Business

CWG: Earnings hurt on operational challenges

Rising operational challenges are impacting negatively on earnings of Computer Warehouse Group (CWG) Plc. Chris Ugwu writes

 

ICT sector, like any other sector, is relatively not successful because of the harsh operating environment.

 

Despite Nigeria developing in the area of ICT, there are still some loopholes, which are affecting its total advancement.

 

One of the major challenges is that the use of computer, access to internet and other tools of ICT are limited greatly to the urban areas as most people in the rural areas are yet to know how to use the computer. Some other challenges facing full ICT deployment in the country include bad road infrastructure in Nigeria, which has remained a key problem for ICT providers in the country.

 

Inconsistent government policies in form of multiple taxation, conflicts of interest from government agencies as regulators and operators, duplicity of functions, among others also remained as serious challenge to the sector.

 

There is also no doubt that the security challenges in the country with the attendance consequences of loss of lives and properties, domestic constraints such as depletion of fiscal buffers, dwindling foreign reserves, erratic supply of public electricity have also remained a thorn to the business operating environment.

 

Sequel to the challenges, Computer Warehouse Group (CWG) Plc, which closed on an impressive note during the 2020 financial year, has sustained a declining position during the last two quarters of the year.

 

This is against speculation that the company would sustain profitability following positive results in 2020. Market analysts had predicted that the company’s earnings was likely to remain under pressure as operating environment remain unfavourable and competition remain stiffer with the negative impact of COVID-19. When the closing bell rang on Friday, the company’s share price stood at N1.25 per share.

 

Financials

 

Computer Warehouse Group (CWG) Plc ended the year 2018 at negative note with loss after tax of N1.146 billion for the full year ended December 31, 2018 as against a loss after tax of N1.576 billion in 2017.

 

According to a report obtained from the Nigerian Exchange Limited (NGX), the group’s loss before tax stood at N1,141 billion from a loss before tax of N1.510 billion.

 

However, the group’s revenue dropped by 12.14 per cent to N7.755 billion from N8.827 billion in 2017. Cost of sales equally dropped by 6.49 per cent from N6.308 billion in 2017 to N7.755 billion in 2018.

 

The group also began 2019 financial year on an impressive note with 1,121 per cent growth in profit    after tax to N48.805 million at the close of business in March 31, 2019 from N3.997 million reported a year earlier. Profit before tax for the period stood at N69.722 million in contrast to N5.711 million in 2018 accounting for a growth of 1,121 per cent.

 

Revenue equally grew by 54.64 per cent, from N1.237 billion in 2018 to N1.913 billion in 2019. While cost of sales rose by 29.34 per cent to N1.244 billion in 2019 from N961.745 million a year earlier, operating expenses grew by 36.7 per cent from N401.554 million to N549.048 million in 2019.

 

Computer Warehouse Group maintained growth profile during the half year as it recorded profit before tax of N149.341 million for the half year ended June 30, 2019 as against a loss before tax of N25.340 million in 2018.

 

In a filing with the Nigerian Stock Exchange (NSE), the group’s revenue grew by 55.03 per cent from N2.571 billion to N3.986 billion in 2019. Cost of sales grew by 82.37 per cent to N2.597 billion from N1.424 billion in 2018.

 

Operating expenses stood at N1.055 billion in 2019 from N1.040 billion in 2018, accounting for a drop of 1.44 per cent.

 

However, CWG suffered a heavy decline in profit margin during the nine months ended September 2019 as it posted 94 per cent decrease in profit after tax to close the third quarter at N22.601 million as against N397.756 million reported in 2018. The group’s revenue equally grew by 28.23 per cent from N5.146 billion in 2018 in contrast to N6.599 billion post in 2019.

 

The company’s cost of sales grew by 62 per cent to N4.783 billion in nine months ended September 2019 from N2.957 billion in 2018. CWG Plc increased its gross revenue by 23.4 per cent, representing N9.6 billion in 2019 audited full-year financial results from N7.8 billion in 2018.

 

The Pan-African Information and Communications Technology Company, also showed a Net Assets growth of 67.4 per cent to N192 million from N115 million in the previous year.

 

The growth, according to reports was achieved with a reduced OPEX of 23 percent over the 2018 financial year.

 

The reports disclosed that CWG Plc also closed 2019 with a positive EBITDA at N892 million,  PBT N634 million and ended that year with a Profit after Tax of N73 million.

 

CWG Plc recorded a Profit After Tax (PAT) of N487 million in its 2020 result.

 

This represents an increase of 570 per cent when compared to N72.7 million posted in the previous year in 2019.

 

In its unaudited financial statement for the period ended December 31, 2020, the largest system integration company in Nigeria, also recorded a revenue of N11.8 billion and gross profit of N2.6 billion, representing an increase of 23.4 percent and 13.9 percent Year-on-Year (Y/Y) respectively.

 

Other key highlights of the 2020 financial statement show decline in operating expenses by 24.4 percent to N1.8 billion.

 

The company’s EBITDA, EBIT and PBT stood at N888 million, N636 million and N546 million, respectively. Analysts believed the growth in revenue is connected to the company’s resilience amid Covid-19, where it continued to churn out innovative solutions and invest in rewarding partnerships.

 

For the first quarter ended CWG Plc’s Financial Statements for Period Ended 31 March 2021 showed group revenue declining to N2.707 billion from N2.822 billion in Q1’20.

 

Group profit for the period dropped by 7.94 per cent to N87.227 million from N94.746 million in Q1’20.

 

For the half year ended 2021, CWG Plc’s interim financial statements for period ended 30 June 2021 a showed a profit for the period dropped by 9.79 per cent to N286.407 million from N317.502 million in H1’20.

 

Profit for the second quarter dropped by 12.6 per cent to N205.902 million from N235.594 million in Q2’20. Revenue for the H1 rose to N5.97 billion from N5.43 billion in 2020 while the figure for the Q2 rose to N3.259 billion from N2.612 billion in Q2’20.

 

Way forward

 

CWG Plc has said it plans to boost its revenue in the coming years with investments it made in its platform and software services as well as some strategic partnerships it formed within the year. The Chairman of the company, Mr. Philip Obioha, stated this at the company’s 16th Annual Gener

 

al Meeting (AGM) in Lagos, saying that the company’s strategic focus to diversify its revenue base created a sustainable path for it to thrive during the pandemic.

 

According to him, the company has developed unique solutions that are strategically positioned across some viable sectors of the economy, including payment system, SMEs, health, gaming, financial inclusion services and platforms.

 

 

He said: “We have continued to make progress in growing our platforms, subscriptions and software service business arms. During the year, our company signed on new strategic partners to deliver digital solutions that enhance our customers’ operations.

 

“We are beginning to see the benefits of these partnerships as we have started to earn revenue from some of the solutions we deployed to customers.

 

“Our United Cooperative Platform has continued to witness an increase in transaction volume. We signed on the cooperative society of two multinational companies in the year, thereby showing customers’ confidence in our platforms.

 

“In 2021, we expect to partner with other multinational companies’ cooperative societies. These partnerships will guarantee revenue streams in 2021 and beyond.”

 

Presenting the financial performance for the year ended December 31, 2020, he said: “Overall, we maintained a solid financial performance while navigating the challenging times occasioned by Covid-19. Shareholders who were present at the meeting urged the management to consider dividend payment in the new year considering the improvement in its earnings.

 

While commending the company for the financial performance, they said there is the need for the company to strengthen its risk management framework to improve its debt recovery ability.

 

Last line

 

With the continuous deterioration in Nigeria’s macro-economic conditions, which has resulted in drop of earnings of many firms including Computer Warehouse Group (CWG) Plc, it is important for the company to continue to focus on developing homegrown solutions that will address the business needs of people and organisations

 

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