Johnson & Phillips (PSX: JOPP) started out as a small company in London in 1875 as a manufacturer of telegraph cables and associated equipments with operations growing as the use of electricity increased. While the company was incoroprated in 1961, it has been operating in Pakistan since 1948. Its principle operations are manufacturing and installing electrical equipments. Etheridge Company limited is the main shareholders of the company holding 50 percent of the total shares issued.
JOPP's subsidiaries include Johnson & Phillips Industries (Pakistan) Limited (JPI), Johnson & Phillips Transformers (Pvt.) Limited (JPT), Johnson & Phillips EMO Pakistan (Pvt.) Limited. Of these, JPI and JPT ceased production in the 1990s and have contributed towards accumulated losses of the group to the tune of nearly Rs400 million. This has resulted in current assets exceeding current liability by Rs169 million.
Financial overview
The company is in dire straits with sales declining significantly every year and losses increasing alarmingly. The decrease in sales has been attributed to low demand from the private sector. The company is afloat in part through long term borrowings from director and other related parties.
The auditors have raised questions regarding its status of going concern and flagged key audit matters in its financial statements. These included the classification of non-current assets (land and building) that are intended for sale, valuation of stock-in-trade and trade debts whose basis was management judgment and estimation.
The National Bank of Pakistan filed a lawsuit against the subsidiary companies of JOPP in which JOPP has given counter guarantees to the banks. While company's management maintains that the subsidiary company has paid the entire liability that was stated in its books, the bank has not acknowledged the full settlement of the claim. The uncertainty related to recovery of the lawsuit was highlighted by the auditors because the outcome of the case can have a significant impact on JOPP's already weak financial position.
Another case that is pending is the recovery of an insurance claim of Rs3.7 million against EFU General Insurance and M/s Hanilay & Co. (Pvt.) Limited. While Sindh High Court dismissed the suit for want of jurisdiction, the company has filed an appeal against impugned judgment.
Some other legal cases are also pending against the company filed by ex-workers to re-instate them on their jobs. No definite outcome of the cases is anticipated but the company's legal advisors believe that JOPP has a strong case in its favour.
The company plans to implement a new business plan after the sale of its land and building. The sale is expected to generate sufficient capital for financing purposes which will allow the company to shift operations from SITE in Karachi to Korangi. The five year business revival plan's objective is to establish a new set up of engineering, repair, and maintenance services that will use existing assets of plant, machinery and testing equipment. The company will also be exploring new businesses in the indenting and trading sector.
Three bids were received by the company for the purchase of land and buildings and the highest bid was accepted. However, the highest bidder backed out and the management is pursuing other bidders to re-quote for purchase.
1QFY18
Sales increased by 20 percent YoY while cost of sales decreased by 80 percent in 1QFY18 which allowed the company to post a gross profit for the first time since 2014. The company has been working towards increasing orders to increase sales volume as well as profitability. For this purpose, it has re-certified one of its product lines to push its offerings towards the public sector and it appears its efforts are paying off.
Since administrative costs are more than 2.5 times that of sales and finance costs are nearly the same amount of sales, the company reported losses though less than the same period last year.
Major proportion of administrative expenses includes salaries, wages, and benefits and legal and professional charges probably because the company is embroiled in several court cases. Its finance costs have increased possibly because its long term loans and financial arrangements, including repayment of principal and accumulated mark-up, were rescheduled.
There was no update in the process of selling off land and building to finance its plan for revival of business.
Future outlook
Despite its investment plans for increase in sales, the future of the company based on its audited accounts seems bleak. In the last five years, sales have come down to a fraction of what they were while losses were over 8 times higher than revenue in FY18.
Another mark against it is the number of court cases the company is involved in, as a plaintiff as well as a defendant. Even if sales have improved in the latest quarter, it is unlikely that the financial position of the company will improve in the near term.
===========================================================================
Pattern of shareholding (as at June 30, 2018)
===========================================================================
Categories Shares held %
===========================================================================
Associated Companies, undertakings and related parties 2,719,536 50
Directors, CEO, their spouses & minor children 113,273 2
Financial institutions 591,241 11
Insurance companies 76 0
Joint stock companies 12,062 0.23
Investment companies 1,505 0.03
General public 2,008,518 37
Share holders with 5% shares or more
Associated companies-Etheridge company limited 2,719,536 50
NIT 493,824 9
Munaf Ibrahim 535,000 10
===========================================================================
Source: company website
====================================================
Johnson & Phillips
====================================================
Rs. '000 1QFY19 1QFY18 YoY
====================================================
Revenue 1,806 1,500 20%
Cost of sales (1,521) (7,617) -80%
Gross profit/(loss) 285 (6,117) -105%
Distribution costs (184) (142) 30%
Administrative expenses (4,653) (4,092) 14%
Finance cost (1,837) (1,111) 65%
Loss before tax (6,389) (11,462) -44%
Tax 0 (15) -100%
Loss after tax (6,389) (11,477) -44%
Loss per share (1) (2) -45%
====================================================
Source: company accounts
Comments
Comments are closed.