John Holt gets question mark over survival

John Holt Plc closed its 2014 operations as at September with a question mark over the validity of the assumed going concern basis for the preparation of its accounts. Unless fresh financial support is provided for the critically needed working capital, the going concern basis will be invalid, according to a statement in the company’s financial report. The auditors therefore qualified the company’s financial report stating that “these conditions indicate the existence of material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern”.

It was otherwise a year of explosive profit growth for the company during which net profit multiplied more than six times from only N93 million in 2013 to N591 million. Some cost savings contributed to the profit leap but the main boost were tax rebates that contributed N164 million to the bottom line.

Such an outstanding growth in profit even with a decline in sales revenue would have been something for shareholders to cheer except for a significant deterioration that has happened in the company’s balance sheet. Current liabilities are in excess of current assets to the tune of N4.3 billion for the group while the company deficit is much higher at N7.1 billion. The figures represent further deterioration from the preceding year’s numbers. However the group’s position still shows an encouraging growth of 64.5% in net assets to N3.34 billion at the end of September.

The company stated in the report that the ability to continue in business depends on additional financial support from stakeholders. These include shareholders, who may need to consider a rights issue; bankers, who may have to extend additional credit and customers, who may have to extend their credit collection period.

Directors stated clearly how critical this support is needed by the company. Without it, the going concern basis for preparing the 2014 financial report will become invalid. The implication of inability to secure the additional financial support is that the financial statement will have to be rewritten. Adjustments will have to be made to reduce the value of assets to their recoverable amounts; provisions will have to be made for further liabilities that might arise and non-current assets and liabilities will have to be reclassified as current. An exchange rate loss of N151 million has been incurred as a post balance sheet event, which will further undermine the financial position.

All hope is not yet lost, as the company’s directors said they are implementing a number of measures to improve the liquidity and profitability of the company. Mr. David Parmley, executive vice chairman/chief executive of the company has a tough job at his hands this financial year. Unless he succeeds in the rescue effort, it may be the end of the road for a company that has operated in Nigeria since 1961.

The turnaround measures centre on strategies to enhance revenue and check costs. Five specific measures have been identified, which include closure of non-profitable branches, exploring additional bank finance and disposal of surplus properties. The others are exploring ways to enhance long-term finance and implementation of revenue enhancement strategies. Based on the measures that have been mapped out, directors of the company said they have a reasonable expectation that the company will have adequate resources to continue in operation for the foreseeable future.

Some positive signals observed in the 2014 operations include a moderation in cost of sales, which improved gross profit margin from 26.8% in 2013 to 34.4%. Finance cost dropped by more than one half though loans and borrowings rose by 352% to N1.29 billion. Also net assets grew by 64.6% to N3.34 billion.

John Holt is engaged in sales and servicing of vehicles and equipment as well as property and construction. Up to 53% of its equity is held by John Holt & Company in the UK.