Fidson Healthcare PLC: a rose on concrete?


Thursday, December 17, 2015 7:00AM / GTI Capital

Fidson Healthcare PLC
released its unaudited 9M-2015 result for the period ended September 30th, 2015, on 26th October, 2015. The Company reported an 18% decrease in revenue to N6.16 billion from N7.51 billion YoY. Also, input costs and operating expenses declined by 14% and 31% respectively.

The slightly higher rate of decline in revenue compared to input costs resulted in a marginal decrease in gross profit margin from 55% to 53% YoY. On the other hand, operating expenses decreased more than revenue, thereby leading to an improvement in operating profit margin from 13% to 18% YoY. Fidson’s declining cost lines ensured that net income achieved a marginal improvement of 2% from N466.4 million to N473.5 million YoY, despite declining turnover. Net profit margin therefore improved from 6% to 8%.

A quarter-on-quarter analysis shows that revenue was down 24% between Q2 2015 and Q3 2015 from N2.81 billion to N2.12 billion and this translated into a net income shrinkage of 47% from N282.4 million in Q2 2015 to N149.3 million in Q3 2015. This decline in revenue came on the heels of a 128% increase in revenue between Q1 2015 and Q2 2015 that translated into a 575% improvement in net income.

We adduce the reversal of the company’s revenue performance between Q2 2015 and Q3 2015 to the forces of competition enhanced by the launch of the ECOWAS Common External Tariff (CET) by the Nigeria Customs Service (NCS). Under the CET, finished pharmaceutical products imported into Nigeria from third countries attract a tariff of zero per cent, while the importation of essential pharmaceutical raw materials and packaging materials attract tariffs of 5% and 10% respectively. This tariff has resulted in a surge of drug importation thereby leading to stiffer competition in the pharmaceutical industry.

In addition, the implementation of the National Drug Distribution Guidelines (NDDGs) on the 1st of July, 2015 has put a strain on the sales volume of Fidson Healthcare. This policy aims to shut down unregulated drug markets, where charlatans trade freely, in a bid to ensure a well-ordered drug distribution system and reduce drug counterfeiting. These charlatans however play a key role in the company’s drug distribution process as they form about 65 per cent of its key players.

These policy changes, coupled with the current uncertainties prevalent in the economic environment have led to a decline in Fidson’s net cash generated from operating activities by 41% between 9M 2015 and FY2014 from N3 billion to N1.76 billion.

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