Company Analysis

Notore, Shareholders, And The Wait For Returns On Investment

Ohis Ohiwerei, the new managing director and chief executive of Notore Chemical Industries Plc sure has his work cut out for him.

It is now clear that one of his major tasks in the company of which he became Deputy Managing Director on September 17, 2018, wherefrom he replaced Onajite Okoloko, the founding Group Managing Director and CEO January 31, 2021, is ensuring it emerges intact from the mire that has clogged its wheel over the past 16 years.

Ohiwerei

A banker and past executive director at Diamond Bank (now part of Access Bank Plc from 2005 to 2010) and Guaranty Trust Bank (between October 2011 and 2015), Ohiwerei also has the task of disentangling Notore from a mountain of debt that has weighed it down, preventing the once-promising company from meeting its obligations to expectant stakeholders.

Although no one is sure what his key performance indicators are, it is not out of place to expect that as helmsman of a company incorporated on November 30, 2005 and having a dismal dividend payment record, Ohiwerei must quickly turn the tide and put smiles on the faces of stakeholders, especially investors who pooled $152m for its acquisition and equity investors who have hoped for dividend payment, or even capital appreciation on the floor of the Nigerian Exchange Limited (NGX).

Poor RoI, Debt Overhang And Fresh Capital

Investdata Research records show that Notore Chemical whose shares were listed in August 2018, five years after the initially announced date of 2013, has only paid a miserly five kobo per share dividend in its history. Also, investors have also not enjoyed capital appreciation, with shares listed at N62.57 each, selling for N62.50 each as of Friday, May 14, 2021.

A January news report noted plans by Notore to raise fresh equity capital to pay off its huge debt, after its total borrowing soared from N79.9bn in 2019 to N108.3bn last year, due to new loans and Naira devaluation.

Of the N108bn loan, $38m (about N14.75b) is owed to African Export Import Bank at 12.7% interest rate repayable over a seven-year period, of which $5.1m is due within a year. There is also another $72.86m (N29.08bn) facility, out of which $5.85m is due this year – also at an interest rate of 12.7%.

These are besides the N16.79bn BOI-CBN loans obtained at concessionary rates of about 7%, as well as commercial bank loans totaling N44.46bn at 23% per annum, following which interest on loans is now the company’s biggest cost driver at N23.4bn in last year alone.

Promises Vs. Reality

Addressing members of the capital market community (investors, stockbrokers, regulators and the media), during the Facts behind its listing at the NGX three years ago, the management had announced in the short-term, approvals for a US$37m funding for a Turn Around Maintenance, purchase of critical spares, and acquisition/installation of back-up power. These, and the TAM billed for completion in the second quarter of 2019, were expected to ensure production reliability with the company projecting about N50bn in annual revenue target.

Okoloko

There was the plan to restore the plant’s daily production capacity to 1,500 metric tonnes, followed by an incremental production capacity and development of a 50 megawatts gas fired power plant. This was to enable Notore sell its excess power requirement to the national grid through the Nigerian Bulk Electricity Trading Plc (NBET).

Among others, the gathering was also assured that because of its brown field status, Notore will save reasonable costs on capital expenditure by leveraging on the existing infrastructure and utilities

As part of the medium term strategy, the announced plans to dredge Notore’s privately owned jetty in 2019, increasing its berth capacity from 15,000mt to 25,000mt vessels. Another icing on the cake was the plan to leverage on Notore’s Free zone developer status to develop an industrial complex into a gas hub, making it an integrated logistics service provider in the oil and gas sector.

Another attraction for potential investors at the time was the tax reliefs for import duties and export activities (specifically for export-oriented businesses).

All of these were expected to result in robust top and bottom lines that would enable the company to pay taxes and the board proposes a dividend to the ever expectant shareholders, in addition to capital appreciation for investors, among others.

Early Signs

In its audited financials for the year ended September 30, 2018, the first, post-listing, its external auditors- PricewaterhouseCoopers, after a review of the numbers, drew attention to the N2.01bn net loss, as well as the N9.11bn group net current liabilities. It concluded “that a material uncertainty exists that may cast significant doubt on the group and company’s ability to continue as a going concern.”

Specifically, revenue for that year dropped by N9.069bn, or 25.27% from N35.893bn in the corresponding period of 2017, to N26.823bn; while the cost of sales reduced from N25.461bn to N17.217bn, representing a decline of N8.244bn, or 32.38%.

Notore Chemical Complex

A tax rebate of N1.616bn reduced the loss after tax to N2.013bn, compared with the N8.652bn net profit, which arose entirely from the N10.8bn rebate in 2017. The net profit translated to a loss per share of N1.25, as against previous year’s N5.37 earnings per share.

However, as part of efforts to improve working capital and return the group to profitability, the company had noted management’s restructuring of short term loans amounting to N30.14bn and US$59.97m into fixed long-term facilities of seven-year maturities and 12-month moratorium on principal repayments.

Shareholders’ Speak

In a telephone interview, Sir Sunny Nwosu, National Coordinator emeritus of the Independent Shareholders Association of Nigeria (ISAN), and shareholder told Investdata News that Notore has not been fair to shareholders since becoming a publicly quoted company.

For him, “Notore has not done well by ensuring that there is Return on Investment for shareholders. Rather the management has been accumulating debts…. What is the reason for that? Are they not selling? Is it not fertilizer they are into again?

“There are only few fertilizer makers in this country, so what is the problem?

“We (shareholders) are not happy with them (Notore management)…

“And when they want to do their (annual) meetings, they take it to Bonny Island (Rivers State), and go with shareholders who protect them and will not ask critical questions.

“They make it (the meeting venue) like a military zone, such that if you are not one of those (friendly shareholders), you can’t access the meeting venue, a situation that is against the spirit of publicly quoted companies.

“We can understand now, that because of government regulations arising from the Coronavirus pandemic there is a restriction as per annual meetings, but before the outbreak, it was impossible to attend Notore annual meetings because of restrictions by the management.

“They put the meeting in a place where shareholders cannot easily go to and even if you go out of your way to attend, their security operatives will not allow you access. We have had such an experience. I had to call Jite (Okoloko, the immediate past chief executive on phone). But, I couldn’t reach him to tell him our people (gain access) to attend the meeting…”

Sir Nwosu hopes Ohiwerei is able to turn around the fortunes of the company. A yardstick to measure how well he has performed during his tour of duty, the shareholder rights advocate believes, is for the banker to ensure Notore makes enough revenue and profit “to pay dividend.”

He urged the new helmsman: “Be open to shareholders.”

These allegations were however debunked by a company source who craved anonymity, preferring our correspondent refer to past official communications (including notices of the two meetings so far held since its August 2018 listing) which were sent to Investdata News electronically on Tuesday.

For example, our source explained that Notore operates from Onne Complex and not Bonny as stated, assuring that at no time has any shareholder been denied access, or its AGMs militarized, stressing that Notore operating in line with the best of good corporate governance standards.

Shareholders at an annual general meeting

On the reported bid by the company to raise fresh capital, Sir Nwosu quips: “May be, those that they will coerce to buy the rights issue will be their friends who have in one way or another been benefitting from the company, whether it pays dividend or not.”

He challenged regulators to be more proactive and not turn attendance at annual general meetings into mere rituals, but take genuine feedbacks that can help them nip problems in the bud, rather than wait and become reactionary when the damage is done.

Also commenting, Alhaji Gbadebo Olatokunbo, shareholder activist, co-founder of the National Shareholders Solidarity Association, Nigeria’s premier shareholder rights group, founded in 1985, lamented the many companies on the long list of public companies listed on the Exchange not paying a dividend.

Olatokunbo

After a string of poor performance, he continued, these companies either get delisted voluntarily, or are pushed out by the exchange, with sanctions on the promoters of such ventures after defrauding investors.

In a response to a WhatsApp message by Investdata News, Olatokunbo wrote: “The list is very, very long. Many of them were shown the exit door by the Nigerian Stock Exchange (now Nigerian Exchange Limited), without any recourse or benefits to shareholders.

“Unfortunately, we (shareholders) relied on the approvals given by both Securities & Exchange Commission and the Nigerian Exchange for them to become quoted, before picking the stocks.

These companies, he continued, have not made investors happy over the years by non-payment of dividend, as investors suffer, while their boards and managements “collect their allowance and salaries, without spearing a thought for the plight of their shareholders, with no consequences in the form of warning or sanctions from any regulators.

On The Contrary

However, if there is one investor who has not lost hope in the company, it is Adebayo Adeleke, a shareholder activist and former General Secretary of ISAN.

Responding to any enquiry by Investdata News, Adeleke said he became a shareholder of Notore Chemicals “in January this year.”

It is not known whether his decision to add shares of Notore, a company he acknowledges, “has been passing through very turbulent times,” is a vote of confidence in the new CEO, given that the period coincided with Ohiwerei’s appointment as helmsman.

But Facts Don’t Lie

According to official information made available to Investdata News, Notore has since becoming a listed company had two AGMs, the first was on Tuesday, June 25, 2019, at the staff canteen of its industrial complex in Onne, Rivers State, wherein Ohewerei’s appointment as director was ratified.

The second, which held on August 17, 2020, at the company’s Lagos office on Victoria Island, was by proxy in line with the health advisory of the Nigerian Centre for Disease Control (NCDC) on physical distancing and restriction on mass gatherings, due to the COVID-19 pandemic.

As part of the special business at that meeting, the directors proposed an increase in authorized share capital from N1.0bn to N2.0bn by the creation of two billion new ordinary shares and amendment of the Memorandum and Articles of Association to reflect the increase, among others.

Shareholders at that meeting were expected to approve the company’s bid for fresh capital of up to N30bn “whether by way of a public offering, special placement, rights issue or any other method(s) or combination of methods as the board may deem fit, through the issuance of shares, convertible or nonconvertible securities, loan notes, bonds and/or any other instruments, whether as a standalone transaction or under a programme, and in such tranches and on such terms and conditions, including a book building or other process, as may be determined by the board,” subject to regulatory approval.

Keep Hope Alive

Giving his outlook for the rest of the financial year, in the half-year ended March 31, presented to the Nigerian Exchange Limited on April 30, 2021, Ohiwerei expressed confidence that Notore would “greatly exceed its 2020 FY production volumes, revenue, and operating cash flows.”

This, he said, follows the successful completion of the Turn Around Maintenance programme, which would result in significant improvement in plant reliability and sustained increase in production output up to nameplate design capacity of 500,000MT per annum.

His optimism is also based on the continued robust growth in Nigeria’s fertilizer demand, going by market dynamics, “considering the Federal Government’s strong and decisive policy focus on agriculture as one of the keys to unlock the diversification of the Nigerian economy.

“Our business has been faced with many challenges over the past years. However, Notore is now re-positioned for a great future with the completion of TAM. As we look to the future post-TAM, the next phase of Notore’s growth will be focused on diversification, optimization, and profitability,” Ohiwerei further assured.

Specifically, he said half-year revenues dropped to ₦5.25bn, from ₦13.12bn in Q2 2020, because the plant was shut down for the TAM, resulting in sparse production of Urea during the January-March quarter. Operating loss for the period, however improved to ₦0.82bn, from the previous ₦2.66bn, while finance cost of ₦8.45bn resulted in a Net Loss of ₦9.27bn for the period, compared to the previous ₦5.8bn loss. The TAM is expected to change the numbers going forward.

Going forward also, according to the GMD, “the company will continue to aggressively explore and work on various financial initiatives to further reduce finance cost, such as the restructuring of its capital structure to achieve an optimal mix of debt and equity.

“The projected cost savings from the restructuring is expected to boost the company’s profitability,” he stressed.

For Ohiwerei also, there is the continued robust growth in Nigeria’s fertilizer demand, based on market dynamics, “considering the Federal Government’s strong and decisive policy focus on agriculture as one of the keys to unlock the diversification of the Nigerian economy.

“Our business has been faced with many challenges over the past years. However, Notore is now re-positioned for a great future with the completion of TAM. As we look to the future post-TAM, the next phase of Notore’s growth will be focused on diversification, optimization, and profitability,” Ohiwerei further assured.

Last Line

Adeleke however believes in the capacity of Ohiwerei’s management team to successfully turnaround Notore’s fortune “in the next few quarters to come.”

Is Notore on the road to matching stakeholder expectations, especially returns on investment? Answer to this question is not blowing in the wind, and will come with the Q3 and full-year numbers.

However, there is a need for more stakeholder engagements, going forward, for a change in perception, a major driver of share pricing on any bourse, which remains a key component of capital appreciation.

Opening Pix: From left to right: Haruna Jalo-Waziri, Managing Director/CEO, Central Securities Clearing System (CSCS) Plc; Oscar Onyema, Chief Executive Officer, The Nigerian Stock Exchange (NSE); General (Dr.) Yakubu Gowon, then Chairman, Notore Chemical Industries Plc, and the immediate past Group Chief Executive, Onajite Paul Okoloko, during the Facts Behind the Listing at the Exchange on Thursday, August 2, 2018 (READ MORE).

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