By Chinwendu Obienyi
Amid rising inflation and other macro-economic challenges rocking the nation’s capital market, some consumer care and manufacturing companies are taking on strategies to sustain the creation of value to their respective shareholders or ensure it has a healthy balance sheet at the end of the financial year.
For Neimeth International Pharmaceuticals Plc, expanding opportunities to meet its vision of being the leading innovative healthcare provider out of Africa, is a commitment that management believes will take its shareholders to a new dawn of prosperity.
Already, the company’s latest audited results showcased an impressive and stable growth compared with how bad it was a few years ago.
Its audited report and accounts for the year ended September 30, 2021 showed that gross turnover attained a high of N3.05 billion in 2021 as against N2.84 billion in 2020, with top-line analysis showing that its human pharmaceutical manufacturing business grew by 13 per cent from N2.5 billion in 2020 to N2.8 billion in 2021 while operating profit rose from N510.15 million to N553.5 million in 2021.
With increasingly effective cost management, the bottom-line expanded considerably with Profit Before Tax (PBT) rose by 23 per cent from N297.39 million in 2020 to N365.29 million in 2021.
Similarly, its net Profit After Tax grew 27 per cent from N212.48 million in 2020 to N270.58 million in 2021. With this, earning per share rose correspondingly grew 27 per cent from 11 kobo in 2020 to 14 kobo in 2021. Underlying ratios also showed that the outward growth was driven by intrinsic improvement in the core operations of the company as operating profit margin improved from 17.96 per cent in 2020 to 18.15 per cent while pre-tax profit margin also increased from 10.46 per cent in 2020 to 11.98 per cent in 2021. `
A six-year, medium-term, periodic analysis between 2016 and 2021 showed a steady growth trajectory with consistent year-on-year growth in sales and profitability. Over the period, turnover has grown by 52 per cent. Pre-tax profit has grown by 284 per cent. Profit after tax has risen by 317 per cent. One of the major factors contributing to enhanced profitability over the past few years is management’s consistent focus on absorption of plant operations overhead.
Overhead consists of relatively fixed costs of the plant which must be absorbed by production outputs and if not will become major losses in the business. The 2021 report indicated the highest overhead absorption of N378 million, which was 24 per cent better than the overhead absorption for 2020 financial year at N305 million. The 2021 overhead absorption was also the highest absorption in five years when compared with the other years ranging from N164 million to N289 million.
Thus, the company has consistently recorded profit in the past four years, thereby ending the era of losses that bedeviled the company in the past. This enabled the company to see ways at creating value for its shareholders.
Shareholders’ value
For instance, Neimeth recommended an 8 per cent raise in dividend to 7.0 kobo for the 2021 business year, sustaining the trend that started in 2020 when the company paid a dividend per share of 6.5 kobo after it had earlier successfully used its profit to restructure its balance sheet and counterbalanced earlier losses.
Beyond cash dividend payouts, shareholders of Neimeth have seen significant capital gains as the investing public continued to react positively to the improvements in the company’s fundamentals.
The share price of Neimeth increased from 40 kobo as at September 30, 2019 to N1.75 by the year ended September 30, 2021, representing a 338 per cent gain, more than an average of 100 per cent gain per annum. This implies that a shareholder who had N1 million worth of shares on September 30, 2019 has seen his value risen to N4.75 million.
The quantum leap
In a bid to strengthen its position as a leading Nigerian pharmaceutical company and to develop a competitive global capacity that allows it to tap into emerging continental opportunities, the company said it is building a new multi-product manufacturing facility at Amawbia, Anambra State, to comply with World Health Organisation’s (WHO) current standards of Good Manufacturing Practice (GMP).
It is also upgrading its Oregun factory billed for completion this year.
According to the company’s Chief Executive Officer, Matthew Azoji, the Oregun factory upgrade is expected to increase Neimeth’s manufacturing capacity by more than 300 per cent, particularly of liquid products and this in turn will enable the company to grow more rapidly in both turnover and profit.
Azoji revealed that the Amawbia project has reached an advanced stage of implementation adding that by the end of the current financial year, it will contribute to the next business year in 2023.
Already, the company has many therapeutic formulations that will provide solutions to various human and animal diseases and is also partnering with overseas pharmaceutical companies to formulate medicaments for various common ailments on the continent.
Currently, it has about 13 different human pharmaceutical lines undergoing registration while about nine veterinary products are underway. About 25 other human pharmaceutical products are scheduled to be submitted to the National Agency for Food and Drug Administration and Control (NAFDAC) for registration soon. Most of these products are expected to be introduced into the market in the current business year, thus expanding the company’s product portfolio.
Most of these products are expected to be introduced into the market in the current business year, thus expanding the company’s product portfolio.
Rights issue
The company had concluded its completion Board Meeting to float a Rights Issue of N3.67 billion through the Nigerian capital market (NCM), starting by August 3, 2022. According to Azoji, the Rights Issue will be used to raise the sum of N3.67 billion at the price of N1.55 per 50 kobo share.
“We are seeking a total of N5 billion of investors’ funds through a hybrid Offer of Rights Issue and Private Placement. We want to raise N3.7 billion and N1.3 billion respectively from both Offerings. To carry out the Rights Issue, the Company had in March 2022, created 2,373,947,500 additional Ordinary Shares which will be allotted at the rate of five new shares for every four shares currently held in the company to existing shareholders”, He said.
Also speaking, the Chairman, Board of Directors, Dr Ambrosie Orjiako, said the money is being raised for two key reasons, namely the multi-product manufacturing facility at Amawbia, Anambra State and to support the company`s strategic plan of maintaining a sustainable capital structure, de-leverage the company`s balance sheet, reduce cost of borrowing and fund working capital.
Whilst expressing optimism that the company shareholders will take their rights in the Rights Issue and that the offer will be fully subscribed amid the current inflation and currency challenges in the country, Azoji, added that the company is working as a team and readjusting its strategies to ensure it continues to create value to its shareholders.
“We are indeed concerned about the business environment because it is quite unpredictable currently. We are hopeful that we will succeed because our shareholders, current board, owns a significant portion of the shares because it is a rights issue.
All our shareholders are going to be properly advised, educated through the investor relations activities that we are going to embark on. They will all be well educated of the implications and the benefits they will gain by taking their rights and they will have the first access to their rights and so nobody can come as an external investor and take the rights issue like that because he has the funds.
Secondly, the offer is underwritten. So we are expecting that we get the whole of that form even if there are a few people that do not take theirs. There may also be a number of other investors who are interested who can also find ways to get access to the shares through some of the shareholders who might not have the funds or whatever but we believe that it will be successful”, He said.
Imports and Exports
Neimeth’s growth plan synchronizes well with the buoyant outlooks for the Nigerian and Sub Saharan African pharmaceutical market, which rely heavily on pharmaceutical imports. A good percentage of Nigeria’s medicine needs is met with imports from China, India and Western Countries such as Europe and USA. In 2020 alone, Nigeria imported N562.4 billion or $1.5 billion worth of pharmaceutical products which is about 70 per cent of the country’s annual pharmaceutical consumption.
This implies that there remains a very large room to grow pharmaceutical manufacturing business in Nigeria. Despite government efforts to make Nigeria not only self-sufficient in medicine production but also the hub of pharmaceutical manufacturing in Africa, there continues to be little local drug production. Local drug manufacturing according to the new National Drug Policy, launched September 2021 accounts for a mere 30 per cent of drug consumption in the country.