Printing sector buckle under high opex, forex, poor local patronage

…Heavy operating cost depresses earnings as share prices drop by nearly 50%
…Operators decry huge tariff on indigenous products, seek establishment of local paper mills
…‘There is a need for govt to support industry with incentives’, say shareholders

The emergence of technology, which has developed the electronic system of learning (e- learning), coupled with policy inconsistencies and foreign exchange (forex) challenges have dampened the earnings of companies, under the printing sub-sector listed on the Nigerian Exchange Limited (NGX).

The sector is currently grappling with heavy financing and operating costs, even as manufacturers are still faced with enormous challenges that are largely responsible for its poor performance in the nation’s bourse in the last few years.

With the rising inflation in the country and low purchasing power, demand for printing products has reduced with the attendant effect on revenues and profits.

Indeed, the printing industry which is currently subdued by negative sentiments plays an important role in the national economy, and it is, therefore, important to identify causes of low productivity to revive the sector. The industry employs approximately 45,000 employees with as many as 500 000 dependents and also has an estimated yearly turnover of N51 billion.

Regrettably, companies under the sector are faced with difficulties including raw material wastages and customer dissatisfaction which are results of poor or low productivity within organisations.

Moreso, the weak corporate earnings by these companies come on the heels of an increase in cost of sales and administrative expenses as most companies operating in the country contend with hikes in materials used for production, among others.

For instance, Academy Press’ results for the first quarter ended June, 2018 showed that revenue dipped from N606 million in 2017 to N457 million in 2018. The company’s loss before tax stood at N91 million in 2018, as against N4.2 million posted in 2017.

Also, the company’s results for the half year ended September 30, 2018 showed that revenue dipped from N1.2 billion in 2017 to N1.1 billion in 2018. The firm made a loss before tax of N85.1 million in 2018, as against a loss before tax of N4.3 million recorded in 2017.

However, the company’s revenue grew by 11.46 per cent to N2.43 billion in 2019 from N2.18 billion in the previous year, while profit before tax grew by 112.9 per cent to N1.324 million from a loss of N10.27 million recorded in the previous year.

The company’s audited financial statements for the year ended March 31, 2020 showed 0.28 per cent rise in revenue at N2.440 billion from N2.433 billion in 2019.

Despite the slight increase in revenue, the company recorded a loss after taxation of N47.945 million from a profit of N34.693 million in 2019. The directors have decided not to recommend dividend for the year ended March 31, 2020 as against N30.240 million in 2019.

Managing Director of the company, Olugbenga Oladipo, in an interview with The Guardian admitted that the government’s unfavourable policies are hitting hard on the operations of the local printing industry.

According to him, because the operators cannot pass the high cost to the consumer, it has continued to erode their working capital and impact negatively on the profitability.

“It has not been easy for the local industry; it is not peculiar to our own industry alone. What is affecting us is actually external to us and affects other manufacturing industries too because the moment the cost of operation is high, with a high cost of forex, it falls back on us because we cannot pass the cost to the consumers.

“The consumers are challenged. We sell to end-users who are ordinary street people and the moment their purchasing power is not strong, it falls back on us. Again, the government is also not helping with their policies.

“For instance, the problem of port congestion and the high tariff on importation is also affecting our bottom line. Even some of our products are brought through the back door, causing unhealthy competition. These issues are making us less viable. Government businesses are also still going to foreigners.

“The books supplied by the government are finding their way to foreign organisations, they will tell you they have given you order already knowing that you are not a producer, the only way to get supply is that you go abroad and they neglect the local player.

“The cost of forex is still very high and we are not able to pass that cost to consumers. Even getting stock material, the working capital is enormous, you need to have a lot of cash to do good business and the banks are not giving a loan, even when they lend, it is so expensive, you find it difficult to pay back,” he said.

Also, University Press Plc reported a 55 per cent drop in its full year ended March 31, 2021 audited result and accounts and proposed a dividend of N0.05.

The company profit closed the 2021 financial year at N57.11 million from N127.2million reported in 2020 as profit before tax also dropped by 57.7 per cent to N75.29million in 2021 from N178.06 million in 2020.

Investigations revealed that 31.3 per cent and 42.04 percent drop in revenue and finance income impacted on profits reported by University Press in the 2021 financial year.

The printing press company reported N1.42billion revenue in 2021 from N2.07 billion in 2020 while finance income moved from N25.84 million to N14.97 million in 2020.

Before the global financial crisis, the company share price on the Nigerian Exchange Limited (NGX) was N9.46 kobo. Few years after the crisis, it stood at N1.89 kobo. However, at the close of transactions on Friday, July 8, 2022, the share price fell to N1.72 kobo.

President of Standard Shareholders Association, Godwin Anono, urged the government to address the issue of high import tariff on raw materials to accelerate the growth of the industry and boost the bottom line of listed firms under the sector.

Specifically, he said there is a need for the government to work out incentives for companies under the sector to alleviate their financial burden.

“There are a series of challenges the printing firms are facing currently, ranging from lack of incentives, high-interest rates, operations cost, and stringent government regulations. The raw materials are expensive with most of them struggling under multiple taxations.

“These numerous challenges do not boost these firms’ bottom-line and revenue, it does not encourage others to venture into such business. The government must ensure that unity schools patronize the local printing industry and also ensure that the culture of reading is restored in Nigeria.

President of Issuers and Investors Alternative Dispute Resolution Initiative (IIDRI), Moses Igbrude said the printing sector is challenged by high cost of papers, inks, and now high cost of diesel.

In addition, he stressed the need for the government and its agencies to increase patronage of locally-made products and remove tariffs on raw materials.

According to him, with the persistent dollar surge, coupled with the devastating effect of the COVID-19 crisis, there is a need for the government to support the industry by imposing tariffs on imported goods and eliminating charges on raw materials to grow indigenous firms.

“Everything is tied to dollars in this sector. Also, the continuous devaluation of the Naira, resulting in continued increase in printing cost is having a multiplier effect on the value chain of the subsector. The only way to help the sector is for FG to revive our paper mills and encourage local production, give them incentives and reduce the cost of diesel.”

Igbrude added that streamlining importation and port activities as well as provision of adequate forex for the industry will boost local production.