Old news on First Aluminium
See old post on First Aluminium below
First Aluminium blames performance on poor economy
Source - Finanacial Standard Newspapers Posted to the web on Jun 19, 2007
--------------------------------------------------------------------------------
Alhaji Sulaiman Baffa, chairman, First Aluminium Nigeria Plc has said the low financial performance of the group reflected the difficult environment in which the company operates.
He said the difficulty in the operating environment was evidenced by external factors such as high aluminium and oil prices in international markets and delays at the ports and an intermittent and unreliable power supply in Nigeria.
Baffa said inspite of all the difficulties, the demand for the company's products remain strong and whilst the group grew turnover by seven per cent to N8.7 billion.
He however lamented that growth would have been better if it were not for the port problems that caused raw material shortages in the first half of 2006.
He said the external factors mentioned earlier were a major contributor to a 19 per cent reduction in profit before interest and tax to N494 million.
Baffa said: "2006 started with disruption to key imports caused by the change in the import inspection mechanism from origin to destination inspection. There was no doubt that the destination inspection regime was beneficial to the nation's economy, delays to the import of essential raw materials caused by initial uncertainties in its implementation lead to loss of production and sales in all three divisions."
He noted that production has since recovered but import lead cycle remains longer now than in 2005 and this has added to pressure on working capital requirements to fund raw material import.
According to him, the price of aluminium on the world price market had increased considerably, last year at one point, peaking at almost US $3,000 per tonne and throughout the year, prices remained at levels considerably higher than in 2005.
He said a degree of price resistance in the local market for aluminium products put pressure on operating margins throughout the group.
He pointed out that the higher aluminium price further impacted upon on working capital requirements but noted that Central Bank of Nigeria's policy of protecting the value of naira has helped bring stability to import planning.
He stated that the spiraling cost of energy which was driven by high oil prices had an adverse effect on the rolling mill's profitability and disruption to the gas and electricity supply impacted upon the mill's output.
He added that despite the problems, the rolling mill was able to sell at its output in 2006 and posted a turnover of N6.7 billion which was an increase of nine per cent over 2005. Baffa said the combination of lower volumes and higher costs however led to a 17 per cent reduction in trading profit at the rolling mill.
"The packaging division experienced a growth in sales volume and we believed the growth would have been greater were it not for problems encountered by a customer in a product relaunch during 2006 which led to a reduction in demand," Baffa explained.
He said that the results of the company were also affected by anomaly in the import duty tariff structure that attributes a higher duty rate to the division's principal raw material than was attributed to imported finished products.
The First Aluminium chairman said the combination of a larger import lead time, significantly higher world aluminium prices and an increase in MRR to 14 per cent which led to higher borrowing costs in 2006 downed the overall performance of the group.
He meanwhile assured shareholders that steps are being taken to address the many challenges with a view to enhancing shareholder value in the future.
He said the gas supply has now stabilised and steps have been taken to improve the continuity of electricity supply so the company could be more confident that its energy needs would be met.
--------------------------------------------------------------------------------
|