New Telegraph

Red Star: Operational challenges impact earnings

Red Star Express Plc, like its peers, is faced with operational challenges. CHRIS UGWU writes

 

With the emergence and increasing popularity of local online retail stores like Jumia.com, Konga.com and Mystore.com.ng, among others, e-commerce has taken a new shape in Nigeria, like any other country across the world.

 

The increase in internet penetration and customer awareness and volume of online trade have also significantly grown, thereby leading to more competition among courier and logistics service providers in the country.

 

Also, with accompanying social networks like Facebook, Twitter, Email, WhatsApp, e-transactions and the Global System of Mobile Communications (GSM), the bottom line of courier companies in Nigeria are shrinking daily. In addition, bad road network in Nigeria remains a major challenge facing courier and logistics providers in the country.

 

Others 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 company’s activities have definitely been impacted negatively, majorly by the rising cost of operation, increase in competition and emergence of internet services.

 

Despite the ravaging COVID-19, which has crippled the economy across the globe, the accompanying social networks has impacted bottom line of courier companies in Nigeria negatively and have continued to shrink day by day.

 

 

Following operational challenges, the financials of Red Star Express Plc, which had maintained a steady growth, ended the financial year ended March 2018 on the loss position.

 

The company’s 2021 full year ended March 31, 2021, posted a 68 per cent drop in profit after tax for the year ended.

 

Though the courier firm began the year with appreciable growth in profit, it returned to decline trajectory during the full year to what market watchers believe was induced by harsh operating milieu and rising cost of sales and administrative expenses.

 

Despite the general lull in the stock market, investors’ sentiments for the shares of the company have 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 N3.11 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 which shows an increase in the 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 Naira 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 the 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.

 

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. Red Star Express Plc had posted a 68 per cent drop in profit after tax for the full year ended March 31, 2021.

 

According to a report obtained    from the Nigerian Exchange Limited (NGX), the group’s profit after tax stood at N150.065 million for the full year ended March 31, 2021 as against N468.989 million posted in 2020, representing a drop of 68 per cent.

 

The group’s profit before tax declined by 70.56 per cent to N220.792 million in 2021, from N750.080 million in 2020.

 

Revenue stood at N9.458 billion from N10.548 billion in 2020, accounting for a decrease of 10.33 per cent. Cost of sales was N7.120 billion against N7.863 billion posted in 2020.

 

Based on the results, the board has recommended a dividend payment of 15kobo per share (5kobo cash payment and 10kobo bonus in proportion of 33 shares to one).

 

If the recommendation for dividend is approved, the dividend will be posted on September 23, 2021 to all shareholders, whose names appear on the register of members at the close of business on September 3, 2021.’

 

Operating challenges/outlook

 

Group Managing Director/CEO of Redstar Express Plc, Dr. Sola Obabor, had 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 atreams 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 the 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 were aviation, hospitality, travels, tourism and entertainment, whilst agriculture, food supply chain, telecommunications, Internet service providers, e-commerce, but 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, will also benefit immensely from these opportunities.

 

Obabori assured that in line with its people-service-profit (PSP) philosophy, the company had 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 socioeconomic 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 rights 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 the pandemic.

 

Last line

 

Poor infrastructures considered to be the most significant challenge facing logistics providers should be addressed to enable courier firms tap into the changing consumer behaviour following the impact of COIVD-19.

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