Accounts
2001

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, 2001

Chairman's Statement

From the 38th Annual General Meeting - 10th October, 2002

Distinguished Shareholders, Ladies and Gentlemen,

I am pleased to welcome you all to the 38th Annual General Meeting of our Company and to present to you the Annual Report and Accounts for the year ended 31 December 2001. 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

The business and political environment in 2001 remained extremely challenging. While democratic government has largely restored respect for fundamental human rights of Nigerians, the growing incidence of ethnic and other social clashes reveal our sad propensity to take liberty for license to commit disturbing acts against fellow Nigerians. With continued clashes between the executive and the legislature, and an overwhelmed police force, a growing sense of insecurity pervades the environment, with the sorry consequence of retarding investment, critical for creating jobs and hope for our large population.

Economically, the efforts of the Federal Government to privatise state run enterprises continued. Highlights of the year include the successful launch of the two GSM networks auctioned earlier in the year. The impact on telecommunications and lifestyle of Nigerians, especially for small businesses cannot be overstated.

Unfortunately, the value of the Naira, the high costs of funding working capital and the high costs of substituting poor infrastructure, continue to reduce the ability of the average Nigerian to afford any but the most essential of items. Within the pharmaceutical industry, this is the fundamental basis for the proliferation of fake and counterfeit drugs. The spirited efforts of NAFDAC to clamp down on these nefarious forces and to sanitise the industry are really commendable.

2001 Performance

In 2001, the Company recorded a turnover of N977m, a drop of N55m on the previous year. Profit before tax was N39.3m, up from N29.4m the previous year. As the notes to the accounts states, tax computed for the year reflects largely a provision required to be made by recent Accounting Standard Rules (SAS 19).

Turnover was affected by the collapse of our industrial chemicals business. 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, we were unable to effect price increases.

The declining performance of the Industrial Chemical Division has been apparent for the last three years. Despite efforts to rationalise our product lines and seek new raw material sources, this activity, characterised by a declining market and declining margins has remained unprofitable. We have sustained losses on the working capital cycle due to the high cost of funds, the declining profit margins, and high levels of receivables. With the conviction that this working capital can be better employed in the more profitable pharmaceutical business, we have taken the decision to commence exit of our Industrial Chemical activities at the end of 2002.

Our Pharma activities were challenged by the exit of major brands following the termination of our relationship with Aventis. Our replacement products for Tarivid, Novalgin and Daonil, namely Traflox, NGC-Valgin and Gianil respectively had a slow start, characteristic of new products. This situation was further aggravated by our deliberate pricing strategy to sell at a discount to the original brands, with consequent impact on profit margins. We are extremely proud to confirm however that by the end of the year, all products had regained historical volume levels. Indeed the Pharma performance was limited by inadequate working capital arising from funds tied up in the Industrial Chemical Business.

Despite the termination of our relationship with Aventis, we retain close marketing and technical ties to the largest pharmaceutical group in the world, Pfizer, the licensor, of our strong selling brands, Benylin and Sloans Liniment amongst others. In addition to also representing Solvay Pharma, we have sustained our strategic objective of investing in building our own brands.

Gross Profit decline by N54m as compared to 2000 reflects the negative margins from the Industrial Chemical activities. Profit before tax increase over 2000 however reflects lower administrative expenses, increase in other income and lower finance charges.

Outlook for 2001 and Beyond

Unfortunately, delays in implementation of the Federal Government budget for the year 2002 has limited any beneficial impact intended on the economy. It is however quite clear that our operations will continue to be challenged by the high costs of borrowed funds, and government efforts to ration scarce foreign exchange, leading to significant depreciation of the Naira.

With this backdrop, there is little realistic hope for a revival of the Industrial Chemical Division. Consequently, all efforts are geared towards liquidating these operations and freeing up expensive working capital for redeployment in driving the growth of the Pharma business with its relatively better returns.

Our strategy for the Pharma business is to continue our successful efforts in expanding our existing product range, increasing capacity utilisation at our production plant and strengthening our distribution systems. We are confident of the positive impact on our overall operations from redeploying working capital from our Industrial Chemical operations to the Pharma Division. In the past, the potential of the division had been limited by stock- out situations due to inadequate working capital.

Management will continue to focus on reducing working capital employed. Interest expense has remained our largest expense item for several years. To achieve this, management will focus on effective supply chain management as well as funds and expense management initiatives.

In order to achieve these objectives, we continue to focus on significant improving staff calibre, and linking rewards to performance. Management intends strategically to identify and take advantage of opportunities arising, despite the inclement operating environment, to provide steady growth within the Company. We are aided by modern Pharma production facilities, an increasingly invaluable IT enabled database, and a focused group of high calibre committed staff.

Dividend Policy

Due to the level of post tax profit for the 2001 financial year, and our efforts to reduce leakage from financial charges, we would not be recommending a dividend for the year. We are however confident that trends within the Company reveal strong growth, which will translate to healthy dividend payout in the near future. We also believe that we can steadily grow the dividend payout in future years, from this base.

Changes to the Board

There were no changes to the Board during the year.

Management and Staff Matters

Employee relations remained cordial throughout the year, continuing a long standing 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 the challenges now and in the future.

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, 2001

Balance Sheet

At December 31, 2001

Cash Flow Statement

Year ended December 31, 2001

Five-Year Financial Summary

Year ended December 31,

More Information

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