May & Baker: Investing in Local Manufacturing to Enhance Profitability

14 Nov 2012

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 MD,  May & Baker Nigeria Plc, Mr. Nnamdi Okafor

At the threshold of becoming the first Nigerian, nay West African, WHO-prequalified pharmaceutical company, May & Baker Nigeria Plc’s shareholders should expect better returns, writes Eromosele Abiodun

The dream of any private or quoted company is to make profit and reward its shareholders and as a result enhance its market value. Over the years, however, most quoted companies in Nigeria have had little or no money to invest, reasons being high interest charges by banks and their inability to raise long-term capital following the stock market crash that led to the demise of the initial public offer (IPO) market. Against all odds, most of them have had to go out of their way to seek funds to invest in local manufacturing to reduce reliance on importation.

Leading in this direction is May & Baker Nigeria Plc. Despite the constraints stated above, the company has invested significantly in manufacturing capacity and research and development in recent years. The completion and commissioning of a World Health Organisation (WHO) prequalified pharmaceutical factory known as the PharmaCentre had more than doubled May & Baker’s pharmaceutical manufacturing operations.

The PharmaCentre, which could not contribute to the company’s performance in 2011 on account of preparations for WHO-prequalification inspections, started commercial operations this year. It already has four firms on the line for contract manufacturing while also exploring opportunities for international partnerships. Also, in line with the company’s vision to become a leading conglomerate in Nigeria, one of the new subsidiaries, Osworth Nigeria Limited commenced operations in 2011, with significant inroads in Sierra Leone, Ghana and the United Kingdom. May & Baker was also said to be working on a number of new products, which are expected to be launched before the end of this year.
Future Projections
With the groundwork, the company projects that it will more than quadruple its turnover to N27 billion in the next five years as it consolidates plans to become one of the 10 largest conglomerates in Nigeria.
Managing Director, May & Baker Nigeria Plc, Mr. Nnamdi Okafor, said the company had laid the groundwork for growth and would be going forward to harness the potential of the diversification of its business.

He outlined that the company would collaborate with international partners as part of the measures to generate more funds and technical support, noting that the management was in “a hurry to achieve result”.
According to him, the company would continue to diversify to cover all areas of healthcare and wellness while growing a West African brand of international standard.

“Our goal now is to turn our good company into a great company with consistently impressive profit and loss accounts and balance sheet. We need to build a wall of perceived invincibility and perpetuity around us with strong brand and strong institution”, Okafor said.
He outlined that the company’s turnaround strategies would entail recapitalisation of its business and improvement in its ability to compete in current businesses.
He added that the company would step up marketing and research and development efforts while also improving on its operational efficiency through process re-engineering and automation of its processes.

Business Refinancing
Recapitalisation is a key issue for May & Baker Nigeria. With the construction and finance of its expansive Ota manufacturing complex running into the capital market meltdown, the company had little choice than to suspend the development of the new manufacturing complex or turn to bank loans to finance an obvious long-term project. It chose to go ahead with the project, but with the unavoidable mismatch. The attendant high interests and pressures on earnings now pose threats to earnings and returns. May & Baker Nigeria’s interest expense rose by 40 per cent in 2011 from N172.88 million in 2010 to N242.89 million in 2011. The company’s short-term bank overdrafts had increased from N948.5 million in 2010 to N1.22 billion in 2011. Besides, May & Baker Nigeria has outstanding term loans of N1.41 billion.

Without refinancing, mid-line costs could pose serious challenge to the bottom-line in the years ahead and in the event of a sluggish top-line, the company could be worse for it.

But the company secured a major lifeline recently at its Annual General Meeting (AGM) when its chairman, Lt. Gen Theophilus Danjuma (rtd), accepted shareholders' plea to extend N2 billion bailout to the company. Danjuma holds the largest equity stake of 24.38 per cent in May & Baker Nigeria through his company, T.Y Holdings Limited.

The bailout loan, THISDAY learnt, is a soft loan with almost negligible interest rate that will significantly reduce May & Baker’s finance expenses and allow the gains of recent expansions to trickle down to shareholders. Danjuma offered more convenient terms of payment that would neither put pressure on the company nor jeopardise the interest of any stakeholder. The company will use the bailout loan to pay outstanding bank loans and restructure its balance sheet, putting it in a stronger position to stabilise the operations of the fledgling new pharmaceutical plant.

Profitability Prospects
Beyond the immense opportunities in the WHO prequalification of the company’s manufacturing plant, the recent approval for the renewal of the joint venture agreement between the Federal Government and May & Baker for the local production and distribution of vaccines in Nigeria holds huge prospects for large earnings.

The renewal is expected to impact significantly on the prospects of May & Baker Nigeria’s subsidiary, BioVaccines Nigeria Limited, which has been largely inactive due to government’s lukewarm attitude to the partnership. Vaccination is a multi-billion naira budget for Nigeria, who imports virtually all her vaccines. With several rounds of vaccination for children and women, BioVaccines Nigeria has a ready market to tap into. Besides, for expanding companies, the capacity utilisation in the Nigerian pharmaceutical industry is still low and there is enormous room for growth. With estimated industry value of some N115 billion, capacity utilisation by the plethora of domestic drug manufacturers is around 40 per cent while Nigeria relies heavily on importation. Federal Government’s policy stand that favours local production as indicated by the Local Content Act and recent fiscal adjustments should impact positively on farsighted domestic manufacturers. With 19 per cent increase in third quarter sales to N3.9 billion, latest earnings report is yet to fully reflect the impact of the expansion and growing business base. Investors need to look beyond teething problems to the full potential of the operations of May & Baker Nigeria.

Tags: Business, Nigeria, Featured, May & Baker

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