Business

Red Star Express hit by operating challenges

Red Star Express Plc like other courier firms is curently faced with operational challenges. Chris Ugwu writes

 

The ravaging COVID-19 crisis, which has crippled the economy across the globe and accompanying social media networks like Facebook, Twitter, E-mail, WhatsApp, e-transactions and the Global System of Mobile Communications, GSM, have dealt a blow on the bottom line of courier companies in Nigeria. In addition, bad road network remains a major challenge facing courier and logistics providers in the country.

 

Other challenges include inconsistent government policies in form of multiple taxation, conflicts of interest among government agencies and regulators, duplicity of functions, poor import and export information on rights, obligations, and privileges, among others.

 

The courier industry’s activities have been impacted on a negative note by rising cost of operation, increase in competition and emergence of internet services. With the emergence and increasing popularity of local online retail stores like jumia.com, konga.com, Mystore.com.ng among others, ecommerce has taken a new shape in Nigeria like any other country of the world.

 

The increase in internet penetration and customer awareness, volume of online trades has also significantly grown, thereby leading to more competition among courier and logistic service providers in the country. Following operational challenges, the financials of Red Star Express Plc, which had maintained steady growth, ended the financial year March 2018 in the loss position. The company’s 2020 Q3 ended December 31, 2020 reported a loss after tax of N2.438 million from the a profit after tax of N377.520 million in previous year 2019.

 

Though the courier firm began the year with appreciable growth in profit, it returned to loss trajectory during the Q3 to what market watchers believe was induced by harsh operating milieu and rising cost of sales and administrative expenses. In spite the general lull in the stock market, investors’ sentiments for the shares of the company has remained relatively firm.

 

Stockbrokers attributed investors’ sustained confidence in the stock to continued proactive sales; marketing and distribution efforts as well as its strong presence across Nigeria. The company has also retained the top spot in the currier services sector listed on the floor of the Nigerian Stock in terms of share price. When the closing bell rang on Friday, the company’s share price stood at N3.40 per share.

 

Financials

 

For the year ended in March 2020, the company recorded an impressive turnover of N10.5billion in the year under review which is a five per cent increase over the preceding year.

 

This was announced at the 27th Annual General Meeting of the company held recently in Lagos. The company revealed its financial statement for the year ended March 31, 2020 showing an increase in profit before tax from N743, 469 in 2019 to N750, 080 in 2020, representing a marginal growth of 0.9 per cent, and profit after tax increase from N466, 248 in 2019 to N 468,989 in 2020, also accounting for a marginal growth of 0.6 per cent.

 

With the increase in turnover recorded, the board of directors recommended the payment of the sum of N324 million, which represents a dividend of 35kobo per ordinary share, as approved at the Annual General Meeting, which is now subject to deduction of withholding tax at 10 per cent. The company began 2020 financial year with a loss after tax of N224.960 million from a profit of N134.802 million.

 

Loss before tax stood at N217.860 million from profit before tax of N198.238 million. Revenue declined by -43.8 per cent to N1.4 billion from N2.5 billion in the previous quarter. Red Star Express Plc recorded a major decline in its pre-tax profits in the quarter under consideration, 2020 Q3.

 

The company also recorded a decline in revenue from the major two – courier and support service – of its four revenue-generating units. Although finance expenses declined and other income increased in the quarter under review, the company was unable to grow its pre-tax profits. Red Star reported pre-tax profits of N98.53 million in 2020 Q3 compared to N156.66 million recorded in the same period in 2019 a 37.10 per cent decline.

 

Revenue declined to N2.6 billion, -0.9 per cent from N2.623 billion in 2019. On nine months period the group recorded a loss after tax of N2.438 million from a profit after tax of N377.520 million in 2019.profit before tax stood at N14.050 million year to date as against N555.177 million in 2019.

 

According to market analysts, noting that total operating expenses increased marginally, a cursory look at the results indicates that the company sold less with higher costs of sales compared to the corresponding period of 2019 – appearing to be the major contributory factor to the significant decline of 37.10 per cent pre-tax profits recorded by the company in 2020 Q3.

 

Operating challenges/way forward

 

Group Managing Director/CEO of Redstar Express Plc, Dr. Sola Obabori, explained that the industry witnessed the entrance of new players across the various service offerings of their company in the year under review.

 

“FinTech, as they are called, also played significant roles in disrupting and reshaping the direction of competition as ride hailing companies with sophisticated applications veered into delivery business in order to salvage their businesses and create new revenue streams in the face of stiffer regulations,” he said.

 

The GMD/CEO disclosed that the overall industry performance was hampered in the last quarter of the financial year as a result of COVID-19, which saw the total closure of airports to passenger traffic except for humanitarian and essential services where our industry is categorised and therefore given some level of exemption.

 

According to him, the most hit industries being aviation, hospitality, travels, tourism and entertainment whilst agriculture, food supply chain, telecommunications, Internet service providers, e-Commerce, medicals, pharmaceuticals and diagnostic industries are well positioned to be at the forefront of harnessing the opportunities.

 

He said the courier, express and parcel industry, being a support structure for these industries to reach the markets, would also benefit immensely from these opportunities.

 

Obabori assured that in line with its people-service-profit (PSP) philosophy, the company has remained focused on maintaining its leadership position in Nigeria and in building capacity for the African market. This, he said, was being done by hiring skilled workforce who are trained and re-trained in order to continually deliver superior financial performance and wider social impact.

 

“In addition, we are committed to strengthening our first-to-lastmile capabilities by expanding our investments in distribution centres and vehicular assets across the country of Nigeria and in our branches within West Africa that will support new business units focused on e-commerce, agro cold chain distribution and partnership with airlines for cargo consolidation operations, among others.

 

“These have no doubt helped    to further diversify the revenue profile of our company in the concluded year and will remain strong growth platforms for the future,” he added. Speaking on the future prospects, Chairman of Redstar Express Plc, Suleiman Barau, said that although the battle against COVID-19 was still uncertain, their top priority remains the health and safety of their employees, customers and the communities they serve.

 

“As we journey through the new financial year, we acknowledge the challenges that may be posed by the ravaging pandemic which will continuously be changing the socio-economic dynamics.

 

“However, the board and management have a solid commitment to continuously explore new opportunities for revenue generation and expansion by investing strategically in the appropriate resources while also providing a conducive and friendly working environment to keep the entire staff motivated to deliver their best,” he said.

 

According to the chairman, they plan to continuously deliver a strong and sustainable performance that enhances maximum returns to our shareholders, as they march forward in the year with confidence and optimism, knowing full well that their businesses have been repositioned to take advantage of key opportunities as we stay on course in the execution of our growth strategy.

 

“Further to the notable success of the Right Issue concluded in March 2020, the company is well positioned to execute its next phase of growth strategy which will see the expansion of new product offerings across the company and its subsidiaries whilst also investing on strategic assets that will shape the future as we seek to also lead in the digital revolution within our industry,” Barau said.

 

As part of efforts to boost its bottomline, Redstar Express Plc recently commenced delivery of fresh groceries for its customers in major cities across Nigeria.

 

Customers will now be able to send and receive fresh organic products ranging from fresh vegetables/ crops to frozen foods (chicken, beef).

 

According to Obabori, the service was created in response to changing consumer behavior following the impact of COVID-19. “We are mindful of how customers’ shopping habits have changed since the pandemic became widespread.

 

Nowadays, most customers are purchasing products online and having these products delivered to them in their homes. To avoid the risks involved in staying in crowded places, less people will be going to the markets to buy food stuffs for their homes.

 

The need to have these items brought to their homes has become vital; making it a challenge that we are looking to provide a solution for with this new service,” he stated.

 

Last line

 

Poor transportation infrastructure is considered to be the most significant challenge facing logistics provider, which must be addressed if further business opportunities would be unlocked in the industry.

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