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CHELLARAMS: Burden of finance

CHELLARAMS Plc is also not free from the burden of finance cost that looms large for many companies. In its case though, there does not seem to be much to cushion the impact. Or so, figures for the nine months to December 2012 sent to the exchange recently indicate quite clearly.

For one, turnover from core business dropped by 9.31per cent within the period from N19194.5m to N17406.6m. Income from other sources grew rather strongly by 96.6 per cent to help stabilise this but involved was just a minor part of the company's total business done. This income had chipped in N228.7m within the nine months compared to N116.3m previously.

Also very helpful was the fact that the company's cost of sales dropped by 11 per cent ; that is at a rate higher than the drop recorded in core business done. But none of this were impactful enough to fully check the drag from finance cost burden and equally threatening 8.25 per cent rise in administration and distribution costs.

The rise in finance cost came to 33.1 per cent and at a time, near double digit drops in business done were being recorded, that was something. It closed the nine months at N475.6m compared to N357.3m previously. And administration and distribution costs came to N2047.8m as against N1891.7m by December 2012.

Thus, by the end of December 2012, Chellarams lost its fragile hold single digit profit margin to close at 0.99 per cent down from the 1.40 per cent by December 2012 and 1.43 per cent by the end of 2012 financial year.

The chances are that the full 2013's profit margin may improve perhaps back to single digit but that will be courtesy of income from other sources if 2012 trend is anything to go by. It was the only accounting figure that did not grow to time frame in 2012 financial year. By the end of that year's nine months, it was only 51.4 per cent accounted for. In other words, should this still hold, year end figure may be in the neighbourhood of more than 100 per cent increase and that could make a difference in the company's bottom line.

Somehow though, the pressure from finance charges has to be tackled. Within the nine months, it came from 13.8 per cent increase in fixed assets to N2808.2m; 16 per cent rise in trade debtors; 46.2 per cent increase in long term investment and 25.6 per cent increase in other debtors. Overdraft was also reduced by 20.9 per cent to N2100.1m and import finance was also reduced to N2509.3,that is by 37.3 per cent.

However, were all of these worth 25.3 per cent draw down of stock; 59.1 per cent rise in term loans; 23.2 per cent increase in bond payable; 59.6 per cent increase in trade creditors and 30 per cent rise in other creditors?

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