Livestock Feeds faces a slow-down in profit growth

Livestock Feeds achieved a strong growth in profit in its third quarter operations ended September but full year outlook is indicating a sharp slow-down in profit growth for the company this year.

 Sales revenue is growing impressively and an accelerated growth is expected at full year.

 Some major cost elements of the company are however encroaching on revenue and undermining profit capacity. 

Mrs. Modupe Asanmo, managing director/chief executive officer of the company, is facing rising costs in two major areas that didn’t give her much headache last year. 

These are distribution/administrative expenses and finance costs, both of which are claiming increased proportions or revenue in the current year. 

Asanmo is therefore struggling to defend profit margin, which at 3.0% at the end of September, is down from 3.4% at the end of last year. 

This represents a hurdle for her on the way to improving profit this year.

 Third quarter operations ended with a turnover of N5.46 billion, which is an increase of 27% over the corresponding period last year. Based on the current rate, sales revenue is projected at N7.5 billion for Livestock Feeds at the end of 2014. This will be an increase of 22.7% over the turnover figure in the preceding year and an accelerated growth from 13% in the 2013 financial year. Profit grew well ahead of sales revenue in the third quarter at 46% to N163.6 million on year-on-year basis. 

The full year outlook indicates an after tax profit in the region of N218 million for Livestock Feeds in 2014. This will be a moderate increase of 4.7% over the full year figure of about N211 million in the preceding year.

 The expected slow down in the final quarter is explained by an outstanding growth in profit recorded in the last quarter of last year. Of the N211 million the company reported at the end of last year, as much as N100 million of it was realised in the final quarter. Only a repeat of that feat will step up profit growth rate for the current year. Two major cost areas are hurting profit performance this year. These are distribution/administrative expenses and finance cost. Distribution/administrative cost grew ahead of sales revenue at 34% to N339.4 million in the third quarter, which compelled the company to devote more revenues to the expense line than it did last year. The same applies to interest expenses, which rose by 50% to almost N200 million and also claimed an increased share of sales revenue. The strong growth of 27% in sales revenue tempered the effect of the cost increases on the bottom line and permitted an improvement in profit margin during the review period. Net profit margin improved from 2.6% in the third quarter of last year to 3.0% this year. It is however a decline from the net profit margin of 3.4% recorded at the end of last year. The company earned 8 kobo per share at the end of the third quarter, which is a decline from 9 kobo per share in the same period last year. The decline is due to an increase in the volume of shares coming from additional issue of shares towards the end of last year. Earnings per share is projected at 11 kobo for Livestock Feeds at full year. With a decline of 87% in current financial liabilities to N99 million, the high growth in interest expenses may slow down in the remaining part of the year. Other major changes in the balance sheet include an increase of 43% in inventories to N1.49 billion, a drop of 97% in cash and bank balances to N16 million and a jump of 223% in trade and other payables to N741 million during the nine months of the year. inShare 

Culled from: The Citizen Ng

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