Johnsons & Phillips (Pakistan) Limited (PSX: JOPP) was incorporated in Pakistan as a public limited company in 1961. The principal activity of the company is the manufacturing, sale and installation of electrical equipments.
Pattern of Shareholding
As of June 30, 2022, JOPP has a total of 5.450 million shares outstanding which are held by 1116 shareholders. Directors, CEO, their spouse and minor children have the majority stake of 89.96 percent in JOPP followed by general public holding 7.84 percent shares. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-23)
The sales revenue of JOPP had been dropping since 2014. In 2018, it registered a drastic year-on-year dive of 72.5 percent and kept shrinking until it made no sales at all in 2021. However, 2022 shows resumption in the company’s operations. The bottomline which had been in the red zone since 2015 also boasted a net profit in 2022. However, with a radical decline in net sales and a negative bottomline, JOPP met the same fate in 2023. The detailed performance review of the period under consideration is given below.
In 2019, JOPP registered 35 percent year-on-year decline in sales on the back of low demand from the private sector. Tamed demand also reduced the cost of sales by 64 percent year-on-year yet the company could not produce a gross profit in 2019; however, its gross loss nosedived by 74 percent year-on-year in 2019. Operating expenses slid mainly on account of lower salaries and legal and professional fee during 2019. The result was a slide in the operating loss by 46 percent year-on-year in 2019. Finance cost grew by 61 percent as discount rates rose during the year and also because the company obtained long-term loans from a related party. Other income also considerably dropped during the year due to high base effect as the company made gain on the disposal of fixed assets in 2018. JOPP posted net loss of Rs.31.84 million 2019 which was 35 percent lesser than the net loss reported in 2018. The loss per share stood at Rs.5.84 in 2019 versus Rs. 9.02 in the previous year.
In 2020, the topline further thinned down by 78 percent year-on-year to clock in at a mere Rs.0.95 million. Cost of sales also dropped, however, it still translated into a gross loss of Rs.5.78 million which is 21 percent higher than that of the previous year. The main culprit behind the high cost of sales is depreciation which forms over 56 percent of JOPP’s cost of sales and is increasing every year. Repair and maintenance also continued to rise due to wear and tear of machinery as it stayed idle for the most of the year. Operating expenses considerably reduced during the year mainly on the back of reduced salaries and wages, no advertising and sales promotion undertaken during the year and lesser legal and professional fee. Repair and maintenance expense, however, continued to rise. The operating loss of Rs.22.80 million recorded by JOPP in 2020 was 12 percent lower than that of 2019. Finance cost rose by 14 percent year-on-year on the back of discount rate hike during the initial quarters of 2020. The outstanding loans of the company increased during the year; however, they were interest free loans obtained from the directors of the company and were repayable on demand. Other expense multiplied by over 350 times during the year mainly on the back of provision booked for doubtful sales tax refund. This magnified the net loss by 71 percent year-on-year to clock in at Rs.54.39 million in 2020. The loss per share stood at Rs.9.98 in 2020. Due to making persistent losses, JOPP liquidity ratios stooped to their lowest level in 2020 (see the graph of liquidity ratios).
In 2021, the company was unable to make any sales. The cost of sales also dropped by 42 percent year-on-year and comprised of only depreciation charge. This trimmed down the gross loss of the company by 32 percent year-on-year in 2021. During the year, the company held an EOGM to seek approval from its member for the change of current line of business to that of textiles. JOPP didn’t incur any distribution expense during the year while its administrative expense plunged by 56 percent year-on-year mainly due to a significant plunge in its payroll expense as well as legal & professional charges. Consequently, its operating loss shrank by 51 percent year-on-year in 2021. The company didn’t incur any financial charges during the year. The loan portfolio of JOPP comprised of borrowings from sponsors, directors and related parties with repayment terms and markup rescheduled from time to time. Other expense also nosedived by 83 percent year-on-year and only comprised of exchange loss incurred during the year. JOPP’s net loss thinned down by 74 percent year-on-year to clock in at Rs.14.25 million with loss per share of Rs.2.62 in 2021.
2022 appears to be a silver lining in the cloud. The sales revenue as high as Rs.86.58 million made by the company was never seen since 2014. The company had been looking for new avenues to stay in business and to turn into a profitable concern. The revenue earned by the company in 2022 was due to export sale of textile machineries. JOPP made gross profit of Rs.27.45 million in 2022. This was the first time the company recorded gross profit after 2014. GP margin stood at 31.7 percent in 2022 versus 10.34 percent in 2014. Distribution charges increased to Rs.4.25 million in 2022 and comprised of freight and export service charges. Administrative expense also grew by 2 percent year-on-year on account of an increase in salaries and wages. JOPP’s operating profit was recorded at Rs.15.75 million in 2022 with OP margin of 18 percent. Exchange loss grew by 11 percent year-on-year in 2022 however, it was absorbed by other income of Rs. 27.26 million as JOPP wrote back accrued markup on loans obtained from related parties. This played a pivotal role in achieving a net profit of Rs.33.67 million in 2022 with EPS of Rs.6.18. NP margin of 39 percent achieved by JOPP is even higher than its GP margin – thanks to other income.
In 2023, JOPP’s net sales dropped by 97 percent year-on-year. As against last year, where the company exported textile machinery, this year, net sales comprised of sale of scrap made during the year. Cost of sales dropped by 93 percent year-on-year in 2023 and encompassed depreciation expense. JOPP registered gross loss of Rs.1.10 in 2023. With no distribution expense incurred during the year and administrative expense inching up by 1 percent mainly on account of higher utility charges, JOPP posted operating loss of Rs.8.64 million in 2023 – the lowest during the period under consideration. Finance cost was stood at nil during the year as it has obtained short-term loans from its sponsors and directors which were interest free and payable on demand. Exchange loss grew by 262 percent in 2023. Conversely, other income slid by 98 percent due to high-base effect as the company wrote off accrued mark-up in 2022. This translated into net loss of Rs.20.44 million in 2023 with loss per share of Rs.3.75.
Recent Performance (1HFY24)
During the period under consideration, JOPP recorded net sales of Rs.1.29 million from sale of waste of building material versus no sales made during 1HFY23. Cost of sales hiked by 111 percent during 1HFY24 and comprised of depreciation and utility charges incurred during the period. Gross loss escalated by 51 percent in 1HFY24 to clock in at Rs.3.28 million. No distribution expense was incurred during the period while administrative expense surged by 41 percent year-on-year on the back of elevated fee & subscription charges with a slight uptick in payroll expense. Operating loss built up by 45 percent year-on-year in 1HFY24 to clock in at Rs.7.73 million. Other income improved by 486 percent during 1HFY24 supposedly due to higher interest income. JOPP also recognized deferred tax asset during the period which slightly diluted its net loss. JOPP’s net loss stood at Rs.5.233 million in 1HFY24 with loss per share of Rs.0.96.
Future Outlook
The initial business model of JOPP was no longer viable due to lack of demand. The company changed its course of business in 2021 but couldn’t sustain it after 2022. As of now, the company is unable to identify any new course of business. The export sale of textile machinery which proved to be a ray of sunshine for the company in 2022 and resulted in net profit after a history of net losses was also discontinued in 2023. The current liabilities of the company exceed its current assets by Rs.350.827 million as of December 31, 2023. The accumulated losses stood at Rs.457.039 million as of December 31, 2023. The company is totally dependent on financial support from its sponsors, directors and associated companies. This wouldn’t work in the long run and the management has to look for some fresh business ideas to instill life into a company biting the dust. JOPP is in the process of delisting itself from PSX and buy back its shares at Rs.160 per share as approved by the voluntary delisting committee of the Pakistan Stock Exchange.
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