Declining demand for Pharma-Deko products widens loss
It has been a bad time to do business for Pharma-Deko Plc, a company operating in the health sector and listed on the main board of the Nigerian Stock Exchange. Pharma-Deko’s unaudited financial statement for 2019 shows that the company was both cash-starved and recorded a sizable loss.
This was due to declined demand for the company’s product as analysts recognise industry rivalry as one of the challenges for its weak performance. The pharmaceutical company’s cash and bank balances went down by more than 87% in a year, from N37.683 million in 2018 to N4.849 million.
Meanwhile, the company’s market capitalisation stands at N325.230 billion for 216,820,448 shares outstanding as it traded at a current price of N1.50. However, its loss position has widened to N295.899 million.
Just a year ago, Pharma-deko declared N255.938 million loss before tax. More than a 52% reduction in turnover was recorded in 2019. The company turnover in 2018 was N1.023 trillion before it went down significantly to N484.588 billion in 2019. The company’s principal activities include the marketing, and manufacturing of high-quality pharmaceutical and consumer products.
These activities are being carried out by the three reportable segments that serve as its strategic business unit. Pharma-Deko had trouble selling its products in 2019. Demand dropped significantly just the same time when cost behaves dangerously to its operations.
One of the three strategic business units (SBUs) seems to have stopped performing. The SBUs are Pharma which deals with pharmaceutical products of the company. Also, the consumer which deals with Sans –a non-alcoholic drink of the company. The non-performing SBUs which is Contract unit deals with canning of beverages for other companies.
The troubled child in the SBUs being contracted stopped performing. In 2019, it generated no revenue for the company, the same thing happened in 2018. Then it is safe to say that the Contract unit has turned 360 degrees into a cost centre – it keeps consuming cash without generating cash flow.
The Pharma segment recorded a massive decline in demand, sales dropped off by 88% from N580.025 billion in 2018 to N70.245 billion a year after. Apparently, the result points to a number of facts about the company. In the last 24 months, its sales have been unable to cover costs.
Then, it has a quite high proportion of the cost to sales revenue. In 2018, it expended 61% of its revenue as direct cost thus achieving a gross profit margin of 39%. In 2019 however, its case becomes worsened as a proportion of the cost to sales jerked up 400 basis points to 65%.
It is likely that the company is having issues meeting its short-term obligation. Trade payables increased just like other payables items on the statement of financial position. This happened despite the fact that the company was able to reduce its receivables –albeit insignificant.
Its debtors’ account declined to N162.944 million as against N169.522 million in the corresponding year in 2018. It also converted other receivables and prepayment items to cash flow, from N48.416 million to N40.322 million. READ: Jumia Loss Widens as Sales Increase
Many of the products had issues getting to the market, or are often in short supply. A case in point is Sans – a carbonated cream soda. People love Sans but you hardly find it around. The total equity of the company has been reduced by 19% due to a cumulative increase in retain loss value.
From N1.59 billion in 2018, shareholders’ funds went down to N1.294 billion in 2019. A similar trend surfaced with total assets which contracted by 4% year on year to N2.23 billion from N2.323 billion. Declining demand for Pharma-Deko products widens loss by Julius Alagbe
