CHELLARAMS GETS A BREATHER BUT....

The year to March 2018 my offer Chellarams plc a long sought for breather but what happens after that depends on what gets done now 

The breather is in the form of leap in income from activities other than its main business which by Nine months to December 2017 had increased from N120.3m same time in 2016 to N3.348bn.

According to unaudited figures for the period released this week, this not only increased total income by 25.3% to N11.916bn but more importantly boosted the company's profit before tax to N2.522bn from N402.7m and of course, made it more liquid.

Chellarams working capital rose to N2.77bn from N535.2m previously and helped in no small measure in reducing finance cost by 41.7% to N522.9m from N897m by December 2016.

But something has to be done to maintain this beyond the current year. Partly because the other income were principally from sources that offer annual repeat guarantees like sale of plant and machinery, foreign exchange gains, loss provision no longer needed etc.

Partly too because its normal business especially the cost side, seem not to be under effective management control.
Core revenue, says the report, dropped by 8.78% to N8.567bn yet direct cost of generating it increased by 7.31% to N7.21bn thus depressing gross profit almost by half to N1.348bn from N2.665bn previously.

In addition, in spite of the drop in core revenue, distribution expenses grew by 4.16% to N145.2m and administration cost ended the nine months at N1.505bn, up 11.9%.

In other words, unless the trend is reversed or at least checked; Chellarams will not only close the current year with profit margin lower than the 21.2% recorded by last December but also, could see drastic decline in its fortunes next financial year.

Thus, in plain language, to change the tide, new sources of revenue are needed and more effective control over costs too such that cost of sale dances more in tune with revenue generated and overheads get to trimmed to fit what revenue trend dictates.

Easier said? Yes, of course especially in Nigeria still recovering from recession but then, that's business management is truly all about.

CHELLARAMS: Nine months Nm
                                 2017.          2016
Total revenue.     11,916.2.     9512.9
Core revenue.       8,567.7.      9392.6
Cost of sale          7,219.5.      6727.5
Gross profit.         1,348.3.      2665.1
Distribution              145.2.        139.4
Administration.    1,505.9.      1346.3
Other income.      3,348.5.         120.3
Finance cost.          522.9.         897.0
Profit before tax  2,522.8.        402.7
Profit margin%.        21.2.           1.26
Working capital   2,770.0.        535.2

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