998 fell to 28%, down from 34% in 1997.

Budget implementation delays, especially regarding release of capital votes where government spending remains the prime catalyst for economic activity, severely stunted economic growth during the year. While focus on managing inflation kept rates low, interest rates rose sharply due to the cash squeeze. The cost of borrowing for manufacturers rose from an average of 14% per annum in 1997 to 24% in 1998. At the same time, consumer purchasing power, which had been falling steadily in recent years, fell even more sharply, as consumers exhausted their savings.

It is against this backdrop that many companies experienced shrinking sales, low overhead recovery and high levels of unsold inventories.

1998 PERFORMANCE

The operating environment severely and adversely affected NGC’s performance during this period. As you are well aware, our Company has been undergoing significant restructuring, during which it has invested heavily in capital assets to execute its diversification and expansion strategies. It has also invested in replacing aging assets, as well as in information technology as a bedrock for improving operational efficiency. While the Rights Issue raised in 1996 financed some of these activities, a significant portion was also financed through bank loans, some of which are short term in tenure. The decision to finance the activities by this manner was considered prudent during a period of low interest rates and a stable environment. The expected cash flow from budgeted sales was more than adequate to meet debt obligations. Ultimately, the aim was to maximise shareholder value and returns.

In a year characterised by sharply increased interest rates, and production and budgeted sales shortfalls, it was difficult for the company to service its high debt obligations, obtained for capital projects, as well as financing considerable inventory and debtor levels. Consequently, despite high operating margins, because of successful cost restructuring, virtually all profits went to service interest rate obligations of N121m.

We were also compelled by rules of prudent accounting, to make additional provisions against profits for obsolete stocks, and doubtful or unrecoverable debts. The little profit remaining, was wiped out by an obligation to provide for an additional assessment by the tax authorities against underpayment of taxes in 1992.

Consequently, Profit before Tax declined to N4.8 million, down from N80 million in 1997. We recorded a loss of N5.5 million, following a provision for tax of N10.4 million. The foregoing regardless, total assets of the Company grew N1.76 billion in 1998, from N1.6 billion in 1997. Following two years of capital spending, our net fixed assets value stands at N652 million. Including investments and R & D, the value is N818 million.

OUTLOOK FOR 1999 AND BEYOND

The Federal Government budget for 1999 contains few provisions that provide encouragement for the manufacturing sector.

• The removal of rebates on duties paid for raw materials has increased input costs for manufacturers.
• Collapsed infrastructure means that companies need to provide for their utility and energy requirements, at high diesel costs.
• Government spending has fuelled inflation which unfortunately is not focused on reflating the economy, and improving consumer purchasing power.
• Imported competing products are often cheaper than locally manufactured equivalents. Consequently, there is very little opportunity to pass on rising costs, through price hikes, to consumers.

Despite ongoing challenges in the operating environment and manufacturing sector especially, we are confident that the huge investments undertaken in the last two years, will from 1999, yield production and operating efficiencies. These will enable us compete well with imported products, achieve market share growth and ensure long term shareholder value and returns in the future. Needless to say, our capital investments in positioning our company for long term development and growth are largely complete.

In 1999, Management will continue to focus on steadily improving the Company’s bottom line by pursuing the following clear objectives:

1. Strengthening our sales and marketing management and focusing on what is necessary to drive achievement of sales targets and volume market share.
2. Linked closely to above, growing plant capacity utilisation.
3. Strengthening our financial management and controls.
4. Achieve full potential benefits of an integrated management information and enterprise resource planning system, which will manifest itself through higher operating efficiencies.
5. Replacement of short term debts with longer term debts/debenture, to enable more management time be focused on longer term business fundamentals.

In order to achieve these objectives, we have recruited experienced staff to drive marketing and sales strategy, financial management and controls, as well as information technology management.

DIVIDENDS AND BONUS ISSUE

In place of a dividend cash payout at a time when the Company needs all the cash it can get to drive its operations, the Board has recommended a bonus issue of . This will be funded by the capitalisation of shareholders funds, which stands today at N751.8 million.

CHANGES TO THE BOARD

Having reached the revered age of 70, Dr. B. S. Oloruntoba, will be retiring from the Board of Directors with effect from the end of this year’s Annual General Meeting. Dr. Oloruntoba joined the Board of the Company on 9th May, 1979. I know I speak well on behalf of members of the Board and management in expressing deep appreciation to him for his years of service, and prayers for success in all his future endeavors.

During the year, the Company also received notice of resignations from the Board of Ms. Catherine Edozie and Mr. Ebenezer Abiona, both Finance and Marketing Directors respectively. In addition, Mr. Anthony Strawson, the Managing Director and Chief Executive Officer left the services of the Company in December 1998, following the completion of his contract of employment. We thank them for their contributions to the Board and the company over the years, and wish them well in their future endeavors.

Consequently, the Board, on April 27, 1999 approved the appointment of Mr. Adeboye Shonekan, the Vice Chairman, as the Chief Executive Officer. The Board also approved the election of Mr. Emmanuel Ndiokwere to the board. Mr. Ndiokwere heads the Industrial chemicals Division. He has been a member of the company for 25 years. Following the positive impact brought to the company by his wealth of experience, the Board also approved the election of Mr. Kartik Raina as Sales & Marketing Director. On behalf of the other Directors, I extend a hearty welcome to Messrs. Ndiokwere & Raina. I would like to also congratulate Mr. Shonekan on his appointment and pray that he be given the strength, drive and focus to guide this Company to greater heights.

MANAGEMENT AND STAFF MATTERS

Despite the strains of operations during the year, employee relations remained cordial throughout the year, continuing a six-year tradition. The management and staff of the Company deserve commendation for their efforts in this difficult year.

I am confident that they fully appreciate the enormity of the challenges they face, going into the future, and are even better prepared to address these challenges now and in the future.

CONCLUSION

In conclusion, let me express my gratitude to all the shareholders for their continued support during this difficult year. 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, 1998

Balance Sheet

At December 31, 1998

Cash Flow Statement

Year ended December 31, 1998

Five-Year Financial Summary

Year ended December 31,

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