How Dunlop Duped Investors



In what looks like a detour in business focus and vision, the management of Nigeria's former tyre manufacturing giant, Dunlop Nigeria Plc, has resorted to stripping value assets of the company to raise badly needed fund to finance the import of tyre products.



A top management staff of the company, who prefers identity protection, told Business Hallmark last week, that the “management needs to harness the value of some asse   ts that are wasting by converting them to cash for use in other areas”. The company has been in a deep business quagmire, following the abnormal increase in the cost of production, which made its brands uncompetitive in the market. 



To most analysts, three consecutive years of intense business re-engineering initiatives targeted at re-positioning the company on the path of sustainable growth and profitability may not have yielded much result. The company is still struggling from the economic quagmire to which it was plunged by past mismanagement of its huge operational resources capacity which made it the toast of the manufacturing sector years back.



Indeed, there are strong indications that the initial hopes raised by the new management to protect shareholders' funds may not be fulfilled very soon as all economic indices point downward. This shows that investors in the company may lose their money in the long run.



When Business Hallmark visited the Oba Akran Avenue, Ikeja headquarters of the Dunlop last Thursday the picture seen could be likened to that of a prostrate business concern that lacks the wherewithal to fulfil a cherished mission. The company stated that its Mission Statement is “to harness the best efforts of everyone in the company for making quality our top priority in order to fulfill customer requirements effectively. To provide career opportunities for employees, ensure optimum value to our shareholders and remain a responsible corporate member of the society, concerned with sustainable development”. What a cherished dream!



Ironically, with over 90 per cent of its entire workforce already laid off and substantial parts of its assets being sold in order to meet its operational financial obligations , no thanks to the harsh economic environment of the country,  the road to the company's anticipated recovery may be bumpier than imagined.



Investigations by Business Hallmark on the current state of the company's performance showed that the last relics of the artisans were swept away last month even as some of the idle assets, including some expensive electricity cables which were purchased in the boom days but not useful to the company were being sold off to save scarce but needed funds. Last year, it was also gathered that one of the production plants with the largest capacity for its radial tyres had been dissembled for sale. In addition, many other automobile, electrical, mechanical and other material resources were also rumoured to have been sold to former employees and other buyers to minimize the losses that might accrue if they were left unused within the premises.



When Business Hallmark met the Company's Secretary/Legal Adviser, Mrs. Olufemi Babayemi, during the visit attempts to clarify issues relating to the company's 2007 Public Offering funds, the $8 million loan from the Economic Community of West African States (ECOWAS) Investment Bank (EBID) in 2008 for agro-business and others business matters, including alleged plans by the company to lease part of its sprawling business premises to some of the banks, did not yield much as she pleaded for time to respond to the issues formally.



Some of the laid-off workers in the last exercise confirmed that the company is no longer doing much besides the importation of tyres, a business which they claimed was not yielding much in terms of returns on investments. One of them who spoke on condition of anonymity said that “we are even better out from there because we were just coming to do nothing other than whiling away our time in the last one year”



Business Hallmark had a few months back raised serious concern over the state of the company in a story which catalogued the prospects and challenges of the company in the management's efforts to pull the multi-billion business entity out of the woods.



Apparently faced with a daunting operational hurdle, the company had in July 2008 unveiled its plans to cease tyre manufacturing in the country for a much easier business of products importation from the parent company in UK and other plants in Japan and South Africa. It has continued to pursue this line of business since then having earlier raised substantial funds from the capital market.



Before the decision to close the manufacturing plant, the company had in 2007 approached the nation's capital market for a whopping N5.5 billion, a public offering and Rights Issue which the management in May of the year claimed recorded 178 per cent success. The company stated then in the prospectus of the offering that it was going to use the proceeds to “refinance part of the short-term funding used for the All Steel Radial Truck Tyre (ASRT) expansion project with long term equity and to provide enhanced working capital”.



Specifically, 48 per cent or N2.5 billion of the proceeds was to be used for the part payment of the ASRT loan while the balance of N2.66 billion was to be committed to working capital. Quite surprisingly, since the conclusion of the process two years ago, the company had not re-opened the factory for any manufacturing business, thereby raising further questions as to the propriety or otherwise of initiatives.



The company was, also, alleged to have diverted another $8 m (about N928 million) loan secured from the EBID which was intended for its primary line-tyre manufacturing- to agro-business whose impact was not being felt on the financials. The company's External Communications Manager then, Mr. Abiona Babatunde, had claimed that the management intended to use the loan for expanding its operations in the agricultural sector ostensibly to boost rubber plantation and production. As at the time of this report, the effects of the investment are yet to be feasible as the company neither produces rubber for manufacturing purposes nor for exports.



A cursory look at the five –year financials of the company and its group reflects huge losses as the Statement of Account  for the year ended 31st December 2007 indicated that over N2 billion was recorded as loss.



The Chairman of the company, Mr. Dayo Lawuyi, had told the bewildered share holders at the 46th General Meeting in December 2008 that the operating clime was no longer conducive for the type of business the company was engaged in and that the best option open to the Board in the circumstances was to minimize loss by closing the plants.



He explained: “manufacturing especially in our type of industry which involves the conversion of basic raw materials at its crudest form to manufactured products and where heavy machinery and constant supply of other inputs, e.g. labour, power, gas steam etc require stability in input provision, cannot be sustained in an atmosphere as currently exists”.



According to him, the company had earlier scaled down its manufacturing operations mid year with the hope that adequate measures will be taken to put in place a more favourable business environment but that realities had made it illogical for the company to continue operating in the hostile environment, adding that “it is therefore with utmost regret that your company will be following the steps of others by ceasing manufacturing operations in our factory if the situation as we have it now redressed urgently”. 



As expected, many of the investors had raised the alarm over the manner in which the company took their money and claimed that the decision to move from tyre manufacturing to importation was not a collective one and therefore ran contrary to the principle of transparency which the management promised to uphold in running the affairs of the company. 



One of them, Mr. Okafor Chekezie, expressed his disappointment at the manner the management was running the company, adding that what happened then was a “big rip-off” since before the company approached the stock exchange for the public offering it had accumulated a debt profile of over N6.6 billion to external creditors and that the purpose of the N5.5 billion to be raised was to defray the old debt. Some market analysts aligned their thinking along the position of Chiekezie as they noted that before Dunlop came for the fund, its balance sheets were no longer good enough to sustain its operations.



In what appears to be a pacifying lullaby to the ears of the agitated investors who witnessed the exponential drop in the value of their investment a few days of the exit announcement by the company, a leading investment analyst and banker, Mazi Okechukwu Unegbu, had counseled the investors to accept the business decision of the management to close its plants, noting that the circumstances that led to the ugly situation was a dangerous signal of an ailing economy.



At the close of the manufacturing plant and company, the Chairman had given assurance that the “attendant rationalization and restructuring of staff strength will be carried out humanely  and other measures will be put in place to ensure an orderly transformation from our current operations to even better and assuredly more profitable operations in the future”. However, musings from the workers' end indicated that some of left in frustration as the severance packages for most of the categories of workers feel short of their expectations.



With all the odds against the company, industry observers believe that the possibility of getting it back on its feet seems arduous and that if it becomes impossible to resuscitate the company, then not many investors would have reasons to regret their decision of investing in the over 40 year-old enterprise. 



Dunlop Nigeria Plc was established in 1961 as a wholly-owned subsidiary of the Dunlop Group and traded in the name Dunlop Nigeria Industry Limited. Following the Federal Government's policy of indigenization, it changed to its current name. A public quoted liability company of immense reputation, the company has its shareholders drawn from a broad spectrum of the country. Over 93,000 shareholders, including public and private, invested in the company.


(Source: Business Hallmark)

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