Neimeth: On the Upward Trajectory

Kayode Tokede

Neimeth International Pharmaceuticals Plc recorded growths in all key performance indices in 2021 with 27 per cent growth in profit after tax. 

The continuous improvement in profitability over the past four years enabled the pharmaceuticals company to increase dividend payout for the 2021 business year, a recommendation that was enthusiastically approved by the shareholders of the company.

The audited report and accounts of Neimeth International for the full year ended September 30, 2021 showed that turnover reached a high of N3.05 billion in 2021 as against N2.84 billion in 2020. 

Top-line analysis showed that the company’s human pharmaceutical manufacturing business grew by 13 per cent from N2.5 billion in 2020 to N2.8 billion in 2021. 

Operating profit rose from N510.15 million to N553.5 million in 2021. With increasingly effective cost management, the bottom-line expanded considerably. Profit before tax rose by 23 per cent from N297.39 million in 2020 to N365.29 million in 2021.

Profit after tax grew by 27 per cent from N212.48 million in 2020 to N270.58 million in 2021. With this, earning per share rose correspondingly by 27 per cent from 11 kobo in 2020 to 14 kobo in 2021. 

Underlying ratios also showed that the outward growth was driven by intrinsic improvement in the core operations of the company. Operating profit margin improved from 17.96 per cent in 2020 to 18.15 per cent. Pre-tax profit margin also increased from 10.46 per cent in 2020 to 11.98 per cent in 2021. 

Steady growth trajectory    `

A six-year, medium-term, periodic analysis between 2016 and 2021 showed a steady growth trajectory with consistent year-on-year growth in sales and profitability. Over the period, turnover has grown by 52 per cent. Pre-tax profit has grown by 284 per cent.

Profit after tax has risen by 317 per cent. One of the major factors contributing to enhanced profitability over the past few years is management’s consistent focus on absorption of plant operations overhead. 

Overhead consists of relatively fixed costs of the plant which must be absorbed by production outputs and if not will become major losses in the business. The 2021 report indicated the highest overhead absorption of N378 million, which was 24 per cent better than the overhead absorption for 2020 financial year at N305 million. 

The 2021 overhead absorption was also the highest absorption in five years when compared with the other years ranging from N164 million to N289 million. So, it wasn’t mere coincidence that 2021 with the highest overhead absorption also had the highest pre-tax profit of N365 million while 2017 with the least overhead absorption recorded a major loss. The company has consistently recorded profit in the past four years, thereby ending the era of losses that bedeviled the company in the past. Both the turnover and profit grew year-on-year consistently over the four-year period with exception of 2020 financial when there was slight dip against prior year, due to huge foreign exchange loss occasioned by macroeconomic woes caused by COVID-19 pandemic.

Shareholders value

Neimeth increased dividend payout by eight per cent to 7.0 kobo for the 2021 business year, sustaining the trend started in 2020 when the company paid a dividend per share of 6.5 Kobo; after it had earlier successfully used its profit to restructure its balance sheet and counterbalanced earlier losses. Beyond cash dividend payouts; shareholders of Neimeth have seen significant capital gains as the investing public continued to react positively to the improvements in the company’s fundamentals. 

Growth plan

Neimeth is pursuing a multi-pronged  strategy to strengthen its position as a leading Nigerian pharmaceutical company and to develop a competitive global capacity that allows it to tap into emerging continental opportunities. As part of the expansion plans,  the company is set to build a new manufacturing facility at Amawbia, Anambra State which will comply to World Health Organization (WHO) current standards of Good Manufacturing Practice (cGMP). It is also upgrading its Oregun factory which is billed to be completed this year. The Oregun factory upgrade is expected to increase  Neimeth’s manufacturing capacity by more than 300 per cent, particularly of liquid products. This will enable the company to grow more rapidly in both turnover and profit. Amawbia project is also expected to have reached advanced stage of implementation by the end of the current financial year and is expected to contribute to the next business year in 2023.

Also; in pursuit of its corporate vision to be the leading innovative healthcare provider out of Africa, the company is pioneering research and development of African home-grown solutions to various diseases. Already; it has many therapeutic formulations that will provide solutions to various human and animal diseases. Neimeth is also partnering with overseas pharmaceutical companies to formulate medicaments for various common ailments on the continent. Currently; it has about 13 different human pharmaceutical lines undergoing registration while about nine veterinary products are underway. About 25 other human pharmaceutical products are scheduled to be submitted to the National Agency for Food and Drug Administration and Control (NAFDAC) for registration soon. Most of these products are expected to be introduced into the market in the current business year, thus expanding the company’s product portfolio.

Already, shareholders of Neimeth have approved the plan by the company to raise N5 billion through a hybrid offer of rights to existing shareholders and private placement. The company will raise N3.67 billion through rights issue at N1.55 per share and N1.32 billion through private placement at N2.10 per  share.

Chairman of the Board of Directors of Neimeth; Dr. Ambrosie Orjiako said the money is being raised for three key reasons. First, is the construction of a World class factory compliant to World Health Organisation (WHO) current Standards of Good Manufacturing Practice (cGMP) at Amawbia in Anambra State.  Second is the completion of the on-going facility upgrade at the Company’s Oregun factory and thirdly to boost working capital. 

Pharm Matthew Azoji, Managing Director of Neimeth said the  capital market is the most viable and cheaper option to source long term  funds because of the high cost of funds through other sources. “We cannot finance long term projects with short term funds from banks. That will not be expedient and cost effective. It will also not serve the best interest of shareholders” He explained that the company considered prevailing economic situation in the country  that also affect shareholders before deciding to add the private placement equity.  “We did not want to put the entire burden of N5 billion on shareholders, that is why we have decided to add private placement to the fund raise,” he said.

Industry outlook

Neimeth’s growth plan synchronizes well with the buoyant outlook for the Nigerian and Sub Saharan African pharmaceutical industry, which rely heavily on pharmaceutical imports. A good percentage of Nigeria’s  medicine needs and indeed that of Africa  is met with imports from China, India and Western countries such as Europe and USA. In 2020 alone, Nigeria imported N562.4 billion or $1.5 billion worth of pharmaceutical products which is about 70 per cent of the country’s annual pharmaceutical consumption.

This implies that there remains a very large room to grow pharmaceutical manufacturing business in Nigeria. Despite government efforts to make Nigeria not only self-sufficient in medicine production but also the hub of pharmaceutical manufacturing in Africa, there continues to be little local drug production. Local drug manufacturing according to the new National Drug Policy, launched March  2021 account for a mere 30 per cent of drug consumption in the country.

Also, Nigeria’s pharmaceutical exports are hindered by the present low level of internationally recognized current standards of good manufacturing practice certification which, if approved across more local firms, would expose Nigeria to more lucrative trade partners especially in Africa. The perception that the country is riddled with pharmaceuticals counterfeiting further restricts exports even within the West African sub region. In 2020 Nigeria exported pharmaceutical products worth N127.9mn only as Nigerian pharmaceutical manufacturers are yet to rise up to the challenge of the African Continental Free Trade Agreement  (AfCFTA)  and the opportunities it offers.

Though Nigeria is responsible for 60 per cent of drug manufacturing in Africa her production system and capacity remains residual. Only four out of over 120 pharmaceutical manufacturers have ever obtained WHO or any other international certification on good manufacturing practice. The implication is that the country is far from being seen to be able to make medicines fit for global consumption.

Nigeria’s new National Drug Policy 2021 targets a 70 per cent increase in capacity between 2021 and 2025. It therefore makes provision for concerted effort in promoting local manufacture of drugs in Nigeria. The pharmaceutical industry in Nigeria is expected to benefit from the newly launched National Drug Policy. Similar to the NDP, the Federal Government also launched the maiden edition of Nigeria Vaccine Policy (NVP), 2021. This is meant to enhance access and use of vaccines for protection of citizens from infectious diseases. With the Nigeria Vaccine Policy, the government expects to boost local production of vaccines in Nigeria so as to make vaccines available to Nigerians and other West African countries.