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Poly Products Plc: Blow to the Jugular

ONE of the companies that may have to pay early prices for the subsidy removal protest is certainly Poly Products PLC. Unfortunately, for the company its financial year ends on March and so, the strike took place well into its fourth quarter. Yet, by the second quarter, the indications were that Poly Products was cruising home with higher returns on average N100 sale despite pressures from its administration, selling and distribution costs.

According to the half year figures to September 2011 released to the market much earlier, the company's turnover was growing well. It had risen by 23.5 per cent to N1384m from N1121m reported by the first of the previous financial year.

Better still, cost of sales was running growing slightly below this turnover increase. It closed September at N1145m, up 22.3 per cent on the N936.6m deployed in generating the previous half year turnover.

Two other developments were also busy helping the company to cruise home with better margins. These were the across the economy drop in cost of funds and rise in income from other sources. According to the figures, interest paid by Poly Products rose by only 8.04 per cent within the period to N24.2m from N22.4m despite new N61.2m in short term borrowings.

In addition to this, there was also an impressive 18 per cent increase in income from other sources. It closed the first half at N15.1m compared to N12.8m previously.

On the other hand, a much higher 25.6 per cent increase in administrative and selling costs threatened to dampen the reach for better margins. The cost head rounded up at N184.2m by September 2011 as against N146.7m hitherto.

However, the combined good news from other cost heads helped the company to end the first half with improved 3.32 per cent profit margin as profit before tax rose by 60.8 per cent to N46m from NN28.6m. The corresponding profit margin in the previous year was 2.5 per cent, that is, before putting into consideration income from sources other than core business.

Now with the strike, it is hard to predict what the final picture by the full year will look like even though third quarter figures must have been favourably impacted on by yuletide season demand for its products. More importantly, Poly Products needed badly to get a hold on its cash position through improved margins. That was before the strike occurred to dampen expectations.

The point was that cash balance dropped by 24.6 per cent within the period principally because there was  a 39 per cent increase in fixed assets most likely through acquisitions, not revaluation; and stocks rose by 16.5 per cent and other debtors rose by a whopping 328.8 per cent to N181.4m fromN42.4m.

Trade creditors did try to help cushion the strain by chipping in 67.2 per cent more credit than hitherto that is in addition to the new short term borrowings. In spite of these though, poly products working capital weakened as well by 53.2 per cent to minus N10.8m from minus N7.05m.

That means that, without really intending to, organisers of the strike dealt a blow to Ploy Products jugular like they must have done for very many companies. Hope the sacrifice is worth at the end of it all.

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