Nacho Aviance: High costs hurt financials

 

Nigerian Aviation Handling Company Plc. (NACHO) witnessed significant drop in full year 2018 financials following high operating cost, administrative expenses and competitive pressure, writes Chris Ugwu

After deregulation of airline services industry in Nigeria, the sector has witnessed a new era of growth and advancement. The deregulation regime offered an increased interest and investment in the dormant Nigerian aviation industry, as more airlines entered the market.

The services offered witnessed a turnaround, as market- driven innovations came to bear to attract more passengers. The results of these were the emergent of varieties of services to suit all categories of air travelers, which were never a feature of the industry.

In spite the improvement and innovation accompanying the deregulation and privatization of airline services in Nigeria, there are some challenges still prevalent in the system. For instance, some challenges such as inadequate stand for airline users, flight information and public address systems echoes, poor customer relations, flight delay, missing luggage and personal items and security issues, among others.

These challenges and others have indeed hampered the activities of some airline services in the country. Consequently, while some companies were able to successfully weather the storm notwithstanding the difficulty in business environment, others were not.

Nigerian Aviation Handling Company Plc (NACHO) got its fair share from the stiff competition faced by the sector leading to the dwindling fortune it witnessed during the 2018 financial year.

From the good numbers it showed in first three quarters of 2018, it reported a huge drop in profit during the full year 2018, as the company remained under attack from rising cost to what market watchers believe was induced by harsh competitive environment.

Following general low level investors’ confidence in the equities market, market sentiments for the shares of the company has also recorded decline. At the close of business last Friday, the firm’s share price, which closed at N4.00 per share in June 30, 2018 had dropped to 75 kobo, accounting for 18.75 cent decrease.

Financials

Nacho Aviance Nigeria Plc began 2018 impressive with a profit after tax of N97.566 million for the first quarter ended March 31, 2018 as against N1.026 million recorded in 2017, depicting 9,409.4 per cent growth. Revenue for the period increased by 22.6 per cent from N1.786 billion in 2017 to N2.188 billion posted in 2018. However, cost of sales grew by 8.15 per cent to N1.419 billion in 2018 from N1.312 billion posted a year earlier.

Nacho recorded appreciable boost in its net profit for the half year ended 30th June, 2018, as it posted a 137.4 per cent rise in profit after tax, compared to the current N418.5million to the N176.3million posted same period of 2017.

The company’s revenue in the first half of 2018 stood at N4.6billion, also reflecting a boost in revenue by 25 per cent, away from N3.7billion reported for half year 2017.

Operating cost stood at N3.026 billion in 2018, as against N2.567 billion, accounting for 17.88 per cent increase.

Earnings per share consequently grew from 11kobo to 26 kobo in the corresponding period, representing also about 137 per cent year on year growth with just about 1.6billion share outstanding.

For the nine months ended September 30, 2018, the company reported a profit after tax of N601.310 million as against N287.451 million, representing 109.2 per cent growth. Revenue equally grew by 25.2 per cent to N7.252 billion from N5.795 billion in 2017, while operating cost grew by 19.53 per cent to N4.835 billion in 2018 from N4.045 billion a year earlier.

Following high operating cost, administrative expenses and competitive pressure, Nigerian Aviation Handling Company recorded a massive decline during the FY’2018, posting 74.63 per cent drop in profit after tax for the financial year ended December 31, 2018.

The company in a filing with NSE, said it posted a profit after tax of N196.794 million for the financial year against a profit of N775.767 million reported in 2017, accounting for a drop of 74.63 per cent.

Profit before tax declined by 16.13 per cent from N600.011 million to N503.237 million during the period under review.

However, revenue grew by 23.95 per cent to N9.825 billion in 2018 from N7.926 billion in 2017. Operating cost also rose by 18.73 per cent to N6.656 billion in 2018 from N5.606 million recorded in 2017.

Administrative expenses equally grew by 26.56 per cent from N2.315 billion in 2017 to N2.930 billion posted in 2018. Finance cost stood at N169.776 million during the period under review, from N213.066 million in a year earlier.

Strategic plans/outlook

The company recently said that it had started a strategic re-organisation of its operations in order to create a synergy with its subsidiaries and improve on its service delivery.

To this end, it said in addition to its recent investment of N1.9 billion on ground support equipment (GSE), it would also be committing additional N3.6 billion for more equipment so as to sufficiently and effectively service its numerous clientele.

This was disclosed in a report by the Group Managing Director and CEO of NAHCO, Mrs. Olatokunbo Fagbemi, who said the company had rolled out five-year strategic plan to strengthen its operations and reinforce its position at the biggest handling company in Nigeria.

She said the company has woken up from the lethargy of the past to reclaim its prime position.

Fagbemi said the management has evolved new vision and mission to reposition the company with a view to attracting more customers and reshape the market.

She said the new vision of the company is to be the leading service provider, to continuously innovate and reshape the market, adding at the end of growth plan, NAHCO would have assumed an enviable position that would be unrivalled.

“We want this business to grow from what it is now to five times bigger and stronger as part of the 5-year strategic plan,” she said. “In five years’ time, this company would have attained a greater height that is unfathomable.

“I am not saying the journey would be smooth, but we will do everything to achieve this, we will introduce automation, we will be different, NAHCO wants to maintain leadership position in the business, we want to drive the business in an excellent way, so we are looking at 5-7 times growth plan which is audacious but achievable.”

On GSE, Fagbemi said, “The company has invested about N1.9 billion on equipment in the last couple of months, the equipment would be shipped into Nigeria soon and by September this year, we would have invested close to N3.6 billion. We are going to have a master plan for our facilities, we will also refurbish what we have; the warehouse, the buildings/structures and equipment too, we will do everything to attract customers, we will set new standards.

“We also know that we are in a business where our customers are stronger than us; so there is pressure on pricing but that should not make us compromise safety and security,”

She added that the new management as led by her, operates an open-door policy, adding, “we are selling the new vision, mission and cultural changes to everyone, everybody in the company is involved, we just want to let the public know where we are, we just want to be open about where we are going. We’ve gone to the stock exchange and we will continue to engage them on where we are going’.

While explaining reasons for the exit of Lufthansa airline from the company, she said the airline acted based on its corporate decision, adding that it was a decision taken in 2016 but happened in 2018.

She said: “Lufthansa’s leaving has nothing to do with NAHCO, rather, it has to do with Corporate decision in 2016, Lufthansa is still in some business with us, so it shows it wasn’t an issue with NAHCO.”

Fagbemi urged the Nigerian Civil Aviation Authority (NCAA), to intervene in the pricing war in ground handling business in Nigeria such that the companies would operate safely without infringing on any safety and security regulations.

Last line

The aviation industry is plagued with many problems including derelict infrastructure and inability to access foreign currency for operational needs, hence the need for the company to continue to implement prudent control of capital and operating expenditure while seeking to take advantage of business opportunities in other segments of the economy.

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