Investing in the Future of NAHCO

10 Apr 2013

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NAHCO office

Nigerian Aviation Handling Company (NAHCO) Plc has been making huge investments in warehouse modernisation, ground handling equipment, expansion and diversification that would begin to yield results very soon, writes Goddy Egene

Investors in the Nigerian capital market have been receiving the news of how the companies where they invested in performed for the financial year ended December 31, 2012 since last week.

From banks to manufacturing firms, many of the companies unveiled their financial performance, declaring various levels of dividends. One of the  companies is Nigerian Aviation Handling Company Plc (NAHCO).

NAHCO, also known as nahco aviance,  is a  leading firm  in the aviation industry, providing  ground handling services.  The company’s core values include: safety, integrity reliability innovation and respect for the individual.

NAHCO, a firm, formerly owned by the federal government, has become one  of the success stories of privatisation programme. Extending that success story, the company is making investments as part of plans to  dominate the aviation industry in the African continent.

The company was  incorporated as a private limited liability company on 6th December, 1979, under Schedule 2 of the then Nigerian Enterprises Promotion Decree,  with Nigerian and foreign equity ownerships in the proportion of 60 per cent and 40 per cent respectively.

However, the federal government’s ownership of 60 per cent was offered for sale to Nigerians in November 2005. The firm was, thereafter listed on the NSE in November 27, 2006.  Since then, the company has been doing well, delivering the fruits of privatisation to stakeholders.

As at the end of December 31, 2012, the shareholding   of NAHCO   was held 68 per cent by the Nigerian public; British Airways (10.7 per cent); Lufthansa (6.0 per cent); Air France(5.8 per cent) and Rosehill Group Limited (9.5 per cent).

Financial Performance

The financial performance of NAHCO since its privatisation has shown that the privatisation was a wise decision.
For instance, the company’s turnover and profit after tax were N3.051 billion and N434 million respectively in 2005 when the firm was privatised. However, these have improved significantly over the years. The turnover rose to N6.067 billion in 2009, N6.346 billion in 2010 and N7.142 billion in 2011.  It further rose to N7.396 billion in 2012.

In the similar vein, the company’s profit after tax grew to N1.001 billion in 2009,   N1.117 billion in 2010 and N865 million in 2011. In 2012, profit fell further to  N593 million.

The decline in profit in 2011, was due to the increase in the operating cost of the company due to its business expansion and diversification programme. The  profit level was affected in  2012 by fuel subsidy strike in January and other strikes specific to its operations, reduction in the number of flights as well as security challenges in some of its locations.

Despite the decline in profit, the directors recommended a dividend of 25 kobo per share, which translated into a dividend yield of 4.6 per cent. The yield  is above  most  of the companies that released their results recently under the new International Finance Reporting Standard (IFRS) framework. 

Before now, NAHCO has been consistent with dividends payment. The company paid 40 kobo dividend per share in 2011 and a bonus of one new share for every five already held. It had paid the same level of dividends in 2010.

Assuring Stakeholders
The company is already looking beyond challenges that affected its performance in 2012, assuring that  its growth prospect and forecast points towards the  doubling of its earnings per share and dividend payout within the next two years as it expects increased earnings from its cargo business and expansion initiatives.

According to NAHCO’s  Chief Finance Officer, Mrs.  Chinwe Chiji-Nnorom,  the company’s expansion drive, enhanced cargo operations, increased investment in ground handling assets, interest in the power sector and the plan to make Lagos a hub for a Free Trade Zone are expected to pay off in 2013 and succeeding years.

Expansion Drive/New Warehouse
As part of efforts to sustain its performance and attain its dominance  of the aviation industry in Africa, NAHCO embarked on a transformation programme. The  transformation programme covered infrastructure, its people and processes. The company recorded a major milestone last May when it inaugurated its ultra-modern warehouse at the Murtala Muhammed International Airport, Lagos.
The   $25 million warehouse, which is part of  transformation agenda, was built to  enhance cargo facilitation, maintain the company’s competitive edge and sustain the profitability while also improving service delivery.

According to the Managing Director/Chief Executive Officer of NAHCO,  Mr. Kayode Oluwasegun-Ojo,  the old warehouse needed to be replaced because it could no longer guarantee seamless cargo facilitation and quality service delivery.
He explained that the physical state of the former warehouse and its infrastructure constituted serious challenge which posed serious operational constraints to the efficiency, safety and security of the company’s   cargo operations.

In the same vein,  the Chairman of  NAHCO, Alhaji Suleiman Yahyah, said the  warehouse is the first of its kind in sub-Saharan Africa designed to handle 230,000 tonnes of cargo with cold storage, freezers, hazardous goods facilities, bomb and explosive detectors, circuit camera television  among others.

“The future of nahco aviance is assured as the warehouse project will generate stream of cash flow, profits, more dividends and greater transparency by reducing leakages and enabling high revenue capture for the benefit of all stakeholders,” he said.
Apart from the new warehouse the company has diversified into   energy  and power  distribution as part of  strategies to  spread its income base and deliver higher returns to all stakeholders.

Modernisation of Kano Warehouse
The company is also modernising and expanding its Kano warehouse to meet international standard and enhance service delivery to its numerous clients.

Oluwasegun-Ojo said: “The Kano project is in line with the ongoing Federal Government’s airports modernisation and expansion programs.  nahco aviance will continue to partner all relevant government agencies towards a better aviation industry. In the light of the current realities, the Kano warehouse which was commissioned in the 80’s and occupies about 4000 square metres requires an upliftment to meet the expected challenge. Therefore, the current programme will contribute significantly to a better and efficient cargo business in the northern part of the country.”

He added that the  resultant effect would be an increase in cargo capacity and a boost in trade; especially considering the geographical location of Mallam Aminu International Airport, Kano as a possible cargo hub in Northern Nigeria.

African Expansion
NAHCO has also put plans in place  to expand  across Africa. The company is to invest $100 million in the first phase of its African expansion across Africa between now and 2014.

“Having invested over $70 million in our restructuring and transformation programme in the past six years and achieving equipment self-sufficiency for the next five years, our board has approved $100 million  for investment across Africa in the first phase beginning this year to 2014,” Yahyah said.

According to him,  the company has the right governance and have identified 11 Africa opportunities that  they are  focusing on.
“We will go outside Nigeria to replicate our cargo warehouse and passenger handling experience starting from this year through 2014,” he said.

To prepare for that expansion, nahco aviance, which is the first aviation handling company in West Africa to be certified by the International Air Transport Association (IATA) for IATA Safety Audit for Ground operations (ISAGO), got that certification in 2011. The certification has already been renewed till 2014.

Diversification into Energy
The company has already   incorporated NAHCO Energy & Power Company Limited in conjunction with Rosehill Group Limited and with strong  support from foreign  technical partners. NAHCO Energy & Power   is  running as a separate subsidiary using best governance practice to drive the business.  The energy business is expected to an additional turnover of N15 billion.
Oluwasegun-Ojo said apart from the diversification into power, the company was also forging ahead with its geographical expansion plans.

“These two initiatives will diversify the revenue base   of the company and help insulate it from downturns in markets. We also expect that in the course of the year, we will obtain a Free Trade Zone status. When fully operational, it is expected that we will experience higher volumes of cargo through-put and enhanced operational efficiency as we deploy the newly acquired equipment,” he said.
Caption: Ngozi Okonjo Iweala, Finance Minister
Awaiting Relaxation of Monetary Policy Stance

Obinna Chima writes that the expectation in the first quarter that the Central Bank of Nigeria (CBN) would lower the monetary policy rate, which is the benchmark interest rate, to make banks reduce lending rates, still hold in the second quarter

Cautious optimism pervaded the economy in the first quarter (Q1) of 2013 as operators, manufacturers and investors continued to look up to the Central Bank of Nigeria (CBN) to relax its restrictive monetary policy stance.

Just like in 2012, the Monetary Policy Committee (MPC) still left all  monetary policy tools unchanged in Q1, even as it intensified its mop up of excess liquidity through both its Primary Market Auction (PMA) and Open Market Operations (OMO).
In fact, the MPC kept the Monetary Policy Rate (MPR) at 12 per cent, the Cash Reserve Requirement (CRR) also at 12 per cent and the Liquidity Ratio at 30 per cent.

Notwithstanding the single digit inflation achieved in the quarter, the apex bank said it was still bothered by stability, especially with the uncertainty in the euro zone.

Although inflation figures for March is yet to be made public, the composite Consumer Price Index (CPI), which is used to gauge inflation in the country, hovered around the single-digit band in January and February, thus reflecting the impact of the CBN’s monetary policy measures. The CPI which fell to nine percent in January, increased to 9.5 percent in February. The National Bureau of Statistics (NBS) is expected release inflation figures for March this week. However, analysts at the Financial Derivatives Company Limited (FDC) have predicted that the level of inflation in the country would decline to 8.7 per cent in March. The slowdown in inflation has also been attributed to a slight improvement in the management of fiscal policy in the country.

Exchange Rate
In a bid to sustain the stability of the naira, the CBN supplied a total of $4.040 billion to dealers at its regulated Wholesale Dutch Auction System (WDAS) in the first quarter (Q1) of the year. Data compiled by THISDAY showed that the banking sector watchdog offered the highest amount of greenback in March, when a total of $1.940 billion was supplied to forex dealers. This was closely followed by February when the CBN intervened with a total of $1.160 billion, while $940 million was also offered in January. In March, eight auctions were held.

The CBN supplied $300 million at three separate auctions in the month under review, $280 million, $250 million; $150 million were supplied once respectively on different forex sessions, while $180 million was supplied to dealers at two separate auctions. The naira which stood at N155.77 to a dollar on January 7, which was the first auction for the year, improved slightly by two kobo to close at N155.75 to a dollar on March 27. The sizeable increase in WDAS greenback supply in March, according to experts, was supported by the progressive inflow from energy companies.

But at the interbank segment of the forex market, the naira depreciated by N1.73 kobo in the first quarter as it closed at N158.40 to a dollar on March 28, compared to the N156.67 to a dollar it was on January 2.
“We expect to see the supply trend maintained in the coming months following the CBN’s price stability policy and the relative depth of the Nigerian Foreign exchange and Debt markets,” analysts said.

External Reserves
Nigeria’s external reserves continued its accretion in the first quarter as it climbed on the back of high oil prices, exchange rate stability and the monetary policy conditions. Specifically, the reserves derived mainly from the proceeds of crude oil sales improved by a total of $4.236 billion last quarter to $48.573 billion as at March 28, 2013. That represented an increase by 9.5, compared to the $44.337 billion it was as at January 2. The feat achieved by the forex reserves have also been attributed to the high level of portfolio investments in the Nigerian financial market. Analysts have continued to argue that the exit of such short-term funds from the system hurt the economy.

As a result of the attractive yields on Nigeria’s fixed income securities as well as listing of the country on both JP Morgan’s and Barclays Bank’s Emerging market index respectively, the country has recorded huge inflow of portfolio investments

Analysts’ Opinion
A Financial consultant and Chief Executive Officer, B.A Adedipe and Associates, Dr. Biodun Adedipe, explained that the two major indicators that drive  the money market were the interest rate and exchange rate. Both of them, according the economist, were also influenced by fiscal operations. Adedipe argued that in the first quarter, there was no change in the way the country conducts its fiscal operations. This, he noted, made the central bank to maintain its tight monetary policy.

Adedipe however explained: “Looking at lending rates, ordinarily it should support production. But at the current level, it is counter-productive. The expectation is that the CBN should not have left the MPR at 12 per cent all through the first quarter. That was a clear indication that the CBN doesn’t pay attention on the need to support the real sector, instead, it is interested in inflation.

“Most of the goods that we consume in this country are imported and that puts the exchange rate under pressure. There is a big question mark over the ability of the central bank to maintain the current exchange rate as most of the prices of imported commodities are driven, not by the current exchange rate but by expected exchange rate. So often times, we find out that what most importers consider is the CBN’s ability to sustain the exchange rate.”

Adedipe stressed the need for banking sector regulator to consider other drivers of inflation.
“Leaving the MPR at 12 per cent has made lending rates to stay above 20 per cent. In fact, lending rate in some bank is as high as 27 per cent. If manufacturers cannot get credit, which affects job creation, which completely negates the federal government Transformation Agenda,” he insisted.

But the CBN Governor, Mallam Sanusi Lamido Sanusi, pointed out that the apex bank was not in a hurry to loosen its stance on monetary policy, citing the need to ensure economic stability.
He explained that the banking sector watchdog did not want to send a signal that the restrictive monetary policy regime was over by lowering interest rate.

Sanusi explained: "As I explain to people, it is very easy to take stability for granted. Why we are no longer dealing with banking system that was on the verge of collapse, external reserves that was crashing, with multiple exchange rates, with inflation at 15 per cent, it is nice for people to be complaining whether interest rate should be 50 basis points or 100 basis points lower.

“No, we are not going to take stability for granted. The message is that we are not in a hurry to loosen interest rate until we are satisfied that there will be no risk to stability. We are not in a hurry to send a signal that a tightening policy is over, only to turn around at the next MPC and raise interest rate. So, we have chosen to stay on the side of caution so that people would manage their expectations.”
On his part, the Head of Research, Sterling Capital Limited, Mr. Sewa Wusu also urged the CBN to ensure that it lowers the benchmark interest rate this quarter so as to support the real sector growth. 

He stated that given the fact that the MPR was retained throughout last year; manufacturers were not able to access the credit market.
“The CBN maintained its tight monetary policy position because of the inflationary pressure. But the current high interest rate regime does not augur well for manufacturers because definitely, there is need for manufacturers to assess credit.
Wusu noted that money market was been very resilient in the first quarter in terms of rates," he said.

Tags: Business, Featured, Nigeria, NAHCO Energy, Power Company

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