Fidson Healthcare Plc recently released its 2018 audited financial report to the Nigerian Stock Exchange, reporting a 15% growth in turnover from N14.06bn in 2017 to N16.23bn in 2018. The increase in revenue was as a result of volume growth from expanded production at its new WHO compliant factory. The plant, which was commissioned in 2016, is a key driver of the company’s growth strategy and local sourcing initiatives. The new factory is one of the most sophisticated manufacturing facilities in Africa and is well positioned to meet the rising demand for medicines in Nigeria and the broader West-African region.
The growth in revenue was achieved in spite of a challenging year for the pharmaceutical industry, which saw some therapeutic substances banned by the government and costs increasing on key production inputs. As a result of these challenges, the Company’s Cost of Sales went up by over 40% from N6.90bn in 2017 to N9.91bn in 2018. Other factors that affected its Cost of Sales include increased logistics cost for imported materials due to congestion at the seaports which drove up the cost of transporting goods from the ports by 1000%. These factors, together with price depressions that affected some generic products, led to a drop in Gross Margin by 11 percentage points.
Despite the sharp increase in Cost of Sales, operational efficiencies and various cost optimization strategies implemented by management reduced the impact on Operating Profit which declined by about 20%, less than half the level of increase in production costs. However, the Operating Profit of N2.05bn was eroded by the sharp increase in net Finance Costs of N1.89bn arising from increased borrowings and high cost of funds. Fidson has begun the process of correcting this trend through its fund-raising initiatives, including a Rights Issue. The Rights Issue transaction is currently open and closes on April 9th. About 60% of the Rights Issue proceeds will be applied towards taking out expensive short-term debts, thereby reducing finance cost by about 50% on an annualized basis going forward.
The Company also intends to take advantage of the fund raise to inject fresh working capital into the business in order to maximize the opportunities that exist in the market. A revenue growth of over 20% is projected for 2019, with increased focus on growing its ethical product segments. The business development work being done in hospitals to enhance the patronage of Fidson brands is also expected to increase demand. About 20 new products will be introduced into the market in 2019 to take advantage of the available capacity at the new factory.
Further cost savings will be generated by directly importing key raw materials, taking advantage of the CBN window for manufacturers, and renegotiating with its suppliers. The Company is also switching its energy source from diesel to gas. Fidson expects, through its cost savings initiatives, to reduce production costs and increase gross margins significantly in 2019.
The prospects look good for Fidson in the near-term, enabling the Company to cement its leadership position in the pharmaceutical industry.